-----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, PUcI5VtiiP2Vk1GfK6oDbc367d9/mWwr07LsU/6HeFGbI3EAYLYFBOU060YrcITm BokP2FD3JaAxTWa+dK3UTw== /in/edgar/work/20000814/0001004440-00-000020/0001004440-00-000020.txt : 20000921 0001004440-00-000020.hdr.sgml : 20000921 ACCESSION NUMBER: 0001004440-00-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSTELLATION ENERGY GROUP INC CENTRAL INDEX KEY: 0001004440 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 521964611 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25931 FILM NUMBER: 697064 BUSINESS ADDRESS: STREET 1: 250 W PRATT STREET CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 4102345685 MAIL ADDRESS: STREET 1: 250 W PRATT STREET CITY: BALTIMORE STATE: MD ZIP: 21201 FORMER COMPANY: FORMER CONFORMED NAME: CONSTELLATION ENERGY CORP DATE OF NAME CHANGE: 19951220 FORMER COMPANY: FORMER CONFORMED NAME: RH ACQUISITION CORP DATE OF NAME CHANGE: 19951205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALTIMORE GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000009466 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 520280210 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01910 FILM NUMBER: 697065 BUSINESS ADDRESS: STREET 1: 250 W PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 4102345000 10-Q 1 0001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended JUNE 30, 2000 Commission Exact name of registrant IRS Employer File Number as specified in its charter Identification No. - ----------- --------------------------- ----------------- 1-12869 CONSTELLATION ENERGY GROUP, INC. 52-1964611 1-1910 BALTIMORE GAS AND ELECTRIC COMPANY 52-0280210 MARYLAND ----------------------------------- (State of Incorporation) 250 W. PRATT STREET, BALTIMORE, MARYLAND 21201 --------------------- --------------------- ------- (Address of principal executive offices) (Zip Code) 410-234-5000 ------------ (Registrants' telephone number, including area code) NOT APPLICABLE ------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days. Yes X No ---- Common Stock, without par value 149,731,716 shares outstanding of Constellation Energy Group, Inc. on July 31, 2000.
TABLE OF CONTENTS Page Part I -- Financial Information Item 1 -- Financial Statements Constellation Energy Group, Inc. and Subsidiaries Consolidated Statements of Income...................................................... 3 Consolidated Statements of Comprehensive Income........................................ 3 Consolidated Balance Sheets............................................................ 4 Consolidated Statements of Cash Flows.................................................. 6 Baltimore Gas and Electric Company and Subsidiaries Consolidated Statements of Income...................................................... 7 Consolidated Statements of Comprehensive Income........................................ 7 Consolidated Balance Sheets............................................................ 8 Consolidated Statements of Cash Flows.................................................. 10 Notes to Consolidated Financial Statements............................................. 11 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction........................................................................... 17 Strategy............................................................................... 18 Current Issues......................................................................... 19 Results of Operations.................................................................. 21 Financial Condition.................................................................... 31 Capital Resources...................................................................... 31 Other Matters.......................................................................... 34 Item 3 -- Quantitative and Qualitative Disclosures About Market Risk............................. 34 Part II -- Other Information Item 1 -- Legal Proceedings...................................................................... 35 Item 4-- Submission of Matters to a Vote of Security Holders.................................... 36 Item 5 -- Other Information...................................................................... 37 Item 6 -- Exhibits and Reports on Form 8-K....................................................... 38 Signature........................................................................................ 39
2 CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Statements of Income (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ----------- (In Millions, Except Per-Share Amounts) Revenues Electric $ 565.3 $ 533.0 $ 1,089.7 $ 1,046.0 Gas 91.6 79.9 286.1 272.7 Nonregulated 211.5 245.6 484.8 523.2 ------------ ------------ ------------ ----------- Total revenues 868.4 858.5 1,860.6 1,841.9 Operating Expenses Electric fuel and purchased energy 119.5 120.0 238.1 241.2 Gas purchased for resale 40.8 33.0 143.7 135.1 Operations 138.9 135.2 273.2 270.5 Maintenance 54.4 53.6 99.5 102.4 Nonregulated - selling, general, and administrative 199.2 210.2 414.1 437.6 Depreciation and amortization 130.6 90.8 263.1 181.1 Taxes other than income taxes 51.1 51.8 112.3 112.1 ------------ ------------ ------------ ----------- Total operating expenses 734.5 694.6 1,544.0 1,480.0 ------------ ------------ ------------ ----------- Income From Operations 133.9 163.9 316.6 361.9 Other Income 1.0 5.2 6.0 4.5 ------------ ------------ ------------ ----------- Income Before Fixed Charges and Income Taxes 134.9 169.1 322.6 366.4 Fixed Charges Interest expense (net) 65.1 58.2 125.4 119.3 BGE preference stock dividends 3.3 3.4 6.6 6.9 ------------ ------------ ------------ ----------- Total fixed charges 68.4 61.6 132.0 126.2 ------------ ------------ ------------ ----------- Income Before Income Taxes 66.5 107.5 190.6 240.2 Income Taxes Current 45.6 26.4 106.8 75.9 Deferred (16.6) 15.3 (23.7) 17.8 Investment tax credit adjustments (2.1) (2.2) (4.2) (4.3) ------------ ------------ ------------ ----------- Total income taxes 26.9 39.5 78.9 89.4 ------------ ------------ ------------ ----------- Net Income $ 39.6 $ 68.0 $ 111.7 $ 150.8 ============ ============ ============ =========== Earnings Applicable to Common Stock $ 39.6 $ 68.0 $ 111.7 $ 150.8 ============ ============ ============ =========== Average Shares of Common Stock Outstanding 149.7 149.6 149.6 149.6 Earnings Per Common Share and Earnings Per Common Share - Assuming Dilution $0.26 $0.45 $0.75 $1.01 Dividends Declared Per Common Share $0.42 $0.42 $0.84 $0.84 Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ----------- (In Millions) Net Income $ 39.6 $ 68.0 $ 111.7 $ 150.8 Other comprehensive income (loss), net of taxes 11.1 (8.3) 24.1 (11.5) ------------ ------------ ------------ ----------- Comprehensive Income $ 50.7 $ 59.7 $ 135.8 $ 139.3 ============ ============ ============ ===========
See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. 3 CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Balance Sheets
June 30, December 31, 2000* 1999 ------------- ------------- (In Millions) Assets Current Assets Cash and cash equivalents $ 146.4 $ 92.7 Accounts receivable (net of allowance for uncollectibles of $27.9 and $36.6 respectively) 559.7 578.5 Trading securities 156.8 136.5 Assets from energy trading activities 1,079.3 312.1 Fuel stocks 84.7 94.9 Materials and supplies 138.2 149.1 Prepaid taxes other than income taxes 8.8 72.4 Other 62.3 54.0 ------------- ------------- Total current assets 2,236.2 1,490.2 Investments and Other Assets Real estate projects and investments 298.9 310.1 Power projects 926.2 785.4 Financial investments 167.8 145.4 Nuclear decommissioning trust fund 230.3 217.9 Net pension asset 99.3 99.5 Other 533.4 422.9 ------------- ------------- Total investments and other assets 2,255.9 1,981.2 Utility Plant Plant in service Electric 7,157.4 7,088.6 Gas 975.2 962.0 Common 557.8 569.5 ------------- ------------- Total plant in service 8,690.4 8,620.1 Accumulated depreciation (3,572.2) (3,466.1) ------------- ------------- Net plant in service 5,118.2 5,154.0 Construction work in progress 277.7 222.3 Nuclear fuel (net of amortization) 150.7 133.8 Plant held for future use 12.9 13.0 ------------- ------------- Net utility plant 5,559.5 5,523.1 Deferred Charges Regulatory assets (net) 522.9 637.4 Other 61.9 51.9 ------------- ------------- Total deferred charges 584.8 689.3 ------------- ------------- Total Assets $ 10,636.4 $ 9,683.8 ============= =============
* Unaudited See Notes to Consolidated Financial Statements. 4 CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Balance Sheets
June 30, December 31, 2000* 1999 ------------- ------------- (In Millions) Liabilities and Capitalization Current Liabilities Short-term borrowings $ 214.8 $ 371.5 Current portion of long-term debt 883.5 808.3 Accounts payable 301.7 365.1 Customer deposits 43.0 40.6 Liabilities from energy trading activities 834.8 163.8 Dividends declared 66.2 66.1 Accrued taxes 37.3 19.2 Accrued interest 59.6 55.3 Accrued vacation costs 36.6 35.3 Other 50.6 78.2 ------------- ------------- Total current liabilities 2,528.1 2,003.4 Deferred Credits and Other Liabilities Deferred income taxes 1,275.5 1,288.8 Postretirement and postemployment benefits 254.9 269.8 Deferred investment tax credits 105.4 109.6 Decommissioning of federal uranium enrichment facilities 27.2 27.2 Other 291.0 226.6 ------------- ------------- Total deferred credits and other liabilities 1,954.0 1,922.0 Long-term Debt First refunding mortgage bonds of BGE 1,321.7 1,321.7 Other long-term debt of BGE 1,028.4 1,135.8 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely 7.16% debentures of BGE due June 30, 2038 250.0 250.0 Long-term debt of nonregulated businesses 1,246.6 686.8 Unamortized discount and premium (9.8) (10.6) Current portion of long-term debt (883.5) (808.3) ------------- ------------- Total long-term debt 2,953.4 2,575.4 BGE Preference Stock Not Subject to Mandatory Redemption 190.0 190.0 Common Shareholders' Equity Common stock 1,501.8 1,494.0 Retained earnings 1,485.1 1,499.1 Accumulated other comprehensive income (loss) 24.0 (0.1) ------------- ------------- Total common shareholders' equity 3,010.9 2,993.0 ------------- ------------- Total capitalization 6,154.3 5,758.4 ------------- ------------- Total Liabilities and Capitalization $ 10,636.4 $ 9,683.8 ============= =============
* Unaudited See Notes to Consolidated Financial Statements. 5 CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, --------------------------- 2000 1999 ------------ ------------ Cash Flows From Operating Activities Net income $ 111.7 $ 150.8 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortization 288.2 208.4 Deferred income taxes (23.7) 17.8 Investment tax credit adjustments (4.2) (4.3) Deferred fuel costs 9.8 7.1 Accrued pension and postemployment benefits 12.1 28.7 Gain on sale of subsidiaries (13.3) - Write-down of financial investment - 5.5 Equity in earnings of affiliates and joint ventures (net) 5.3 26.2 Changes in assets from energy trading activities (767.2) (141.2) Changes in liabilities from energy trading activities 671.0 37.4 Changes in other current assets 59.8 (45.3) Changes in other current liabilities (1.3) 89.3 Other (5.9) (10.2) ------------ ------------ Net cash provided by operating activities 342.3 370.2 ------------ ------------ Cash Flows From Investing Activities Utility construction and other capital expenditures (218.1) (186.0) Contributions to nuclear decommissioning trust fund (8.8) (8.8) Purchases of marketable equity securities (2.4) (12.4) Sales of marketable equity securities 14.4 9.8 Other financial investments 8.7 8.5 Real estate projects and investments 9.0 40.7 Power projects (147.0) (31.8) Investment in Orion Power Holdings, Inc. (101.5) - Other (12.4) (15.5) ------------ ------------ Net cash used in investing activities (458.1) (195.5) ------------ ------------ Cash Flows From Financing Activities Proceeds from issuance of Short-term borrowings 4,852.6 1,029.3 Long-term debt 800.1 127.5 Common stock 6.0 9.6 Repayments of short-term borrowings (5,009.3) (920.0) Reacquisitions of long-term debt (347.7) (360.5) Common stock dividends paid (125.6) (125.5) Other (6.6) (5.4) ------------ ------------ Net cash provided by (used in) financing activities 169.5 (245.0) ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents 53.7 (70.3) Cash and Cash Equivalents at Beginning of Period 92.7 173.7 ------------ ------------ Cash and Cash Equivalents at End of Period $ 146.4 $ 103.4 ============ ============ Other Cash Flow Information: Interest paid (net of amounts capitalized) $ 131.5 $ 120.4 Income taxes paid $ 110.9 $ 101.0
See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. 6 BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Statements of Income (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ------------ ------------ ----------- ------------ (In Millions) Revenues Electric $ 565.4 $ 533.1 $ 1,090.0 $ 1,046.1 Gas 92.7 81.6 287.8 274.4 Nonregulated 1.3 67.3 2.3 345.0 ------------ ------------ ----------- ------------ Total revenues 659.4 682.0 1,380.1 1,665.5 Operating Expenses Electric fuel and purchased energy 124.7 124.2 244.1 245.4 Gas purchased for resale 40.9 33.0 143.8 135.1 Operations 137.3 134.9 270.2 270.2 Maintenance 54.6 52.9 99.3 101.8 Nonregulated - selling, general, and administrative 1.0 56.7 1.7 284.2 Depreciation and amortization 123.7 88.3 249.8 178.5 Taxes other than income taxes 50.5 51.1 110.6 111.4 ------------ ------------ ----------- ------------ Total operating expenses 532.7 541.1 1,119.5 1,326.6 ------------ ------------ ----------- ------------ Income From Operations 126.7 140.9 260.6 338.9 Other Income Allowance for equity funds used during construction 0.8 2.0 1.6 3.7 Equity in earnings of Safe Harbor Water Power Corporation 1.2 1.3 2.4 2.6 Net other income (expense) 0.4 0.7 1.7 (3.0) ------------ ------------ ----------- ------------ Total other income 2.4 4.0 5.7 3.3 ------------ ------------ ----------- ------------ Income Before Fixed Charges and Income Taxes 129.1 144.9 266.3 342.2 Fixed Charges Interest expense (net) 48.3 51.8 97.0 114.1 Capitalized interest - (0.1) - (0.4) Allowance for borrowed funds used during construction (1.4) (1.1) (2.6) (2.0) ------------ ------------ ----------- ------------ Total fixed charges 46.9 50.6 94.4 111.7 ------------ ------------ ----------- ------------ Income Before Income Taxes 82.2 94.3 171.9 230.5 Income Taxes Current 44.0 39.0 101.8 88.6 Deferred (12.2) (3.8) (32.4) (1.3) Investment tax credit adjustments (2.0) (2.1) (4.1) (4.3) ------------ ------------ ----------- ------------ Total income taxes 29.8 33.1 65.3 83.0 ------------ ------------ ----------- ------------ Net Income 52.4 61.2 106.6 147.5 Preference Stock Dividends 3.3 3.4 6.6 6.9 ------------ ------------ ----------- ------------ Earnings Applicable to Common Stock $ 49.1 $ 57.8 $ 100.0 $ 140.6 ============ ============ =========== ============ Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ------------ ------------ ----------- ------------ (In Millions) Net Income $ 52.4 $ 61.2 $ 106.6 $ 147.5 Other comprehensive loss, net of taxes - (0.2) - (3.4) ------------ ------------ ----------- ------------ Comprehensive Income $ 52.4 $ 61.0 $ 106.6 $ 144.1 ============ ============ =========== ============
See Notes to Consolidated Financial Statements. Certain prior period amounts have been reclassified to conform with the current period's presentation. 7 BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Balance Sheets
June 30, December 31, 2000* 1999 -------------- --------------- (In Millions) Assets Current Assets Cash and cash equivalents $ 18.7 $ 23.5 Accounts receivable (net of allowance for uncollectibles of $13.9 and $13.0 respectively) 335.7 316.1 Fuel stocks 84.7 94.9 Materials and supplies 126.5 139.1 Prepaid taxes other than income taxes 8.8 72.4 Other 33.6 9.0 -------------- --------------- Total current assets 608.0 655.0 Investments and Other Assets Nuclear decommissioning trust fund 230.3 217.9 Net pension asset 103.1 99.8 Safe Harbor Water Power Corporation 34.5 34.5 Other 65.9 61.6 -------------- --------------- Total investments and other assets 433.8 413.8 Utility Plant Plant in service Electric 7,157.4 7,088.6 Gas 975.2 962.0 Common 557.8 569.5 -------------- --------------- Total plant in service 8,690.4 8,620.1 Accumulated depreciation (3,572.2) (3,466.1) -------------- --------------- Net plant in service 5,118.2 5,154.0 Construction work in progress 277.7 222.3 Nuclear fuel (net of amortization) 150.7 133.8 Plant held for future use 12.9 13.0 -------------- --------------- Net utility plant 5,559.5 5,523.1 Deferred Charges Regulatory assets (net) 522.9 637.4 Other 41.6 43.3 -------------- --------------- Total deferred charges 564.5 680.7 -------------- --------------- Total Assets $ 7,165.8 $ 7,272.6 ============== ===============
* Unaudited See Notes to Consolidated Financial Statements. 8 BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Balance Sheets
June 30, December 31, 2000* 1999 -------------- --------------- (In Millions) Liabilities and Capitalization Current Liabilities Short-term borrowings $ 199.3 $ 129.0 Current portion of long-term debt 503.4 523.9 Accounts payable 215.0 222.8 Customer deposits 43.0 40.6 Dividends declared 3.3 3.3 Accrued taxes 20.9 9.2 Accrued interest 46.0 48.2 Accrued vacation costs 37.4 35.7 Other 37.1 65.8 -------------- --------------- Total current liabilities 1,105.4 1,078.5 Deferred Credits and Other Liabilities Deferred income taxes 997.4 1,032.0 Postretirement and postemployment benefits 247.7 231.0 Deferred investment tax credits 105.4 109.6 Decommissioning of federal uranium enrichment facilities 27.2 27.2 Other 41.1 42.9 -------------- --------------- Total deferred credits and other liabilities 1,418.8 1,442.7 Long-term Debt First refunding mortgage bonds of BGE 1,321.7 1,321.7 Other long-term debt of BGE 1,028.4 1,135.8 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely 7.16% debentures of BGE due June 30, 2038 250.0 250.0 Long-term debt of nonregulated businesses 33.0 33.0 Unamortized discount and premium (9.6) (10.6) Current portion of long-term debt (503.4) (523.9) -------------- --------------- Total long-term debt 2,120.1 2,206.0 Preference Stock Not Subject to Mandatory Redemption 190.0 190.0 Common Shareholder's Equity Common stock 1,495.8 1,494.0 Retained earnings 835.7 861.4 -------------- --------------- Total common shareholder's equity 2,331.5 2,355.4 -------------- --------------- Total capitalization 4,641.6 4,751.4 -------------- --------------- Total Liabilities and Capitalization $ 7,165.8 $ 7,272.6 ============== ===============
* Unaudited See Notes to Consolidated Financial Statements. 9 BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES PART I - FINANCIAL INFORMATION (CONTINUED) Item 1 - Financial Statements Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, -------------------------- 2000 1999 ----------- ----------- (In Millions) Cash Flows From Operating Activities Net income $ 106.6 $ 147.5 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortization 272.9 204.4 Deferred income taxes (32.4) (1.3) Investment tax credit adjustments (4.1) (4.3) Deferred fuel costs 9.8 7.1 Accrued pension and postemployment benefits 12.0 28.6 Allowance for equity funds used during construction (1.6) (3.7) Equity in earnings of affiliates and joint ventures (net) - 29.1 Changes in assets from energy trading activities - (120.1) Changes in liabilities from energy trading activities - 76.3 Changes in other current assets 42.5 65.4 Changes in other current liabilities (22.5) (14.1) Other 8.8 (0.6) ----------- ----------- Net cash provided by operating activities 392.0 414.3 ----------- ----------- Cash Flows From Investing Activities Utility construction expenditures (including AFC) (178.3) (166.8) Allowance for equity funds used during construction 1.6 3.7 Nuclear fuel expenditures (39.5) (18.5) Deferred energy conservation expenditures (0.3) (0.7) Contributions to nuclear decommissioning trust fund (8.8) (8.8) Purchases of marketable equity securities - (9.2) Sales of marketable equity securities - 6.0 Other financial investments - 6.7 Real estate projects and investments - 22.0 Power projects - (17.9) Other (3.9) (12.4) ----------- ----------- Net cash used in investing activities (229.2) (195.9) ----------- ----------- Cash Flows From Financing Activities Proceeds from issuance of Short-term borrowings 2,286.8 1,029.3 Long-term debt - 107.6 Common stock - 9.6 Repayments of short-term borrowings (2,216.5) (920.0) Reacquisition of long-term debt (107.5) (343.9) Preference stock dividends paid (6.6) (6.9) Distributions to Constellation Energy (125.6) (253.7) Other 1.8 (0.7) ----------- ----------- Net cash used in financing activities (167.6) (378.7) ----------- ----------- Net Decrease in Cash and Cash Equivalents (4.8) (160.3) Cash and Cash Equivalents at Beginning of Period 23.5 173.7 ----------- ----------- Cash and Cash Equivalents at End of Period $ 18.7 $ 13.4 =========== =========== Other Cash Flow Information: Interest paid (net of amounts capitalized) $ 94.2 $ 107.4 Income taxes paid $ 113.1 $ 99.3
See Notes to Consolidated Financial Statements. 10 Notes to Consolidated Financial Statements - ------------------------------------------ Weather conditions can have a great impact on our results for interim periods. This means that results for interim periods do not necessarily represent results to be expected for the year. Our interim financial statements on the previous pages reflect all adjustments that Management believes are necessary for the fair presentation of the financial position and results of operations for the interim periods presented. These adjustments are of a normal recurring nature. Holding Company Formation - ------------------------- On April 30, 1999, Constellation Energy (R) Group, Inc. (Constellation Energy) became the holding company for Baltimore Gas and Electric Company (BGE(R)) and Constellation(R) Enterprises, Inc. Constellation Enterprises was previously owned by BGE. BGE's outstanding common stock automatically became shares of common stock of Constellation Energy. BGE's debt securities, obligated mandatorily redeemable trust preferred securities, and preference stock remain securities of BGE. Basis of Presentation - --------------------- This Quarterly Report on Form 10-Q is a combined report of Constellation Energy and BGE. The consolidated financial statements of Constellation Energy include the accounts of Constellation Energy, BGE and its subsidiaries, Constellation Enterprises, Inc. and its subsidiaries, and Constellation Nuclear, LLC and its subsidiaries. The consolidated financial statements of BGE include the accounts of BGE, District Chilled Water General Partnership (ComfortLink), and BGE Capital Trust I. As Constellation Enterprises and its subsidiaries were subsidiaries of BGE prior to April 30, 1999, they are included in the consolidated financial statements of BGE through that date. References in this report to "we" and "our" are to Constellation Energy and its subsidiaries, collectively. Reference in this report to the "utility business" is to BGE. Deregulation of Electric Generation - ----------------------------------- On April 8, 1999, Maryland enacted legislation authorizing customer choice and competition among electric suppliers. In addition, on November 10, 1999, the Maryland Public Service Commission (Maryland PSC) issued a Restructuring Order that resolved the major issues surrounding electric restructuring. Effective July 1, 2000, the state of Maryland implemented customer choice for electric suppliers. We discuss the implications of customer choice and the Restructuring Order further in Management's Discussion and Analysis beginning on page 17. Please also refer to the Legal Proceedings section on page 35 for a discussion regarding appeals of the Restructuring Order. Information by Operating Segment - -------------------------------- In 1999, we reported three operating segments -- Electric, Gas, and Energy Services. In response to the deregulation of electric generation, we realigned our organization and combined our wholesale power marketing business with our domestic plant development and operations to form a merchant energy business. In 2000, we revised our operating segments to reflect the realignments of our organization. Our new reportable operating segments are -- Regulated Electric, Regulated Gas, and Domestic Wholesale Energy: o Our regulated electric business generates, purchases, and sells electricity in a regulated environment, o Our regulated gas business purchases, transports, and sells natural gas in a regulated environment, and o Our nonregulated domestic wholesale energy business: - develops, owns, and operates domestic power projects, - provides power marketing and risk management services, and - provides nuclear consulting services. 11 We have restated certain prior period information for comparative purposes based on our new reportable operating segments. The financial results of the electric generation portion of our business are included in our regulated electric segment. However, after June 30, 2000, we will include the financial results of electric generation in the domestic wholesale energy segment. Our remaining nonregulated businesses: o develop, own, and operate international power projects, o provide energy products and services, o sell and service electric and gas appliances, and heating and air conditioning systems, engage in home improvements, and sell natural gas through mass marketing efforts, o provide cooling services, o engage in financial investments, and o develop, own and manage real estate and senior-living facilities.
Domestic Regulated Regulated Wholesale Other Unallocated Electric Gas Energy Nonregulated Corporate Business Business Business Businesses Items (a) Eliminations Consolidated ------------ ------------ ------------- --------------- -------------- ------------- --------------- (in millions) For the three months ended June 30, 2000 - ---- Unaffiliated revenues $565.3 $91.6 $81.4 $130.1 $ - $ - $868.4 Intersegment revenues 0.1 1.1 80.2 11.5 - (92.9) - ---------- ------------- ------------- --------------- -------------- ------------- --------------- Total revenues 565.4 92.7 161.6 141.6 - (92.9) 868.4 Net income (loss) (b) 47.0 2.3 50.1 (9.7) - (50.1) 39.6 1999 - ---- Unaffiliated revenues $533.0 $79.9 $70.4 $175.2 $ - $ - $858.5 Intersegment revenues 0.1 2.4 0.5 10.9 - (13.9) - ---------- ------------- ------------- --------------- -------------- ------------- --------------- Total revenues 533.1 82.3 70.9 186.1 - (13.9) 858.5 Net income (loss) (c) 54.7 0.6 17.3 (3.5) (0.8) (0.3) 68.0 For the six months ended June 30, 2000 - ---- Unaffiliated revenues $1,089.7 $286.1 $172.3 $312.5 $ - $ - $1,860.6 Intersegment revenues 0.3 1.7 80.2 18.2 - (100.4) - ---------- ------------- ------------- --------------- -------------- ------------- --------------- Total revenues 1,090.0 287.8 252.5 330.7 - (100.4) 1,860.6 Net income (loss) (b) 77.8 22.6 69.3 (7.9) - (50.1) 111.7 1999 - ---- Unaffiliated revenues $1,046.0 $272.7 $126.6 $396.6 $ - $ - $1,841.9 Intersegment revenues 0.5 4.5 0.5 11.5 - (17.0) - ---------- ------------- ------------- --------------- -------------- ------------- --------------- Total revenues 1,046.5 277.2 127.1 408.1 - (17.0) 1,841.9 Net income (loss) (c) 101.1 22.2 31.3 (3.0) (0.8) - 150.8 At June 30, 2000 - ----------------- Segment assets $6,195.7 $923.6 $2,386.3 $1,284.6 $92.1 $(245.9) $10,636.4 At December 31, 1999 - -------------------- Segment assets $6,312.6 $915.3 $1,206.1 $1,226.7 $37.0 $ (13.9) $9,683.8
12 (a) We do not allocate certain items presented in the table for Constellation Energy Group and a holding company for our nonregulated businesses. (b) Our electric business recorded expenses of $2.8 million for the quarter ended June 30, 2000 and $7.0 million for the six-months ended June 30, 2000 related to employees that elected to participate in a Targeted Voluntary Special Early Retirement Program. In addition, our domestic wholesale energy business recorded a $15.0 million deregulation transition cost incurred by our power marketing business. We discuss these further in the Overview section of Management's Discussion and Analysis. (c) Our other nonregulated businesses recorded a $3.6 million write-down of their investment in Capital Re stock to reflect the market value of this investment as discussed in the Nonregulated Businesses section of Management's Discussion and Analysis. Financing Activity - ------------------ Constellation Energy - -------------------- As discussed on page 11, effective April 30, 1999, BGE's outstanding common stock automatically became shares of common stock of Constellation Energy. During the period from January 1, 2000 through the date of this report, we issued a total of 475,300 shares of common stock, without par value, under our Continuous Offering Program for Stock. Net proceeds were about $16.8 million. Constellation Energy issued the following medium-term notes during the period from January 1, 2000 through the date of this report: Date Net Principal Issued Proceeds ---------------------------- (In millions) 7 7/8% Notes due 2005 $300 4/00 $297.5 Floating Rate Notes due 2003 200 4/00 199.3 Extendible Notes due 2010 300 6/00 299.6 In June 2000, Constellation Energy arranged two revolving credit agreements totaling $565 million to support our commercial paper program and for other working capital purposes. Of this amount, $376.5 million is for short-term financial needs and $188.5 million, which expires in three years, is for short and long-term financial needs, including letters of credit. As of the date of this report, letters of credit totaling $40.9 million were issued under this facility. Also, letters of credit totaling $131 million were issued under other credit facilities. Constellation Energy has issued guarantees in an amount up to $626.8 million related to credit facilities and contractual performance of certain of its nonregulated subsidiaries. However, the actual subsidiary liabilities related to these guarantees totaled $408.8 million at June 30, 2000. In the future, Constellation Energy may purchase some of its long-term debt in the market. This will depend on market conditions and Constellation Energy's capital structure. BGE and Nonregulated Businesses - ------------------------------- In June 2000, BGE arranged a $25 million long-term revolving credit agreement to support its commercial paper program and for other working capital purposes. In the future, BGE may purchase some of its long-term debt or preference stock in the market. This will depend on market conditions and BGE's capital structure, including the mix of secured and unsecured debt. Please refer to the Funding for Capital Requirements section of Management's Discussion and Analysis on page 33 for additional information about the debt of BGE and our nonregulated businesses. Stock Option Program - -------------------- In May 2000, our Board of Directors approved the issuance of non-qualified stock options to officers and key employees as permitted under existing incentive plans. Under the plans, the options are granted at prices not less than the market value of the stock at the date of grant, become exercisable ratably over a three-year period beginning one-year from the date of grant, and expire ten years from the date of grant. During the second quarter, we granted 2,313,000 stock options at an exercise price of $34.25. As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, we measure our stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under this standard, compensation expense is measured as the difference between the market value of our common stock and the exercise price of the options on the grant date. Accordingly, no compensation expense was recorded for the stock options granted in 2000. 13 Commitments - ----------- Some of our nonregulated businesses have committed to contribute additional capital and to make additional loans to some affiliates, joint ventures, and partnerships in which they have an interest. At the date of this report, the total amount of investment requirements committed to by our nonregulated businesses was $219.2 million. This amount includes $19.5 million for our domestic wholesale energy business' remaining commitment to Orion Power Holdings, Inc. To date, our domestic wholesale energy business has funded $205.5 million in equity to Orion. Environmental Matters - --------------------- Clean Air - --------- The Clean Air Act of 1990 contains two titles designed to reduce emissions of sulfur dioxide and nitrogen oxide (NOx) from electric generating stations - Title IV and Title I. Title IV addresses emissions of sulfur dioxide. Compliance is required in two phases: o Phase I became effective January 1, 1995. We met the requirements of this phase by installing flue gas desulfurization systems, switching fuels, and retiring some units. o Phase II became effective January 1, 2000. We met the compliance requirements through a combination of switching fuels and allowance trading. We will meet the ongoing compliance requirements through a combination of switching fuels and allowance trading. Title I addresses emissions of NOx. The Maryland Department of the Environment (MDE) issued regulations, effective October 18, 1999, which required up to 65% NOx emissions reductions by May 1, 2000. We entered into a settlement agreement with the MDE since we could not meet this deadline. Under the terms of the settlement agreement, BGE will install emissions reduction equipment at two sites by May 2002. In the meantime, we are taking steps to control NOx emissions at our generating plants. The Environmental Protection Agency (EPA) issued a final rule in September 1998 that required up to 85% NOx emissions reduction by 22 states including Maryland and Pennsylvania. Maryland expects to meet the requirements of the rule by 2003. The emissions reduction equipment installations discussed above will allow us to meet these requirements. We currently estimate that the controls needed at our generating plants to meet the MDE's 65% NOx emission reduction requirements will cost approximately $135 million. Through the date of this report, we have spent approximately $68 million to meet the 65% reduction requirements. We estimate the additional cost for the EPA's 85% reduction requirements to be approximately $35 million by the end of 2002. In July 1997, the EPA published new National Ambient Air Quality Standards for very fine particulates and revised standards for ozone attainment. In 1999, these new standards were successfully challenged in court. The EPA appealed the 1999 court rulings to the Supreme Court. In May 2000, the Supreme Court decided to hear the EPA's appeal. While these standards may require increased controls at our fossil generating plants in the future, implementation, if required, would be delayed for several years. We cannot estimate the cost of these increased controls at this time because the states, including Maryland and Pennsylvania, still need to determine what reductions in pollutants will be necessary to meet the EPA standards. Waste Disposal - -------------- The EPA and several state agencies have notified us that we are considered a potentially responsible party with respect to the cleanup of certain environmentally contaminated sites owned and operated by others. We cannot estimate the cleanup costs for all of these sites. We can, however, estimate that our current 15.43% share of the reasonably possible cleanup costs at one of these sites, Metal Bank of America, a metal reclaimer in Philadelphia, could be as much as $4.9 million higher than amounts we have recorded as a liability on our Consolidated Balance Sheets. This estimate is based on a Record of Decision issued by the EPA. On July 12, 1999, the EPA notified us, along with nineteen other entities, that we may be a potentially responsible party at the 68th Street Dump/Industrial Enterprises Site, also known as the Robb Tyler Dump located in Baltimore, Maryland. The EPA indicated that it is proceeding with plans to conduct a remedial investigation and feasibility study. This site was proposed for listing as a federal Superfund site in January 1999, but the listing has not been finalized. Although our potential liability cannot be estimated, we do not expect such liability to be material based on our records showing that we did not send waste to the site. 14 Also, we are coordinating investigation of several sites where gas was manufactured in the past. The investigation of these sites includes reviewing possible actions to remove coal tar. In late December 1996, we signed a consent order with the MDE that requires us to implement remedial action plans for contamination at and around the Spring Gardens site, located in Baltimore, Maryland. We submitted the required remedial action plans and they were approved by the MDE. Based on the remedial action plans, the costs we consider to be probable to remedy the contamination are estimated to total $47 million. We have recorded these costs as a liability on our Consolidated Balance Sheets and have deferred these costs, net of accumulated amortization and amounts we recovered from insurance companies, as a regulatory asset. We discuss this further in Note 5 of our 1999 Annual Report on Form 10-K. Through the date of this report, we have spent approximately $35 million for remediation at this site. We are also required by accounting rules to disclose additional costs we consider to be less likely than probable, but still "reasonably possible" of being incurred at these sites. Because of the results of studies at these sites, it is reasonably possible that these additional costs could exceed the amount we recognized by approximately $14 million. We do not expect the cleanup costs of the remaining sites to have a material effect on our financial results. Our potential environmental liabilities and pending environmental actions are described further in our 1999 Annual Report on Form 10-K in Item 1. Business - Environmental Matters. Nuclear Insurance - ----------------- If there were an accident or an extended outage at either unit of the Calvert Cliffs Nuclear Power Plant (Calvert Cliffs), it could have a substantial adverse financial effect on us. The primary contingencies that would result from an incident at Calvert Cliffs could include: o physical damage to the plant, o recoverability of replacement power costs, and o our liability to third parties for property damage and bodily injury. We have insurance policies that cover these contingencies, but the policies have certain industry standard exclusions. Furthermore, the costs that could result from a covered major accident or a covered extended outage at either of the Calvert Cliffs units could exceed our insurance coverage limits. Insurance for Calvert Cliffs and Third Party Claims - --------------------------------------------------- For physical damage to Calvert Cliffs, we have $2.75 billion of property insurance from an industry mutual insurance company. If an outage at either of the two units at Calvert Cliffs is caused by an insured physical damage loss and lasts more than 12 weeks, we have insurance coverage for replacement power costs up to $490.0 million per unit, provided by an industry mutual insurance company. This amount can be reduced by up to $98.0 million per unit if an outage at both units of the plant is caused by a single insured physical damage loss. If accidents at any insured plants cause a shortfall of funds at the industry mutual insurance company, all policyholders could be assessed, with our share being up to $15.4 million. In addition we, as well as others, could be charged for a portion of any third party claims associated with a nuclear incident at any commercial nuclear power plant in the country. At the date of this report, the limit for third party claims from a nuclear incident is $9.54 billion under the provisions of the Price Anderson Act. If third party claims exceed $200 million (the amount of primary insurance), our share of the total liability for third party claims could be up to $176.2 million per incident. That amount would be payable at a rate of $20 million per year. Insurance for Worker Radiation Claims - ------------------------------------- As an operator of a commercial nuclear power plant in the United States, we are required to purchase insurance to cover radiation injury claims of certain nuclear workers. On January 1, 1998, a new insurance policy became effective for all operators requiring coverage for current operations. Waiving the right to make additional claims under the old policy was a condition for acceptance under the new policy. We describe both the old and new policies below. o Nuclear worker claims reported on or after January 1, 1998 are covered by a new insurance policy with an annual industry aggregate limit of $200 million for radiation injury claims against all those insured by this policy. o All nuclear worker claims reported prior to January 1, 1998 are still covered by the old insurance policies. Insureds under the old policies, with no current operations, are not required to purchase the new policy described above, and may still make claims against the old policies for the next eight years. If radiation injury claims under these old policies exceed the policy reserves, all policyholders could be assessed, with our share being up to $6.3 million. 15 If claims under these polices exceed the coverage limits, the provisions of the Price Anderson Act (discussed in this section) would apply. Recoverability of Electric Fuel Costs - ------------------------------------- Under the terms of the Restructuring Order, BGE's electric fuel rate clause was discontinued effective July 1, 2000. Any accumulated difference between our actual costs of fuel and energy and the amounts collected from customers under the electric fuel rate clause through June 30, 2000 would be collected from our customers within a twelve month period as determined by the Maryland PSC. At June 30, 2000, the accumulated difference was $54.6 million. We discuss the Maryland PSC's process for evaluating the recoverability of electric fuel costs in Note 10 of our 1999 Annual Report on Form 10-K. California Power Purchase Agreements - ------------------------------------ Constellation Power, Inc. and subsidiaries and Constellation Investments, Inc. (whose power projects are managed by Constellation Power) have $294.7 million invested in 14 projects that sell electricity in California under power purchase agreements called "Interim Standard Offer No. 4" agreements. Under these agreements, the projects supply electricity to utility companies at: o a fixed rate for capacity and energy for the first 10 years of the agreements, and o a fixed rate for capacity plus a variable rate for energy based on the utilities' avoided cost for the remaining term of the agreements. Generally, a "capacity rate" is paid to a power plant for its availability to supply electricity, and an "energy rate" is paid for the electricity actually generated. "Avoided cost" generally is the cost of a utility's cheapest next-available source of generation to service the demands on its system. We use the term "transitioned" to describe when the 10-year periods for fixed energy rates have expired for these power generation projects and they began supplying electricity at variable rates. The three remaining projects that have not transitioned will do so by December 2000. The projects that have already transitioned to variable rates have had lower revenues under variable rates than they did under fixed rates. Once the remaining projects have transitioned to variable rates, we expect the revenues from those projects also to be lower than they are under fixed rates. We discuss the earnings for these projects in the Nonregulated Businesses section of Management's Discussion and Analysis on page 29. Other Nonregulated Businesses - ----------------------------- We discuss our other nonregulated businesses' activities further in the Nonregulated Businesses section of Management's Discussion and Analysis on page 30. 16 Item 2. Management's Discussion Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction - ------------ On April 30, 1999, Constellation Energy(R) Group, Inc. (Constellation Energy) became the holding company for Baltimore Gas and Electric Company (BGE(R)) and Constellation(R) Enterprises, Inc. Constellation Enterprises was previously owned by BGE. In response to the deregulation of electric generation, we realigned our organization and combined our wholesale power marketing business with our domestic plant development and operations to form a merchant energy business. In 2000, we revised our operating segments to reflect the realignments of our organization, as presented in the Notes to Consolidated Financial Statements on page 11. Constellation Energy's subsidiaries primarily include BGE and a domestic wholesale energy business focused mostly on power marketing and merchant generation in North America. BGE is a regulated electric and gas public utility company with a service territory in the City of Baltimore and all or part of ten counties in Central Maryland. Our domestic wholesale energy segment includes the: o wholesale power marketing of Constellation Power Source,(TM)Inc., o domestic power projects of Constellation Power, (TM)Inc., and subsidiaries and Constellation Investments,(TM) Inc., and o nuclear consulting services of Constellation Nuclear,(TM)LLC. Through June 30, 2000, the financial results of the electric generation portion of our business are included in BGE's regulated electric segment. After that date, we will include the financial results of electric generation in the domestic wholesale energy segment. Our remaining nonregulated businesses include the: o international power projects of Constellation Power, and subsidiaries, o energy products and services of Constellation Energy Source,(TM)Inc., o home products, commercial building systems, and residential and commercial gas retail marketing of BGE Home Products & Services,(TM) Inc. and subsidiaries, o general partnership, in which BGE is a partner, of District Chilled Water General Partnership (ComfortLink(R)) that provides cooling services for commercial customers in Baltimore, o financial investments of Constellation Investments, and o real estate and senior-living facilities of Constellation Real Estate Group,(TM)Inc. As a result of the deregulation of electric generation, we formed two nonregulated subsidiaries that will be included in our domestic wholesale energy segment -- Calvert Cliffs Nuclear Power Plant, Inc. and Constellation Power Source Generation, Inc. Effective July 1, 2000, BGE transferred, at book value, its generation assets and related liabilities to these entities. Effective July 1, 2000, Calvert Cliffs Nuclear Power Plant, Inc. is a subsidiary of Constellation Nuclear, LLC. In addition, on July 1, 2000, we formed a nonregulated holding company, Constellation Power Source Holdings, Inc., that includes: o our wholesale power marketing of Constellation Power Source, o our domestic power projects of Constellation Power and subsidiaries and Constellation Investments, and o the newly formed Constellation Power Source Generation subsidiary. This Quarterly Report on Form 10-Q is a combined report of Constellation Energy and BGE. The consolidated financial statements of Constellation Energy include the accounts of Constellation Energy, BGE and its subsidiaries, Constellation Enterprises, Inc. and its subsidiaries, and Constellation Nuclear, LLC and its subsidiaries. The consolidated financial statements of BGE include the accounts of BGE, ComfortLink, and BGE Capital Trust I. As Constellation Enterprises and its subsidiaries were subsidiaries of BGE prior to April 30, 1999, they are included in the consolidated financial statements of BGE through that date. 17 References in this report to "we" and "our" are to Constellation Energy and its subsidiaries, collectively. Reference in this report to the "utility business" is to BGE. In this discussion and analysis, we explain the general financial condition and the results of operations for Constellation Energy and BGE including: o what factors affect our business, o what our earnings and costs were in the periods presented, o why earnings and costs changed between periods, o where our earnings came from, o how all of this affects our overall financial condition, o what we expect our expenditures for capital projects to be in the future, and o where we expect to get cash for future capital expenditures. As you read this discussion and analysis, refer to our Consolidated Statements of Income on page 3, which present the results of our operations for the quarters and six months ended June 30, 2000 and 1999. We analyze and explain the differences between periods in the specific line items of the Consolidated Statements of Income. Our analysis is important in making decisions about your investments in Constellation Energy and/or BGE. Also, this discussion and analysis is based on the operation of the electric generation portion of our utility business under rate regulation. Our electric business is currently changing as we have transferred our electric generation assets and related liabilities to nonregulated subsidiaries of Constellation Energy and we have entered into retail customer choice for electric generation effective July 1, 2000. Accordingly, the results of operations and financial condition described in this discussion and analysis are not necessarily indicative of future performance. Strategy - -------- The change toward customer choice will significantly impact our business. In response to this change, we regularly evaluate our strategies with two goals in mind: to improve our competitive position, and to anticipate and adapt to regulatory change. Currently, the majority of our earnings are from BGE. In the future, we expect to derive almost two-thirds of our earnings from competitive markets that are not limited by franchise boundaries. While BGE will continue to be regulated and deliver electricity and natural gas through its core distribution business, our growth strategies center on the nonregulated domestic wholesale energy market with the objective of providing new sources of earnings. As a result of our concentration on domestic merchant energy, we decided to exit the international portion of our business in 1999. We expect to complete our exit strategy by the end of 2000. In addition, we might consider one or more of the following strategies: o the complete or partial separation of our transmission and distribution functions, o the construction, purchase, or sale of generation assets, o mergers or acquisitions of utility or non-utility businesses, and o spin-off or sale of one or more businesses. We cannot predict whether any of the strategies described above may actually occur, or what their effect on our financial results or competitive position might be. However, with the shift toward customer choice, competition, and the growth of our nonregulated subsidiaries, various factors will affect our financial results in the future. These factors include, but are not limited to, operating our generation assets in a deregulated market without the benefit of a fuel rate adjustment clause, the loss of revenues due to customers choosing alternative suppliers, higher volatility of earnings and cash flows, and increased financial requirements of our nonregulated subsidiaries. Please refer to the Forward-Looking Statements section on page 37 for additional factors. Also, these results will not be indicative of the future performance of BGE since BGE transferred all of its generation assets and related liabilities to nonregulated subsidiaries of Constellation Energy effective July 1, 2000. The impact of such transfer on BGE's financial results will be material. The total assets, liabilities, and common shareholders' equity of Constellation Energy will not change as a result of the transfer. 18 Current Issues - -------------- Competition - Electric - ---------------------- Electric utilities are facing competition on various fronts, including: o the construction of generating units to meet increased demand for electricity, o the sale of electricity in bulk power markets, o competing with alternative energy suppliers, and o electric sales to retail customers. On April 8, 1999, Maryland enacted legislation authorizing customer choice and competition among electric suppliers. In addition, on November 10, 1999, the Maryland PSC issued a Restructuring Order that resolved the major issues surrounding electric restructuring. Effective July 1, 2000, the state of Maryland implemented customer choice for electric suppliers. These matters are discussed further in this section and in Note 4 of our 1999 Annual Report on Form 10-K. As a result of the deregulation of BGE's electric generation and effective July 1, 2000, the following occurred: o BGE transferred, at book value, its nuclear generating assets, its nuclear decommissioning trust fund, and related liabilities to Calvert Cliffs Nuclear Power Plant, Inc. In addition, BGE transferred, at book value, its fossil generating assets and related liabilities and its partial ownership interest in two coal plants and a hydroelectric plant located in Pennsylvania to Constellation Power Source Generation, Inc. In total, these generating assets represent about 6,240 megawatts of generation capacity with a total net book value at June 30, 2000 of approximately $2.4 billion. o BGE transferred approximately $47 million to Calvert Cliffs Nuclear Power Plant, Inc. and $231 million to Constellation Power Source Generation, Inc. of tax-exempt debt related to the transferred assets. Also, Constellation Power Source Generation, Inc. issued approximately $366 million in unsecured promissory notes to BGE. Repayments of the notes by Constellation Power Source Generation, Inc. will be used exclusively to service the current maturities of certain BGE long-term debt. o BGE transferred equity associated with the generating assets to Calvert Cliffs Nuclear Power Plant, Inc. and Constellation Power Source Generation, Inc. o The fossil fuel and nuclear fuel inventories, materials and supplies, and certain purchased power contracts of BGE were also assumed by these subsidiaries. We present pro-forma financial statements for BGE as an exhibit to this Quarterly Report on Form 10-Q (Exhibit 99). The information provided above and in the pro-forma financial statements have been prepared using information available at the date of this report. Effective July 1, 2000, BGE will provide standard offer service to customers at fixed rates over various time periods during the transition period for those customers that do not choose an alternate supplier. In addition, the electric fuel rate was discontinued effective July 1, 2000. Constellation Power Source will provide BGE with the energy and capacity required to meet its standard offer service obligations for the first three years of the transition period. Thereafter, BGE will competitively bid the energy and capacity. Constellation Power Source will obtain the energy and capacity to supply BGE's standard offer service obligations from affiliates that own Calvert Cliffs Nuclear Power Plant (Calvert Cliffs) and BGE's former fossil plants and from purchased power contracts, supplemented with energy purchased from the wholesale energy market as necessary. Our earnings will be exposed to the risks of the competitive wholesale electricity market to the extent that Constellation Power Source has to purchase energy and/or capacity to meet obligations to supply power to BGE at market prices or costs, respectively, which may approach or exceed BGE's standard offer service rates. If the price of obtaining energy in the wholesale market exceeds the fixed standard offer service price, our earnings would be adversely affected. We will also be affected by operational risk, that is, the risk that a generating plant is not available to produce energy when the energy is required. Imbalances in demand and supply can occur not only because of plant outages, but also because of transmission constraints, or extreme temperatures (hot or cold) causing demand to exceed available supply. We cannot estimate the impact of the increased financial risks associated with customer choice. However, these financial risks could have a material impact on our, and BGE's, financial results. 19 Competition - Gas - ----------------- Currently, no regulation exists for the wholesale price of natural gas as a commodity, and the regulation of interstate transmission at the federal level has been reduced. All BGE gas customers have the option to purchase gas from other suppliers. Early Retirement Program - ------------------------ In recognition of the changing business environment, in 1999 our Board of Directors approved a Targeted Voluntary Special Early Retirement Program (TVSERP) to provide enhanced early retirement benefits to certain eligible participants in targeted jobs that elected to retire on June 1, 2000. BGE recorded approximately $10.0 million for employees that elected to participate in the program. Of this amount, BGE recorded approximately $3.0 million on its balance sheet as a regulatory asset of its gas business. We will amortize this regulatory asset over a 5-year period as provided by the June 2000 Maryland PSC gas base rate order. The remaining $7.0 million related to BGE's electric business and was charged to expense. We discuss the gas base rate order further in the Regulation by the Maryland PSC section on page 23. We discuss the impact of the TVSERP on our financial results in the Results of Operations section on page 26. Calvert Cliffs License Extension - -------------------------------- On March 23, 2000, the NRC approved a 20-year license extension for both units of Calvert Cliffs, extending the license for Unit 1 to 2034 and for Unit 2 to 2036. On April 11, 2000 the United States Court of Appeals for the District of Columbia Circuit, in National Whistleblowers Center v. Nuclear Regulatory Commission and Baltimore Gas and Electric Company, upheld the NRC's denial of the Center's motion to intervene in BGE's license renewal proceeding. The NRC had denied the Center's motion to intervene for failing to file timely contentions. Regional Transmission Organizations - ----------------------------------- In December 1999, the FERC issued Order 2000, amending its regulations under the Federal Power Act to advance the formation of Regional Transmission Organizations (RTOs). The regulations require that each public utility that owns, operates, or controls facilities for the transmission of electric energy in interstate commerce make certain filings with respect to forming and participating in a RTO. FERC also identified the minimum characteristics and functions that a transmission entity must satisfy in order to be considered a RTO. According to the Order, a public utility that is a member of an existing transmission entity that has been approved by FERC as in conformance with the Independent System Operator (ISO) principles set forth in the FERC Order No. 888, such as BGE, through its membership in the PJM (Pennsylvania-New Jersey-Maryland) Interconnection, must make a filing no later than January 15, 2001. That filing must explain the extent to which the transmission entity in which it participates meets the minimum characteristics and functions of a RTO, and either propose to modify the existing institution to the extent necessary to become a RTO, or explain the efforts, obstacles, and plans with respect to conforming to these characteristics and functions. As a member of the PJM, an existing ISO, BGE does not expect to be materially impacted by the Order. However, BGE, along with other members of the PJM, is appealing certain aspects of the Order. We cannot determine the full impact of the Order at this time. 20 Results of Operations for the Quarter and Six Months Ended June 30, 2000 Compared with the Same Periods of 1999 - -------------------------------------------------------------------------------- In this section, we discuss our earnings and the factors affecting them. We begin with a general overview, then separately discuss earnings for our operating segments. Overview - -------- Total Earnings Per Share of Common Stock - ---------------------------------------- Quarter Ended Six Months Ended June 30 June 30 --------------- --------------- 2000 1999 2000 1999 ------- ------ ------ ------ Utility business...... $ .34 $ .37 $ .70 $ .82 Nonregulated businesses .03 .10 .18 .21 ------- ------- ------ ----- Total earnings per share before nonrecurring charges included in operations ..... .37 .47 .88 1.03 Nonrecurring charges included in operations: Deregulation transition cost.. (.10) - (.10) - TVSERP............. (.01) - (.03) - Write-down of financial investment....... - (.02) - (.02) ------- ------- ------ ------ Total earnings per share ............. $ .26 $ .45 $ .75 $1.01 ======= ======= ====== ====== Quarter Ended June 30, 2000 - --------------------------- Our total earnings for the quarter ended June 30, 2000 decreased $28.4 million, or $.19 per share, compared to the same period of 1999. Our total earnings decreased because we had lower earnings from our utility and nonregulated businesses before nonrecurring charges. In addition, we recorded the following: o a $24.0 million, or $15.0 million after-tax, deregulation transition cost to a third party incurred by our power marketing business to provide BGE's standard offer service requirements, and o a $2.8 million, or $1.7 million after-tax, expense for BGE employees that elected to participate in a Targeted Voluntary Special Early Retirement Program (TVSERP) during the second quarter of 2000. In the second quarter of 2000, utility earnings before nonrecurring charges decreased compared to the same period of 1999 mostly due to the $37.5 million, or $22.7 million after-tax, amortization of the regulatory asset recorded for the reduction of BGE's generation plant as provided for under the Restructuring Order. This was partially offset by higher electric and gas sales. We discuss our utility earnings, the Restructuring Order, and the TVSERP in more detail in the Utility Business section on page 22. In the second quarter of 2000, nonregulated earnings before nonrecurring charges decreased compared to the same period of 1999 mostly because of lower earnings from our financial investments and international businesses. Earnings from our domestic wholesale energy business were about the same compared to the same period of 1999. We discuss our nonregulated earnings and the deregulation transition cost in more detail in the Nonregulated Businesses section beginning on page 28. Six Months Ended June 30, 2000 - ------------------------------ Our total earnings for the six months ended June 30, 2000 decreased $39.1 million, or $.26 per share, compared to the same period of 1999. Our total earnings decreased because we had lower earnings from our utility and nonregulated businesses before nonrecurring charges. In addition, we recorded the following: o a $24.0 million, or $15.0 million after-tax, deregulation transition cost to a third party incurred by our power marketing business to provide BGE's standard offer service requirements, and o a $7.0 million, or $4.2 million after-tax, expense for BGE employees that elected to participate in the TVSERP. In the six months ended June 30, 2000, utility earnings before nonrecurring charges decreased compared to the same period of 1999 mostly due to the $75.0 million, or $45.4 million after-tax, amortization of the regulatory asset recorded for the reduction of BGE's generation plant as provided for under the Restructuring Order. This was partially offset by higher electric and gas sales. In the six months ended June 30, 2000, nonregulated earnings before nonrecurring charges decreased compared to the same period of 1999 mostly because of lower earnings from our international business. This was partially offset by higher earnings in our financial investments business and slightly higher earnings from our domestic wholesale energy business. 21 Utility Business - ---------------- Before we go into the details of our electric and gas operations, we believe it is important to discuss factors that have a strong influence on our utility business performance: electric restructuring, regulation by the Maryland PSC, the weather, and other factors, including the condition of the economy in our service territory. Electric Restructuring - ---------------------- On April 8, 1999, Maryland enacted the Electric Customer Choice and Competition Act of 1999 (the "Act") and accompanying tax legislation that will significantly restructure Maryland's electric utility industry and modify the industry's tax structure. In the Restructuring Order discussed below, the Maryland PSC addressed the major provisions of the Act. The accompanying tax legislation is discussed in detail in Note 4 of our 1999 Annual Report on Form 10-K. On November 10, 1999, the Maryland PSC issued a Restructuring Order that resolved the major issues surrounding electric restructuring, accelerated the timetable for customer choice, and addressed the major provisions of the Act. The Restructuring Order also resolved the electric restructuring proceeding (transition costs, customer price protections, and unbundled rates for electric services) and a petition filed in September 1998 by the Office of People's Counsel (OPC) to lower our electric base rates. The major provisions of the Restructuring Order are discussed below. o All customers, except a few commercial and industrial companies that have signed contracts with BGE, can choose their electric energy supplier beginning July 1, 2000. BGE will provide a standard offer service for customers that do not select an alternative supplier. In either case, BGE will continue to deliver electricity to all customers in areas traditionally served by BGE. o BGE's electric base rates were frozen through June 30, 2000. o BGE reduced residential base rates by approximately 6.5%, on average about $54 million a year, beginning July 1, 2000. These rates will not change before July 2006. o Commercial and industrial customers have up to four service options that will fix electric energy rates and transition charges for a period that generally ranges from four to six years. o BGE's electric fuel rate clause was discontinued effective July 1, 2000. o Electric delivery service rates are frozen for a four-year period for commercial and industrial customers. The generation and transmission components of rates are frozen for different time periods depending on the service options selected by those customers. o BGE will recover $528 million after-tax of its potentially stranded investments and utility restructuring costs through a competitive transition charge on customers' bills. Residential customers will pay this charge for six years. Commercial and industrial customers will pay in a lump sum or over the four to six-year period, depending on the service option selected by each customer. o Generation-related regulatory assets and nuclear decommissioning costs are included in delivery service rates effective July 1, 2000 and will be recovered on a basis approximating their amortization schedules prior to July 1, 2000. o Effective July 1, 2000, BGE unbundled rates to show separate components for delivery service, transition charges, standard offer services (generation), transmission, universal service, and taxes. o Effective July 1, 2000, BGE transferred, at book value, its ten Maryland-based fossil and nuclear power plants and its partial ownership interest in two coal plants and a hydroelectric plant in Pennsylvania to nonregulated subsidiaries of Constellation Energy. o BGE reduced its generation assets, as discussed in Note 4 of our 1999 Annual Report on Form 10-K, by $150 million pre-tax during the period July 1, 1999 - June 30, 2000 to mitigate a portion of BGE's potentially stranded investments. o Universal service will be provided for low-income customers without increasing their bills. BGE will provide its share of a statewide fund totaling $34 million annually. We believe that the Restructuring Order provided sufficient details of the transition plan to competition for BGE's electric generation business to require BGE to discontinue the application of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation for that portion of its business. Accordingly, in the fourth quarter of 1999, we adopted the provisions of SFAS No. 101, Regulated Enterprises - Accounting for the Discontinuation of FASB Statement No. 71 and Emerging Issues Task Force 22 Consensus (EITF) No. 97-4, Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and 101 for BGE's electric generation business. BGE's transmission and distribution business continues to meet the requirements of SFAS No. 71 as that business remains regulated. We describe the effect of applying these accounting requirements in Note 4 of our 1999 Annual Report on Form 10-K. Please refer to the Legal Proceedings section on page 35 for a discussion regarding appeals of the Restructuring Order. Regulation by the Maryland PSC - ------------------------------ Under traditional rate regulation that continues after July 1, 2000 for BGE's electric transmission and distribution, and gas businesses, the Maryland PSC determines the rates we can charge our customers. Currently, our rates consist of a "base rate," a "conservation surcharge," and a "fuel rate." Base Rate - --------- The base rate is the rate the Maryland PSC allows us to charge our customers for the cost of providing them service, plus a profit. We have both an electric base rate and a gas base rate. Higher electric base rates apply during the summer when the demand for electricity is higher. Gas base rates are not affected by seasonal changes. BGE may ask the Maryland PSC to increase base rates from time to time. The Maryland PSC historically has allowed BGE to increase base rates to recover increased utility plant asset costs, plus a profit, beginning at the time of replacement. Generally, rate increases improve our utility earnings because they allow us to collect more revenue. However, rate increases are normally granted based on historical data and those increases may not always keep pace with increasing costs. Other parties may petition the Maryland PSC to decrease base rates. On November 17, 1999, BGE filed an application with the Maryland PSC to increase its gas base rates. On June 19, 2000, the Maryland PSC authorized a $6.4 million annual increase in our gas base rates effective June 22, 2000. As a result of the Restructuring Order, our residential electric base rates are frozen until 2006. Electric delivery service rates are frozen for a four-year period for commercial and industrial customers. The generation and transmission components of rates are frozen for different time periods depending on the service options selected by those customers. Conservation Surcharge - ---------------------- The Maryland PSC allows us to include in electric and gas rates a component to recover money spent on conservation programs. This component is called a "conservation surcharge." However, under this surcharge the Maryland PSC limits what our profit can be. If, at the end of the year we have exceeded our allowed profit, we defer (include as a liability in our Consolidated Balance Sheets and exclude from our Consolidated Statements of Income) the excess in that year and we lower the amount of future surcharges to our customers to correct the amount of overage, plus interest. As a result of the Restructuring Order, the electric conservation surcharge was frozen and the associated profit limitation is no longer applicable. Fuel Rate - --------- Through June 30, 2000, we charged our electric customers separately for the fuel we used to generate electricity (nuclear fuel, coal, gas, or oil) and for the net cost of purchases and sales of electricity. We charged the actual cost of these items to the customer with no profit to us. If these fuel costs went up, the Maryland PSC permitted us to increase the fuel rate. If these costs went down, our customers benefited from a reduction in the fuel rate. The fuel rate was mostly impacted by the amount of electricity generated at Calvert Cliffs because the cost of nuclear fuel is cheaper than coal, gas, or oil. Under the Restructuring Order, BGE's electric fuel rate was frozen until July 1, 2000, at which time the fuel rate clause was discontinued. We deferred the difference between our actual costs of fuel and energy and what we collected from customers under the fuel rate through June 30, 2000. Currently, earnings are affected by the changes in the cost of fuel and energy. We discuss our exposure to market risk further in the Current Issues section on page 19. In addition, any accumulated difference between our actual costs of fuel and energy and the amounts collected from customers under the electric fuel rate clause through June 30, 2000 would be collected from our customers within a twelve month period as determined by the Maryland PSC. At June 30, 2000, the accumulated difference was $54.6 million. We charge our gas customers separately for the natural gas they purchase from us. The price we charge for the natural gas is based on a market based rates incentive mechanism approved by the Maryland PSC. We discuss market based rates in more detail in the Gas Cost Adjustments section on page 27 and in Note 1 of our 1999 Annual Report on Form 10-K. 23 Weather - ------- Weather affects the demand for electricity and gas. Very hot summers and very cold winters increase demand. Mild weather reduces demand. Weather impacts residential sales more than commercial and industrial sales, which are mostly affected by business needs for electricity and gas. We measure the weather's effect using "degree days." A degree day is the difference between the average daily actual temperature and a baseline temperature of 65 degrees. Cooling degree days result when the average daily actual temperature exceeds the 65 degree baseline. Heating degree days result when the average daily actual temperature is less than the baseline. During the cooling season, hotter weather is measured by more cooling degree days and results in greater demand for electricity to operate cooling systems. During the heating season, colder weather is measured by more heating degree days and results in greater demand for electricity and gas to operate heating systems. The Maryland PSC allows us to record a monthly adjustment to our gas business revenues to eliminate the effect of abnormal weather patterns. We discuss this further in the Weather Normalization section on page 27. We show the number of heating degree days in the quarter and six months ended June 30, 2000 and 1999, and the percentage change in the number of degree days between these periods in the following table: Quarter Ended Six Months Ended June 30 June 30 ----------------- ------------------- 2000 1999 2000 1999 -------- ------ ------- -------- Heating degree days... 512 517 2,817 2,907 Percent change from prior period (1.0)% (3.1)% Cooling degree days... 263 203 268 204 Percent change from prior period 29.6% 31.4% Other Factors - ------------- Other factors, aside from weather, impact the demand for electricity and gas. These factors include the "number of customers" and "usage per customer" during a given period. We use these terms later in our discussions of electric and gas operations. In those sections, we discuss how these and other factors affected electric and gas sales during the periods presented. The number of customers in a given period is affected by new home and apartment construction and by the number of businesses in our service territory. Effective July 1, 2000, BGE's electric customers can become delivery service customers only and can purchase their electricity from other sources. The remaining electric customers will receive standard offer service from BGE at the fixed rates provided by the Restructuring Order. Usage per customer refers to all other items impacting customer sales that cannot be measured separately. These factors include the strength of the economy in our service territory. When the economy is healthy and expanding, customers tend to consume more electricity and gas. Conversely, during an economic downtrend, our customers tend to consume less electricity and gas. Utility Earnings Per Share of Common Stock - ------------------------------------------ Quarter Ended Six Months Ended June 30 June 30 --------------- --------------- 2000 1999 2000 1999 ------- ------ ------ ------ Regulated electric business .......... $ .32 $ .37 $ .55 $ .67 Regulated gas business .02 - .15 .15 ----- ----- ------ ------ Total utility earnings per share before nonrecurring charge included in operations ........ .34 .37 .70 .82 Nonrecurring charge included in operations: TVSERP ............. (.01) - (.03) - ----- ----- ------ ------ Total utility earnings per share ........ $ .33 $ .37 $ .67 $ .82 ===== ===== ====== ====== Our utility earnings for the quarter ended June 30, 2000 decreased $6.0 million, or $.04 per share compared to the same period of 1999. Our utility earnings for the six months ended June 30, 2000, decreased $22.9 million, or $.15 per share compared to the same six months of 1999. We discuss the factors affecting utility earnings on page 25. 24 Regulated Electric Business - --------------------------- The discussion below reflects the operations of the electric generation portion of our utility business under rate regulation by the Maryland PSC. As discussed earlier in the Introduction and Current Issues sections, retail customer choice for electric generation began effective July 1, 2000. Implementation of customer choice will significantly impact our business. Electric Revenues - ----------------- The changes in electric revenues in 2000 compared to 1999 were caused by: Quarter Ended Six Months Ended June 30 June 30 2000 vs. 1999 2000 vs. 1999 --------------- --------------- (In millions) Electric system sales volumes .............. $ 24.6 $ 33.0 Base rates ............. - - Fuel rates ............. 9.4 12.6 ------- --------- Total change in electric revenues from electric system sales ...... 34.0 45.6 Interchange and other sales ......... (4.1) (5.3) Other .................. 2.4 3.4 ------- --------- Total change in electric revenues ... $ 32.3 $ 43.7 ======= ========= Electric System Sales Volumes - ----------------------------- "Electric system sales volumes" are sales to customers in our service territory at rates set by the Maryland PSC. These sales do not include interchange sales and sales to others. The percentage changes in our electric system sales volumes, by type of customer, in 2000 compared to 1999 were: Quarter Ended Six Months Ended June 30 June 30 2000 vs. 1999 2000 vs. 1999 -------------- -------------- Residential....... 8.5% 5.4% Commercial........ 8.5 6.0 Industrial........ 1.3 (0.3) During the quarter ended June 30, 2000, we sold more electricity to residential customers due to warmer spring and early summer weather. We sold more electricity to commercial customers due to higher usage per customer, warmer weather, and an increased number of customers. We sold more electricity to industrial customers mostly because usage by Bethlehem Steel (our largest customer) increased as a result of a 1999 shut down for a planned upgrade to their facilities that temporarily reduced their electricity consumption in that year. During the six months ended June 30, 2000, we sold more electricity to residential customers due to warmer spring and early summer weather and higher usage per customer. We sold more electricity to commercial customers due to higher usage per customer, warmer weather, and an increased number of customers. We sold about the same amount of electricity to industrial customers. The increase in usage by Bethlehem Steel was offset by lower usage by other industrial customers. Base Rates - ---------- During the quarter and six months ended June 30, 2000, base rate revenues were the same compared to the same periods of 1999. Fuel Rates - ---------- During the quarter and six months ended June 30, 2000, fuel rate revenues increased compared to the same periods of 1999 mostly because we sold more electricity. Interchange and Other Sales - --------------------------- "Interchange and other sales" are sales in the PJM (Pennsylvania-New Jersey-Maryland) Interconnection energy market and to others. The PJM is an ISO that also operates a regional power pool with members that include many wholesale market participants, as well as BGE, and other utility companies. We sell energy to PJM members and to others after we have satisfied the demand for electricity in our own system. During the quarter and six months ended June 30, 2000, we had lower interchange and other sales compared to the same periods of 1999 mostly because the increased demand for system sales reduced the amount of energy we had available for off-system sales. Electric Fuel and Purchased Energy Expenses - ------------------------------------------- Quarter Ended Six Months Ended June 30 June 30 ------------------- ---------------- 2000 1999 2000 1999 -------- ------- ------ ------- (In millions) Actual costs.......... $ 126.0 $ 130.6 $ 247.8 $ 257.9 Net deferral of cost under electric fuel rate clause ........ (6.5) (10.6) (9.7) (16.7) ------- -------- ------- -------- Total electric fuel and purchased energy expenses........... $ 119.5 $ 120.0 $ 238.1 $ 241.2 ======== ======== ======= ======== Actual Costs - ------------ During the quarter and six months ended June 30, 2000, our actual costs of fuel to generate electricity (nuclear fuel, coal, gas, or oil) and electricity we bought from others were lower compared to the same periods of 1999 mostly because of lower purchased energy costs. 25 Electric Fuel Rate Clause - ------------------------- Under the electric fuel rate clause, we deferred (included as an asset or liability on the Consolidated Balance Sheets and excluded from the Consolidated Statements of Income) the difference between our actual costs of fuel and energy and what we collected from customers under the fuel rate in a given period. Effective July 1, 2000, the electric fuel rate clause was discontinued. We discuss the accumulated difference between our actual costs and what we collected through June 30, 2000 in the Fuel Rate section on page 23. During the quarter and six months ended June 30, 2000, our actual costs of fuel and energy were higher than the fuel rate revenues we collected from our customers. Electric Operations and Maintenance Expenses - ---------------------------------------------- During the quarter ended June 30, 2000, electric operations and maintenance expenses increased $4.9 million compared to 1999 mostly because we recorded $2.8 million of expense for electric business employees that elected to participate in the TVSERP during the period. During the six months ended June 30, 2000, electric operations and maintenance expenses were about the same compared to the same period of 1999. During 2000, we recorded $7.0 million of expense for electric business employees that elected to participate in the TVSERP. This was offset by higher expenses in 1999 for employee benefit costs and costs related to a major winter ice storm that increased expenses in that year. Electric Depreciation and Amortization Expense - ---------------------------------------------- During the quarter ended June 30, 2000, electric depreciation and amortization expense increased $36.4 million compared to 1999 mostly because of the $37.5 million amortization of the regulatory asset for the reduction in generation plant provided for in the Restructuring Order. During the six months ended June 30, 2000, electric depreciation and amortization expense increased $76.0 million compared to 1999 mostly because of the $75.0 million amortization of the regulatory asset for the reduction in generation plant provided for in the Restructuring Order. Regulated Gas Business - ---------------------- All BGE customers have the option to purchase gas from other suppliers. To date, customer choice has not had a material effect on our, and BGE's, financial results. Gas Revenues - ------------ The changes in gas revenues in 2000 compared to 1999 were caused by: Quarter Ended Six Months Ended June 30 June 30 2000 vs. 1999 2000 vs. 1999 -------------- ---------------- (In millions) Gas system sales volumes .......... $ 3.3 $ 7.3 Base rates ................ - (0.5) Weather normalization ..... (0.6) (3.4) Gas cost adjustments ...... 0.2 (13.2) ----------- ----------- Total change in gas revenues from gas system sales............. 2.9 (9.8) Off-system sales........... 8.8 22.9 Other ..................... - 0.3 ----------- ----------- Total change in gas revenues ........... $ 11.7 $ 13.4 =========== =========== Gas System Sales Volumes - ------------------------ The percentage changes in our gas system sales volumes, by type of customer, in 2000 compared to 1999 were: Quarter Ended Six Months Ended June 30 June 30 2000 vs. 1999 2000 vs. 1999 -------------- ---------------- Residential............... 2.7% 1.3% Commercial................ 7.5 5.2 Industrial................ 13.2 4.5 During the quarter ended June 30, 2000, we sold more gas to residential customers compared to the same period of 1999 due to an increased number of customers. We sold more gas to commercial customers mostly because of higher usage per customer. We sold more gas to industrial customers mostly because usage by Bethlehem Steel (our largest customer) and other industrial customers increased. Usage by Bethlehem Steel increased as a result of a 1999 shut down for a planned upgrade to their facilities that temporarily reduced their gas consumption in that year. This was partially offset by a decrease in the number of customers. During the six months ended June 30, 2000, we sold more gas to residential and commercial customers compared to the same period of 1999 due to higher usage per customer and an increased number of customers. This was partially offset by milder winter weather. We sold more gas to industrial customers mostly because usage by Bethlehem Steel and other industrial customers increased. This was partially offset by a decrease in the number of customers. 26 Base Rates - ---------- During the quarter and six months ended June 30, 2000, base rate revenues were about the same compared to the same periods of 1999. On June 19, 2000, the Maryland PSC authorized a $6.4 million annual increase in our base rates effective June 22, 2000. Weather Normalization - --------------------- The Maryland PSC allows us to record a monthly adjustment to our gas revenues to eliminate the effect of abnormal weather patterns on our gas system sales volumes. This means our monthly gas revenues are based on weather that is considered "normal" for the month and, therefore, are not affected by actual weather conditions. Gas Cost Adjustments - -------------------- We charge our gas customers for the natural gas they purchase from us using gas cost adjustment clauses set by the Maryland PSC. These clauses operate similarly to the electric fuel rate clause described in the Electric Fuel Rate Clause section on page 26. However, under market based rates, our actual cost of gas is compared to a market index (a measure of the market price of gas in a given period). The difference between our actual cost and the market index is shared equally between shareholders and customers, and does not significantly impact earnings. Delivery service customers, including Bethlehem Steel, are not subject to the gas cost adjustment clauses because we are not selling gas to them. We charge these customers fees to recover the fixed costs for the transportation service we provide. These fees are the same as the base rate charged for gas sales and are included in gas system sales volumes. During the quarter ended June 30, 2000, gas cost adjustment revenues were about the same compared to the same period of 1999. During the six months ended June 30, 2000, gas cost adjustment revenues decreased compared to the same period of 1999 mostly because we sold less gas to non-delivery service customers. This was partially offset by a higher price of gas sold. Off-System Sales - ---------------- Off-system gas sales are low-margin direct sales of gas to wholesale suppliers of natural gas outside our service territory. Off-system gas sales, which occur after we have satisfied our customers' demand, are not subject to gas cost adjustments. The Maryland PSC approved an arrangement for part of the margin from off-system sales to benefit customers (through reduced costs) and the remainder to be retained by BGE (which benefits shareholders). Changes in off-system sales do not significantly impact earnings. During the quarter and six months ended June 30, 2000, revenues from off-system gas sales increased compared to the same periods of 1999 mostly because we sold more gas off-system at a higher price. Gas Purchased For Resale Expenses - --------------------------------- Quarter Ended Six Months Ended June 30 June 30 ------------------- ------------------ 2000 1999 2000 1999 -------- ------- -------- -------- (In millions) Actual costs............ $ 43.4 $ 29.8 $ 149.5 $ 123.0 Net (deferral) recovery of costs under gas adjustment clause..... (2.6) 3.2 (5.8) 12.1 -------- -------- ------- -------- Total gas purchased for resale $ 40.8 $ 33.0 $ 143.7 $ 135.1 expenses............... ======== ======== ======= ======= Actual Costs - ------------ Actual costs include the cost of gas purchased for resale to our customers and for off-system sales. Actual costs do not include the cost of gas purchased by delivery service customers. During the quarter and six months ended June 30, 2000, actual gas costs increased compared to the same periods of 1999 mostly because we bought more gas for off-system sales and all of the gas purchased was at a higher price. Gas Adjustment Clauses - ---------------------- We charge customers for the cost of gas sold through gas adjustment clauses (determined by the Maryland PSC), as discussed under Gas Cost Adjustments earlier in this section. During the quarter and six months ended June 30, 2000, our actual gas costs were higher than the fuel rate revenues we collected from our customers. Gas Operations and Maintenance Expenses - --------------------------------------- During the quarter and six months ended June 30, 2000, gas operations and maintenance expenses decreased slightly compared to the same periods of 1999. Gas Depreciation and Amortization Expense - ----------------------------------------- During the quarter and six months ended June 30, 2000, gas depreciation and amortization expense was about the same compared to the same periods of 1999. 27 Nonregulated Businesses - ----------------------- Our nonregulated businesses engage primarily in domestic wholesale energy services as discussed in the Introduction section on page 17. We describe our nonregulated businesses in more detail in our 1999 Annual Report on Form 10-K in Item 1. Business -- Diversified Businesses. Nonregulated Earnings Per Share of Common Stock - ----------------------------------------------- Quarter Ended Six Months Ended June 30 June 30 -------------- --------------- 2000 1999 2000 1999 ------- ------ ------ -------- Domestic wholesale energy Power marketing........... $ .05 $ .08 $ .14 $ .13 Domestic power projects... .05 .03 .09 .08 ------- ------- ------- ------- Total domestic wholesale energy earnings per share before nonrecurring charges included in operations.... .10 .11 .23 .21 Other nonregulated businesses earnings (loss) per share before nonrecurring charges included in operations.... (.07) (.01) (.05) - ------- ------- ------- ------- Total nonregulated earnings per share before nonrecurring charges included in operations.... .03 .10 .18 .21 Nonrecurring charges included in operations: Deregulation transition cost.................... (.10) - (.10) - Write-down of financial investment.............. - (.02) - (.02) ------- ------- ------- ------- Total nonregulated earnings (loss) per share.......... $ (.07) $ .08 $ .08 $ .19 ======= ======= ======= ======= Our total nonregulated earnings for the quarter ended June 30, 2000 decreased $22.4 million, or $.15 per share, compared to the same period of 1999. Our total nonregulated earnings for the six months ended June 30, 2000 decreased $16.2 million, or $.11 per share, compared to the same period of 1999. We discuss the factors affecting the earnings of our nonregulated businesses below. Domestic Wholesale Energy - ------------------------- Power Marketing - --------------- During the quarter ended June 30, 2000, earnings from our power marketing business before nonrecurring charges decreased compared to the same period of 1999 mostly because of lower margins, and increased operating expenses associated with the growth of the business. During the six months ended June 30, 2000, earnings from our power marketing business before nonrecurring charges increased slightly compared to the same period of 1999 mostly because of increased transaction volumes, partially offset by lower margins, and increased operating expenses associated with the growth of the business. As discussed in the Current Issues section on page 19, Constellation Power Source provides BGE with the energy and capacity required to meet its standard offer service obligations for the first three years of the transition period effective July 1, 2000. Constellation Power Source will obtain the energy and capacity to supply BGE's standard offer service obligations from affiliates that own Calvert Cliffs and BGE's former fossil plants and from purchased power contracts, supplemented with energy purchased from the wholesale energy market as necessary and will also manage our wholesale market price risk. In June 2000, Constellation Power Source recognized a $15.0 million after-tax, or $.10 per share, deregulation transition cost to a third party related to BGE's standard offer service requirements. Constellation Power Source uses the mark-to-market method of accounting. We discuss the mark-to-market method of accounting and Constellation Power Source's activities in more detail in Note 1 of our 1999 Annual Report on Form 10-K. As a result of the nature of its business activities, Constellation Power Source's revenue and earnings will fluctuate. We cannot predict these fluctuations, but the effect on our revenues and earnings could be material. The primary factors that cause these fluctuations are: o the number and size of new transactions, o the magnitude and volatility of changes in commodity prices and interest rates, and o the number and size of open commodity and derivative positions Constellation Power Source holds or sells. 28 Constellation Power Source's management uses its best estimates to determine the fair value of commodity and derivative positions it holds and sells. These estimates consider various factors including closing exchange and over-the-counter price quotations, time value, volatility factors, and credit exposure. However, it is possible that future market prices could vary from those used in recording assets and liabilities from power marketing and trading activities, and such variations could be material. Assets and liabilities from energy trading activities (as shown in our Consolidated Balance Sheets beginning on page 4) increased at June 30, 2000 compared to December 31, 1999 because of business growth during the period. Domestic Power Projects - ----------------------- During the quarter and six months ended June 30, 2000, earnings from our domestic power projects business increased compared to the same periods of 1999 mostly because our domestic power projects business recognized an $8.2 million after-tax, or $.05 per share, gain on the termination of an operating arrangement and the sale of certain subsidiaries. This increase was partially offset by lower earnings from our California power purchase agreements. These are discussed in further detail below. In April 2000, Constellation Operating Services, Inc. (COSI), a subsidiary of Constellation Power, Inc., ended its exclusive arrangement with Orion Power Holdings, Inc. to operate Orion's facilities. Orion purchased from COSI the four subsidiary companies formed to operate power plants owned by Orion. As a result, COSI recognized an $8.2 million after-tax gain during the second quarter of 2000. California Power Purchase Agreements - ------------------------------------ Constellation Power and subsidiaries and Constellation Investments have $294.7 million invested in 14 projects that sell electricity in California under power purchase agreements called "Interim Standard Offer No. 4" agreements. Earnings from these projects were $1.9 million, or $.01 per share, for the quarter ended June 30, 2000 compared to $5.9 million, or $.04 per share for the same period of 1999. Earnings from these projects were $8.8 million, or $.06 per share, for the six months ended June 30, 2000 compared to $13.9 million, or $.09 per share for the same period of 1999. Under these agreements, the electricity rates change from fixed rates to variable rates beginning in 1996 and continuing through 2000. The projects which already have had rate changes have lower revenues under variable rates than they did under fixed rates. When the remaining projects transition to variable rates, we expect their revenues also to be lower than they are under fixed rates. At the date of this report, 11 projects had already transitioned to variable rates. The remaining three projects will transition in November and December 2000. Those projects changing over later in 2000 contributed $3.6 million, or $.02 per share to the quarter ended June 30, 2000 earnings and $8.7 million, or $.06 per share to the six months ended June 30, 2000 earnings. Our power projects business continues to pursue alternatives for some of these projects including: o repowering the projects to reduce operating costs, o changing fuels to reduce operating costs, o renegotiating the power purchase agreements to improve the terms, o restructuring financing to improve existing terms, and o selling its ownership interests in the projects. We evaluate the carrying amount of our investment in these projects for impairment using the methodology discussed in Note 1 of our 1999 Annual Report of Form 10-K. Constellation Power's management uses its best estimates to determine if there has been an impairment of these investments and considers various factors including forward price curves for energy, fuel costs, and operating costs. However, it is possible that future estimates of market prices and project costs could vary from those used in evaluating these assets, and the impact of such variations could be material. We also describe these projects and the transition process in the Notes to Consolidated Financial Statements on page 16. 29 Other Nonregulated Businesses - ----------------------------- During the quarter ended June 30, 2000, earnings from our other nonregulated businesses before nonrecurring charges decreased compared to the same period of 1999 mostly because of lower earnings from our financial investments and international businesses. Our financial investments business had lower earnings due to a decline in its market performance, and our international business had lower earnings primarily due to increased operating expenses in Guatemala. During the six months ended June 30, 2000, earnings from our other nonregulated businesses before nonrecurring charges decreased compared to the same period of 1999 mostly because of lower earnings from our international business. This was partially offset by higher earnings from our financial investments business due to better market performance of its investments. In December 1999, we decided to exit the international portion of our power projects business as part of our strategy to improve our competitive position. We expect to complete our exit strategy by the end of 2000. We discuss our strategy further in the Strategy section on page 18. In June 1999, our financial investments business wrote-down its $94.2 million investment in Capital Re stock by $3.6 million after-tax, or $.02 per share to reflect the valuation for the exchange of its shares of common stock in Capital Re for common stock of ACE Limited. This exchange is discussed further in our 1999 Annual Report on Form 10-K. Most of Constellation Real Estate Group's real estate and senior-living projects are in the Baltimore-Washington corridor. The area has had a surplus of available land in recent years and as a result these projects have been economically hurt. Constellation Real Estate's projects have continued to incur carrying costs and depreciation over the years. Additionally, this business has been charging interest payments to expense rather than capitalizing them for some undeveloped land where development activities have stopped. These carrying costs, depreciation, and interest expenses have decreased earnings and are expected to continue to do so. Cash flow from real estate and senior-living operations has not been enough to make the monthly loan payments on some of these projects. Cash shortfalls have been covered by cash obtained from the cash flows of, or additional borrowings by, other nonregulated subsidiaries. We consider market demand, interest rates, the availability of financing, and the strength of the economy in general when making decisions about our real estate and senior-living projects. If we were to decide to sell our projects, we could have write-downs. In addition, if we were to sell our projects in the current market, we would have losses which could be material, although the amount of the losses is hard to predict. Depending on market conditions, we could also have material losses on any future sales. Our current real estate and senior-living strategy is to hold each project until we can realize a reasonable value for it. Under accounting rules, we are required to write down the value of a project to market value in either of two cases. The first is if we change our intent about a project from an intent to hold to an intent to sell and the market value of that project is below book value. The second is if the expected cash flow from the project is less than the investment in the project. Consolidated Nonoperating Income and Expenses - --------------------------------------------- Fixed Charges - ------------- During the quarter and six months ended June 30, 2000, fixed charges increased compared to the same periods of 1999 mostly because we had more debt outstanding. Income Taxes - ------------ During the quarter ended June 30, 2000, our total income taxes decreased compared to the same period of 1999 mostly because we had lower taxable income partially offset by a $7.0 million increase at BGE as a result of comprehensive changes to the state and local tax laws. We discuss the comprehensive tax law changes in Note 4 of our 1999 Annual Report on Form 10-K. During the six months ended June 30, 2000, our total income taxes decreased compared to the same period of 1999 mostly because we had lower taxable income partially offset by a $17.3 million increase at BGE as a result of comprehensive changes to the state and local tax laws. 30 Financial Condition - ------------------- Cash Flows - ---------- Six Months Ended June 30 -------------------- 2000 1999 ---------- --------- (In millions) Cash provided by (used in): Operating Activities $342.3 $370.2 Investing Activities (458.1) (195.5) Financing Activities 169.5 (245.0) During the six months ended June 30, 2000, we generated less cash from operations compared to the same period in 1999 mostly because of changes in working capital requirements. During the six months ended June 30, 2000, we used more cash for investing activities compared to the same period in 1999 mostly due to an increase in investments in our domestic power projects business and Orion and an increase in utility construction expenditures. In addition, our real estate and senior-living facilities business received less cash compared to the same period of 1999, due to the sale of a project in 1999. We did not have a similar sale in 2000. During the six months ended June 30, 2000, we had more cash from financing activities compared to the same period of 1999 mostly because we issued more long-term debt. This was partially offset by repayment of our short-term borrowings that matured. Security Ratings - ---------------- Independent credit-rating agencies rate Constellation Energy and BGE's fixed-income securities. The ratings indicate the agencies' assessment of each company's ability to pay interest, distributions, dividends, and principal on these securities. These ratings affect how much it will cost each company to sell these securities. The better the rating, the lower the cost of the securities to each company when they sell them. Constellation Energy and BGE's securities ratings at the date of this report are: Standard Moody's Duff & Phelps' & Poors Investors Credit Rating Group Service Rating Co. ------------ ----------- ------------- Constellation Energy - -------------------- Unsecured Debt A- A3 A BGE - --- Mortgage Bonds AA- A1 AA- Unsecured Debt A A2 A+ Trust Originated Preferred Securities and Preference Stock A- "a2" A Capital Resources - ----------------- Our business requires a great deal of capital. Our estimated annual amounts for the years 2000 through 2002, are shown in the table on page 32. For the twelve months ended June 30, 2000, the ratio of earnings to fixed charges for Constellation Energy was 2.61. The ratio of earnings to fixed charges for BGE was 3.40 and the ratio of earnings to combined fixed charges and preferred and preference dividend requirements for BGE was 3.06. We will continue to have cash requirements for: o working capital needs including the payments of interest, distributions, and dividends, o capital expenditures, and o the retirement of debt and redemption of preference stock. Capital requirements for 2000 through 2002 include estimates of funding for existing and anticipated projects. We continuously review and modify those estimates. Actual requirements may vary from the estimates included in the table on page 32 because of a number of factors including: o regulation, legislation, and competition, o BGE load requirements, o environmental protection standards, o the type and number of projects selected for development, o the effect of market conditions on those projects, o the cost and availability of capital, and o the availability of cash from operations. Our estimates are also subject to additional factors. Please see the Forward-Looking Statements section on page 37. Effective July 1, 2000, all of BGE's generation assets were transferred to nonregulated subsidiaries of Constellation Energy. The discussion and table for capital requirements on page 32 include these generation assets as part of the utility's regulated electric business through June 30, 2000. After that date, the capital requirements are included in the domestic wholesale energy business. 31
Calendar Year Estimates 2000 2001 2002 -------------- ------------- ------------ (In millions) Utility Capital Requirements: - ----------------------------- Construction expenditures (excluding AFC): Regulated Electric: Generation (including nuclear fuel) $ 94 $ - $ - Transmission and distribution 177 167 167 --------- -------- -------- Total regulated electric 271 167 167 Regulated Gas 56 54 54 Common 22 18 18 --------- -------- -------- Total construction expenditures 349 239 239 Retirement of long-term debt and redemption of preference stock 122 194 148 --------- -------- -------- Total utility capital requirements 471 433 387 --------- -------- -------- Nonregulated Capital Requirements: - ---------------------------------- Investment requirements: Domestic Wholesale Energy 697* 1,241 1,078 Other 47 54 42 --------- -------- -------- Total investment requirements 744 1,295 1,120 Retirement of long-term debt 583 439 7 --------- -------- -------- Total nonregulated capital requirements 1,327 1,734 1,127 --------- -------- -------- Total capital requirements $1,798 $2,167 $1,514 ========= ======== ========
* Effective July 1, 2000, includes approximately $110 million for electric generation and nuclear fuel formerly part of BGE's regulated electric business. Capital Requirements - -------------------- Electric Generation - ------------------- Electric construction expenditures for our regulated electric segment include improvements to generating plants and costs for replacing the steam generators at Calvert Cliffs through June 30, 2000. Thereafter, these expenditures are reflected in our domestic wholesale energy segment. In March 2000, we received the license extension from the NRC that extends our operating licenses to 2034 for Unit 1 and 2036 for Unit 2 as discussed in the Current Issues section on page 20. If we do not replace the steam generators, we will not be able to operate these units through our operating licenses period. We expect the steam generator replacement to occur during the 2002 refueling outage for Unit 1 and during the 2003 refueling outage for Unit 2. We estimate these Calvert Cliffs' costs to be: o $ 40 million in 2000, o $ 64 million in 2001, o $ 88 million in 2002, and o $ 60 million in 2003. Additionally, our estimates of future electric generation construction expenditures include the costs of complying with Environmental Protection Agency (EPA) and State of Maryland nitrogen oxides emissions (NOx) reduction regulations as follows: o $ 63 million in 2000, o $ 52 million in 2001, and o $ 4 million in 2002. We discuss the NOx regulations and timing of expenditures in the Environmental Matters section of the Notes to Consolidated Financial Statements on page 14. Electric Transmission and Distribution, and Gas - ----------------------------------------------- Regulated electric transmission and distribution, and gas construction expenditures primarily include new business construction needs and improvements to existing facilities. 32 Domestic Wholesale Energy Business - ---------------------------------- Our domestic wholesale energy business will require additional funding for growing its power marketing business and developing and acquiring power projects. Our domestic wholesale energy business investment requirements include the planned construction of 1,100 megawatts of peaking capacity in the Mid-Atlantic/Mid-West region by the summer of 2001 and an additional 4,300 megawatts of peaking and combined cycle production facilities scheduled for completion in 2002 and beyond in the Mid-West and South regions. Our investment requirements also include our domestic wholesale energy business commitment to contribute up to an additional $19.5 million in equity to Orion. To date, our domestic wholesale energy business has funded $205.5 million in equity to Orion. Funding for Capital Requirements - -------------------------------- BGE - --- Our utility business has met its capital requirements in the past primarily through internally generated funds. When BGE could not meet utility capital requirements internally, BGE sold debt and preference stock. BGE also sells securities when market conditions permit it to refinance existing debt or preference stock at a lower cost. The amount of cash BGE needs and market conditions determine when and how much BGE sells. Future funding for capital expenditures is expected from internally generated funds, commercial paper issuances, available capacity under credit facilities, the issuance of long-term debt, trust securities, or preference stock, and/or from time to time equity contributions from Constellation Energy. At June 30, 2000, FERC authorized BGE to issue up to $700 million of short-term borrowings, including commercial paper. In addition, BGE maintains $183 million in annual committed bank lines of credit and has $60 million in bank revolving credit agreements to support the commercial paper program. In addition, BGE has access to interim lines of credit as required from time to time to support its outstanding commercial paper. Domestic Wholesale Energy Business - ---------------------------------- Our domestic wholesale energy business has met its capital requirements in the past through borrowing, cash from its operations, and from time to time equity contributions from BGE or Constellation Energy. Future funding for the expansion of our domestic wholesale energy business is expected from internally generated funds, commercial paper issuances and long-term debt financing by Constellation Energy, and from time to time equity contributions from Constellation Energy. At June 30, 2000, Constellation Energy has a commercial paper program where it can issue up to $500 million in short-term notes to fund its nonregulated businesses. To support its commercial paper program, Constellation Energy maintains two revolving credit agreements totaling $565 million, of which one facility can also issue letters of credit. In addition, Constellation Energy has access to interim lines of credit as required from time to time to support its outstanding commercial paper. Other Nonregulated Businesses - ----------------------------- BGE Home Products & Services may meet capital requirements through sales of receivables. ComfortLink has a revolving credit agreement totaling $50 million to provide liquidity for short-term financial needs. If we can get a reasonable value for our real estate projects, senior-living facilities, and other investments, additional cash may be obtained by selling them. Our ability to sell or liquidate assets will depend on market conditions, and we cannot give assurances that these sales or liquidations could be made. We discuss the real estate and senior-living facilities business and market conditions in the Other Nonregulated Businesses section on page 30. 33 Other Matters - ------------- Environmental Matters - --------------------- We are subject to federal, state, and local laws and regulations that work to improve or maintain the quality of the environment. If certain substances were disposed of or released at any of our properties, whether currently operating or not, these laws and regulations require us to remove or remedy the effect on the environment. This includes Environmental Protection Agency Superfund sites. You will find details of our environmental matters in the Environmental Matters section of the Notes to Consolidated Financial Statements beginning on page 14 and in our 1999 Annual Report on Form 10-K in Item 1. Business - Environmental Matters. These details include financial information. Some of the information is about costs that may be material. Accounting Standards Issued - --------------------------- In June 2000, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, that amends certain provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and addresses a limited number of implementation issues related to SFAS No. 133. In July 1999, the FASB issued SFAS No. 137 that delays the effective date for SFAS No. 133 by one year. Therefore, we must adopt the provisions of SFAS No. 133 in our financial statements for the quarter ended March 31, 2001. We are evaluating the implications of SFAS Nos. 133 and 138, but have not determined the effects on our financial results. However, SFAS Nos. 133 and 138 will not significantly impact our power marketing business as this business uses mark-to-market accounting. Item 3. Quantitative and Qualitative Disclosures About Market Risk We discuss the following information related to our market risk: o risk associated with the purchase and sale of energy in a deregulated environment as discussed in the Current Issues section of Management's Discussion and Analysis on page 19, o financing activities in the Notes to Consolidated Financial Statements on page 13, and o activities of our power marketing business in the Power Marketing section of Management's Discussion and Analysis on page 28. 34 PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Asbestos - -------- Since 1993, we have been involved in several actions concerning asbestos. The actions are based upon the theory of "premises liability," alleging that we knew of and exposed individuals to an asbestos hazard. The actions relate to two types of claims. The first type is direct claims by individuals exposed to asbestos. We described these claims in BGE's Report on Form 8-K filed August 20, 1993. We are involved in these claims with approximately 70 other defendants. Approximately 530 individuals that were never employees of BGE each claim $6 million in damages ($2 million compensatory and $4 million punitive). These claims were filed in the Circuit Court for Baltimore City, Maryland in the summer of 1993. We do not know the specific facts necessary to estimate our potential liability for these claims. The specific facts we do not know include: o the identity of our facilities at which the plaintiffs allegedly worked as contractors, o the names of the plaintiff's employers, and o the date on which the exposure allegedly occurred. To date, 25 of these cases were settled for amounts that were not significant. The second type is claims by one manufacturer -- Pittsburgh Corning Corp. -- against us and approximately eight others, as third-party defendants. These claims relate to approximately 1,500 individual plaintiffs and were filed in the Circuit Court for Baltimore City, Maryland in the fall of 1993. To date, about 260 cases have been resolved, all without any payments by BGE. We do not know the specific facts necessary to estimate our potential liability for these claims. The specific facts we do not know include: o the identity of our facilities containing asbestos manufactured by the manufacturer, o the relationship (if any) of each of the individual plaintiffs to us, o the settlement amounts for any individual plaintiffs who are shown to have had a relationship to us, and o the dates on which/places at which the exposure allegedly occurred. Until the relevant facts for both types of claims are determined, we are unable to estimate what our liability, if any, might be. Although insurance and hold harmless agreements from contractors who employed the plaintiffs may cover a portion of any awards in the actions, our potential liability could be material. Restructuring Order - ------------------- In early December 1999, the Mid-Atlantic Power Supply Association (MAPSA), Trigen-Baltimore Energy Corporation and Sweetheart Cup Company, Inc. filed appeals of the Restructuring Order, which were consolidated in the Baltimore City Circuit Court. MAPSA also filed a motion to delay implementation of the Restructuring Order, pending a decision on the merits of the appeals by the court. On April 21, 2000, the Circuit Court dismissed MAPSA's appeal based on a lack of standing (the right of a party to bring a lawsuit to court) and denied its motion for a delay of the Restructuring Order. However, MAPSA filed an appeal of this decision. On May 24, 2000, the Circuit Court dismissed both the Trigen and Sweetheart Cup appeals. On June 30, 2000, the Maryland Court of Appeals granted MAPSA's petition to review whether MAPSA had standing to challenge the merits of the Restructuring Order and ordered a delay of the implementation of the Restructuring Order. On July 20, 2000, the Court of Appeals rescinded its delay of implementation of the Restructuring Order, but found that MAPSA had standing, sending the case back to the Circuit Court. On July 21, 2000, the Circuit Court re-imposed the delay of implementation of the Restructuring Order to review the filings in the case. The Circuit Court rescinded its delay on August 4, 2000; however, a hearing on the merits of the Restructuring Order is scheduled for August 23, 2000. The effect of the appeals of the Restructuring Order was to delay the implementation of customer choice in BGE's service territory. However, once the delay was rescinded on August 4, 2000, BGE agreed to retroactively adjust its rates as if customer choice had been implemented July 1, 2000. While we believe that MAPSA's case is without merit, no assurance can be given as to its timing or outcome, which could have a material adverse effect on our, and BGE's, financial results. Asset Transfer Order - -------------------- On July 6, 2000, MAPSA and Shell Energy LLC filed, in the Circuit Court for Baltimore City, a petition for review and a delay of the Maryland PSC's order approving the transfer of BGE's generation assets issued on June 19, 2000. The Court denied the delay on August 4, 2000. A hearing on the petition is scheduled for August 23, 2000. We also believe that this petition is without merit. However, we cannot predict the timing, or outcome, of this case, which could have a material adverse effect on our, and BGE's, financial results. 35 Item 4. Submission of Matters to a Vote of Security Holders On April 28, 2000, Constellation Energy Group held its annual meeting of shareholders. At that meeting, the following matters were voted upon: 1. All of the Directors nominated by Constellation Energy Group were selected as follows:
COMMON SHARES CAST: ------------------- For Against Abstain --- ------- ------- Douglas L. Becker 115,808,626 17,076,048 2,222,777 J. Owen Cole 131,949,012 935,662 2,222,777 Dan A. Colussy 132,035,908 848,766 2,222,777 Edward A. Crooke 131,877,340 1,007,334 2,222,777 Michael D. Sullivan 131,539,851 1,344,823 2,222,777
All other directors whose term of office continues as of the date of this meeting: H. Furlong Baldwin James T. Brady Beverly B. Byron James R. Curtiss Roger W. Gale Jerome W. Geckle Dr. Freeman A. Hrabowski, III Nancy Lampton Adm. Charles R. Larson Christian H. Poindexter George L. Russell, Jr. Mayo A. Shattuck, III 2. The ratification of PricewaterhouseCoopers LLP as independent accountants was approved. With respect to holders of common stock, the number of affirmative votes cast were 132,931,971, the number of negative votes cast were 1,170,206, and the number of abstentions were 1,183,430. 3. The shareholder proposal for the adoption and implementation of a policy of Confidential Voting was defeated. With respect to holders of common stock, the number of affirmative votes cast were 45,564,679, the number of negative votes cast were 67,075,547, and the number of abstentions were 4,815,338. 36 Item 5. Other Information Forward-Looking Statements - -------------------------- We make statements in this report that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934. Sometimes these statements will contain words such as "believes," "expects," "intends," "plans," and other similar words. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to be materially different from those we project. These risks, uncertainties, and factors include, but are not limited to: o general economic, business, and regulatory conditions, o energy supply and demand, o competition, o federal and state regulations, o availability, terms, and use of capital, o nuclear and environmental issues, o weather, o implications of the Restructuring Order issued by the Maryland PSC, including the outcome of MAPSA's appeal as discussed on page 35, o commodity price risk, o operating our generation assets in a deregulated market without the benefit of a fuel rate adjustment clause, o loss of revenue due to customers choosing alternative suppliers, o higher volatility of earnings and cash flows, o increased financial requirements of our nonregulated subsidiaries, o inability to recover all costs associated with providing electric retail customers service during the electric rate freeze period, and o implications from the transfer of BGE's generation assets and related liabilities to nonregulated subsidiaries of Constellation Energy, including the outcome of an appeal of the Maryland PSC's Order regarding the transfer of generation assets. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Please see the other sections of this report and our other periodic reports filed with the SEC for more information on these factors. These forward-looking statements represent our estimates and assumptions only as of the date of this report. 37 Item 6. Exhibits and Reports on Form 8-K (a) * Exhibit No. 2(a) Agreement and Plan of Reorganization and Corporate Separation (Nuclear). (Designated as Exhibit No. 2(a) in Form 8-K dated July 7, 2000, File Nos. 1-12869 and 1-1910.) * Exhibit No. 2(b) Agreement and Plan of Reorganization and Corporate Separation Fossil). (Designated as Exhibit No. 2(b) in Form 8-K dated July 7, 2000, File Nos. 1-12869 and 1-1910.) Exhibit 10(a) Full Requirements Service Agreement Between Constellation Power Source, Inc. and Baltimore Gas and Electric Company. Exhibit 10(b) Constellation Energy Group, Inc. Benefits Restoration Plan. Exhibit 10(c) Constellation Energy Group, Inc. Supplemental Pension Plan. Exhibit 10(d) Constellation Energy Group, Inc. Senior Executive Supplemental Plan. Exhibit 10(e) Constellation Energy Group, Inc. Supplemental Benefits Plan. Exhibit No. 12(a) Constellation Energy Group, Inc. Computation of Ratio of Earnings to Fixed Charges. Exhibit No. 12(b) Baltimore Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements. Exhibit No. 27(a) Constellation Energy Group, Inc. Financial Data Schedule. Exhibit No. 27(b) Baltimore Gas and Electric Company Financial Data Schedule. Exhibit No. 99 BGE Pro Forma Financial Statements - Generation Asset Transfer. (b) Reports on Form 8-K for the quarter ended June 30, 2000: None. ------------ * Incorporated by Reference 38 SIGNATURE --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONSTELLATION ENERGY GROUP, INC. -------------------------------- (Registrant) BALTIMORE GAS AND ELECTRIC COMPANY ---------------------------------- (Registrant) Date: August 14, 2000 /s/ D. A. Brune --------------- --------------------------------------------- D. A. Brune, Vice President on behalf of each Registrant and as Principal Financial Officer of each Registrant 39 EX-10 2 0002.txt EXHIBIT 10(A) Exhibit 10(a) FULL REQUIREMENTS SERVICE AGREEMENT BETWEEN CONSTELLATION POWER SOURCE, INC. AND BALTIMORE GAS AND ELECTRIC COMPANY DATED JUNE 14, 2000 *** The asterisks on pages 5, 13, 23 and Exhibit B denote that confidential portions of this exhibit have been omitted in reliance on Rule 24 b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. TABLE OF CONTENTS
Page ARTICLE 1. Definitions 2 ARTICLE 2. Conditions Precedent; Effective Date; Term 6 ARTICLE 3. Supplier Responsibilities; Full Requirements Service 7 ARTICLE 4. Delivery Point; Transmission Service 9 ARTICLE 5. BGE Responsibilities 10 ARTICLE 6. Billing and Payment 11 ARTICLE 7. Price 13 ARTICLE 8. Events of Default; Remedies 14 ARTICLE 9. Credit Support 17 ARTICLE 10. Indemnification 19 ARTICLE 11. Limitation of Liability 19 ARTICLE 12. Force Majeure 20 ARTICLE 13. Representations and Warranties 21 ARTICLE 14. Miscellaneous 21 APPENDIX A SAMPLE PJM BILL APPENDIX B PRICE FREEZE SERVICE PRICES APPENDIX C LITIGATION DISCLOSURE
i FULL REQUIREMENTS SERVICE AGREEMENT THIS FULL REQUIREMENTS SERVICE AGREEMENT ("Agreement"), made and entered into as of this 14th day of June, 2000 by and between Constellation Power Source, Inc., a Delaware corporation ("Supplier" or "CPS") and Baltimore Gas and Electric Company, a Maryland Corporation ("BGE") (each individually a "Party", or collectively, the "Parties"). W I T N E S S E T H WHEREAS, on April 8, 1999, Maryland enacted the Electric Choice and Competition Act authorizing customer choice and competition among electric suppliers; WHEREAS, on November 10, 1999 the Maryland Public Service Commission issued an order approving the terms of a settlement providing for retail choice within BGE's service territory; WHEREAS, the Maryland PSC Order directs BGE to supply electric service for a period of up to six years to those retail customers within BGE's traditional retail service territory that choose not to purchase their power supply from alternative competitive suppliers; WHEREAS, the Maryland PSC Order provides that, in order to ensure the reliability of supply for electric service provided by BGE and to further ensure that BGE can meet its obligations, BGE may enter into a full requirements contract with an Affiliate for energy, capacity, losses and ancillary services needed by BGE for such specified retail load until June 30, 2003; WHEREAS, Supplier is authorized to makes sales of energy, capacity and ancillary services at market based rates pursuant to Constellation Power Source, Inc., 79 FERCP. 61,167 (1997) and its market based rates tariff, Constellation Power Source, Inc. Rate Schedule FERC No. 11, Revision No. 2 in accordance with FERC Delegated Letter Order of March 29, 2000 in FERC Docket No. ER00-1598-000 (the "Supplier Tariff"); WHEREAS, this Agreement is entered into pursuant to and in accordance with the Supplier Tariff; and WHEREAS, Supplier and BGE are entering into this Agreement for the purpose of establishing the terms and conditions under which Supplier will supply such full requirements service to BGE. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the Parties hereto agree as follows: 1 ARTICLE 1 DEFINITIONS 1.1 Definitions. For all purposes of this Agreement, the following terms as used in this Agreement shall have the following meanings. Except where the context otherwise requires, definitions and terms expressed in the singular will include the plural and vice versa. "Affiliate" means, with respect to a Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such first Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Retail Load" means the load obligation as reported to PJM for Price Freeze Service, Default Service and Special Contract Service retail load of BGE during the Delivery Term. "Agreement" means this Full Requirements Service Agreement, including the Appendices, as amended, modified or supplemented from time to time. "BGE" means Baltimore Gas and Electric Company, a Maryland corporation and its successors and permitted assigns hereunder. "Business Day" means a day on which Federal Reserve member banks in Baltimore Maryland are open for business; and a Business Day shall open at 8:00 a.m. and close at 5:00 p.m. Eastern Standard (or Daylight Savings) time. "CCNPP" means Calvert Cliffs Nuclear Power Plant, Inc. and any successor thereto. "CGI" means Constellation Power Source Generation, Inc. and any successor thereto. "Creditworthiness Criteria" with respect to a Party or its guarantor means (i) a rating of "Baa3" or better from Moody's, "BBB-" or better from S&P or investment grade as determined by another nationally recognized rating service reasonably acceptable to the other Party and (ii) a Net Worth of at least Two Hundred Million Dollars ($200,000,000). "Default Service" means the retail electric generation default service provided by BGE to its customers in Maryland in accordance with the settlement, the Maryland PSC Order, and BGE's tariffs on file with the Maryland PSC. "Delivery Point" means any point on the PJM Transmission System as elected by Supplier. 2 "Delivery Term" means the period commencing on the Effective Date and ending on June 30, 2003, unless this Agreement is earlier terminated in accordance with its terms. "Effective Date" means 12:01 a.m. on the later of: (a) July 1, 2000; or (b) the first day of the month following the month in which all of the conditions specified in Article 2 are satisfied or waived by the Party for whose benefit such condition exists, or if such date is less than five Business Days prior to the first day of the next succeeding month, then the first day of the second month thereafter, or as may be mutually agreed upon by the Parties. "Electricity Supplier Coordination Tariff" means the BGE Electricity Supplier Coordination Tariff approved by the Maryland PSC, as amended, modified or supplemented from time to time. "FERC" means the Federal Energy Regulatory Commission and any successor thereto. "Full Requirements Service" means all-requirements electric service (minute by minute, hour by hour, day by day) including, but not limited to, the following products: energy, capacity, ancillary services, Unaccounted For Energy and associated losses necessary to fulfill all PJM obligations as they may change from time to time associated with providing all-requirements electric service to BGE's Aggregate Retail Load, as further defined or limited pursuant to Article 3. Such Full Requirements Service shall include changes in customer demand for any reason, including, but not limited to, seasonal factors, daily load fluctuations, increased or decreased usage, demand side management activities, extremes in weather, and other similar events. "Governmental Authority" means the government of any federal, state, municipal or other political subdivision, including all agencies and instrumentalities of such governments and political subdivisions. "Interest Rate" means, for any date, the lesser of (a) two (2) percent over the per annum rate of interest equal to the prime lending rate as may from time to time be published in The Wall Street Journal under "Money Rates" and (b) the maximum rate permitted by applicable law. "Load Serving Entity (LSE)" means an entity, including a load aggregator or power marketer, that: (i) is serving end-users within the PJM Control Area, and (ii) has been granted the authority, or has an obligation pursuant to state or local law, regulation or franchise, to sell electric energy to end-users within the PJM Control Area, or the duly designated agent of such an entity. "Maryland PSC" means the Maryland Public Service Commission and any successor thereto. 3 "Maryland PSC Order" means the November 10, 1999 Order issued by the Maryland PSC allowing, among other things, retail choice for electricity consumers, requiring that BGE provide electricity supply to retail consumers who do not chose an alternate supplier, and further allowing BGE to enter into a full requirements service agreement with an Affiliate for Full Requirements Service for BGE's Aggregate Retail Load. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "Net Worth" means total assets (exclusive of intangible assets) less total liabilities as reflected on a balance sheet prepared in accordance with generally accepted accounting principles consistently applied. "Operating Committee" means a committee formed by one representative of Supplier and one representative of BGE for the purposes described in this Agreement and as otherwise directed by the Parties. "Person" means any individual, sole proprietorship, corporation, partnership, joint venture, limited liability partnership, limited liability company, trust, unincorporated association, institution, Governmental Authority or any other entity. "PJM" means PJM Interconnection, L.L.C., the independent system operator for the PJM Control Area organized and operating pursuant to the PJM Operating Agreement and any successor thereto. "PJM Operating Agreement" means the Amended and Restated Operating Agreement of PJM Interconnection, LLC dated June 2, 1997 and effective January 1, 1998, as amended, modified or supplemented from time to time. "PJM OATT" means the PJM Open Access Transmission Tariff administered by PJM, as amended, modified or supplemented from time to time. "PJM Transmission System" has the meaning given in the PJM OATT. "Price Freeze Service" means the retail electric generation price freeze service provided by BGE to its customers in Maryland in accordance with the settlement, the Maryland PSC Order, and BGE's tariffs on file with the Maryland PSC. "Reliability Assurance Agreement" means the Reliability Assurance Agreement among Load Serving Entities in the PJM Control Area dated June 2, 1997, as amended, modified or supplemented from time to time. "Required Regulatory Approvals" means FERC approval of each of the applications of CGI and CCNPP for authority to sell electricity at market based rates including associated waivers such that, among other things, the agreement between CGI and CPS and the 4 agreement between CCNPP and CPS are not be required to be filed with FERC until 30 days after service commences under each agreement; FERC approval of the application of CPS to modify its market based rate tariff to remove any restriction preventing it from selling electricity to BGE thereunder or otherwise requiring CPS to file this Agreement between it and BGE with FERC in a manner other than inclusion in CPS's quarterly report; FERC approval of the application of BGE to modify its market based rate tariff to remove any restriction preventing it from selling electricity to CPS thereunder or otherwise requiring the filing of agreements for the sales of electricity among BGE and its affiliates with FERC prior to the commencement of such sales; Maryland PSC approval of the BGE settlement providing for, among other things, the commencement of retail choice within the BGE service territory; Maryland PSC approval of the asset transfer and other transactions taken pursuant to the BGE settlement; Pennsylvania Public Utility Commission approval of the asset transfer and other transactions being undertaken pursuant to the BGE settlement; FERC approval of the transfer by BGE of FERC jurisdictional facilities and contracts associated therewith; FERC approval of the Interconnection Agreements between CCNPP and BGE and between CGI and BGE; FERC authorization for the issuance of securities and assumption of liabilities; receipt from the Internal Revenue Service of a favorable Private Letter Ruling with respect to the tax free distributions of certain assets from BGE to Constellation Energy Group and its affiliates; and the Nuclear Regulatory Commission approval of the transfer of the Calvert Cliffs Operating Licenses from BGE to CCNPP, all without material modification or condition. Further, CCNPP and CGI shall have made good faith filings with the FERC relating to exempt wholesale generator status such that each will be accorded such status as of the later of July 1, 2000 or when service commences hereunder. "Special Contract Service" means the retail electric generation service provided by BGE to *** and ***. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. and any successor thereto. "Supplier" means Constellation Power Source, Inc., a Delaware corporation and its successors and permitted assigns hereunder. "Taxes" means any or all ad valorem, property, severance, generation, first use, conservation, Btu or energy, transportation, utility, gross receipts, privilege, sales, use, consumption, excise, lease, transaction, and other taxes, governmental charges, licenses, fees, permits and assessments, or increases therein, other than taxes based on net income or net worth. "Unaccounted For Energy" means the difference between the hourly BGE system load and the sum of (i) the estimated hourly customer loads (interval metered and profiled) and (ii) losses. *** The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24 b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. 5 1.2 Additional Defined Terms. Each of the following terms has the meaning specified in the Article, Section or Appendix set forth opposite such term:
Term Section/Appendix AAA 14.11 Affected Party 8.4 ALM 5.4 Bankruptcy Proceeding 8.1 Claims 10 Confidential Information 14.7 Defaulting Party 8.1 Early Termination Date 8.4 Event of Default 8.1 Force Majeure 12.1(a) Initial Supplier Credit Support 9.1(a) Interdepartmental Customers 3.4 Margin 8.2(c) Non-Defaulting Party 8.2 Price 7.1 Settlement Amount 8.2(b) Term 2.3 Termination Payment 8.2(c)
ARTICLE 2 CONDITIONS PRECEDENT; EFFECTIVE DATE; TERM 2.1 Conditions on Obligations of BGE and Supplier. The obligations of BGE and Supplier under this Agreement and the designation of the Effective Date for the commencement of this Agreement are subject to the fulfillment and satisfaction of each of the following conditions precedent, any one or more of which may only be waived in writing, in whole or in part, by the Party for whose benefit such condition exists. (a) All representations and warranties of each Party contained in this Agreement shall be true and correct in all material respects as of the date when made and at and as of the Effective Date as though such representations and warranties had been made or given on such date (except to the extent such representations and warranties specifically pertain to an earlier date), and each Party shall have delivered to the other Party a certificate, dated as of the Effective Date and signed by one of its duly authorized officers to such effect. 6 (b) All Required Regulatory Approvals shall have been received and be final and in full force and effect pursuant to a final, nonappealable order, which approvals shall not have materially modified the express terms and conditions of this Agreement. (c) Each Party shall have delivered to the other Party a certificate dated as of the Effective Date and signed by one of such Party's duly authorized officers specifying that each of the conditions precedent applicable to it have been satisfied or waived. 2.2 Satisfaction of Conditions. Each Party agrees to cooperate in good faith with the other Party and shall take all practicable actions and devote resources reasonably necessary to obtain satisfaction of the conditions set forth in Section 2.1 as soon as reasonably possible. In the event that the conditions set forth in Section 2.1 are not satisfied or are not waived on or before July 1, 2001, then either Party, at its option, may terminate this Agreement by delivering a notice of termination to the other Party. Notice of termination for failure of a condition must be in writing and issued prior to the date when the condition is belatedly satisfied or waived by the Party for whose benefit such condition exists, and shall identify in reasonable detail the condition(s) which have not been satisfied. Upon any termination of this Agreement in accordance with this Section 2.2, neither Party shall have any obligation to the other under this Agreement. 2.3 Term. Unless earlier terminated in accordance with Section 2.2 or as otherwise provided in Article 8, this Agreement shall remain in effect from the date hereof through and including the end of the Delivery Term ("Term"). At the expiration of the Term, the Parties shall no longer be bound by the terms and conditions of this Agreement, except to the extent necessary to enforce the rights and obligations of the Parties arising under this Agreement prior to the expiration of the Term. ARTICLE 3 SUPPLIER RESPONSIBILITIES; FULL REQUIREMENTS SERVICE 3.1 PJM Member. Supplier shall, prior to the Effective Date, (i) be a member, in good standing, of PJM and maintain a settlement account established in accordance with the rules and criteria established by PJM throughout the Term of this Agreement, or (ii) have an agreement in place, for the full Term of this Agreement, with a PJM member whereby the PJM member agrees to include the Aggregate Retail Load to be served by Supplier under this Agreement in its settlement account. 7 3.2 Full Requirements Service. During the Delivery Term, Supplier shall sell and deliver to the Delivery Point and BGE shall receive and purchase Full Requirements Service sufficient to serve BGE's Aggregate Retail Load. As a provider of Full Requirements Service, Supplier is solely responsible for satisfying all requirements and paying all costs incurred or to be incurred to provide such service including, without limitation, all costs or other requirements to furnish capacity, energy, losses, Unaccounted For Energy and ancillary services associated with the provision of Full Requirements Service. Supplier is also solely responsible for meeting any other requirements and paying any other costs now or hereafter imposed by PJM or imposed pursuant to the Reliability Assurance Agreement from time to time during the Delivery Term which are attributable to any component of the provision of Full Requirements Service. If PJM allocates any expenses or uplift costs to the Full Requirements Service provided by Supplier (on a load or peak load basis or otherwise), the expenses or costs so allocated will be borne by Supplier alone without recourse to BGE. 3.3 Losses; Unaccounted For Energy. Supplier shall be responsible for the Aggregate Retail Load as reported to PJM which includes all transmission, sub-transmission and/or distribution losses associated with the delivery of electricity supplied under this Agreement from the sources of its supply to the meters of those retail customers taking Full Requirements Service. The hourly Unaccounted For Energy associated with the electricity supplied under this Agreement shall be included in the Aggregate Retail Load. For purposes of calculating amounts owed by BGE to Supplier hereunder losses and Unaccounted For Energy shall be included on a pro-rata basis (or in such other manner as determined by the Operating Committee) over each customer class of Price Freeze Service, Default Service and Special Contract Service. 3.4 Interdepartmental Customers; Station Service. (a) Full Requirements Service consumed by BGE or its Affiliates ("Interdepartmental Customers") shall be included in Aggregate Retail Load by rate class as follows. If Interdepartmental Customers' consumption is provided by BGE pursuant to a rate schedule, then BGE shall pay Supplier for Full Requirements Service associated with such customers the Price applicable to such schedule as set forth in Appendix B. If Interdepartmental Customers' consumption is not provided by BGE pursuant to a rate schedule, then BGE shall pay Supplier for Full Requirements Service associated with such customers the Price applicable to GL Secondary customers as set forth in Appendix B. (b) If at any time during the Term of this Agreement, PJM modifies its practices such that the station service requirements of CCNPP or CGI are no longer netted or otherwise accounted for as interchange for PJM purposes, and as a consequence CCNPP and CGI are required to purchase retail power for station service purposes, then Supplier shall supply such station service power to BGE for resale by BGE to CCNPP and CGI, unless BGE is precluded 8 from providing such power by law or regulation. BGE shall reimburse Supplier 100% of Supplier's actual costs to supply such station service power. 3.5 Maryland Environmental Disclosure Requirements. Subject to any confidentiality provisions to which it is bound, Supplier will provide to BGE, to the best of its knowledge, the sources of electricity used to supply Full Requirements Service, fuel mix and environmental disclosure information in a timely manner and in an appropriate form to enable BGE to comply with Maryland PSC or other governmental or regulatory agency requirements relating to reporting of such information. 3.6 Renewable Energy Resources. During the Term of this Agreement, Supplier agrees to utilize the output that it receives from the Brighton Dam facility that is owned and/or operated by Alternative Energy Associates, the Safe Harbor Hydroelectric plant that is owned and/or operated by Safe Harbor Water Power Corporation and the BRESCO facility that is owned and/or operated by Baltimore Refuse Energy Systems Company, Limited Partnership to serve the Aggregate Retail Load hereunder; provided, however, that if the Operating Committee determines that at any time during the Term the output available to Supplier from such resources exceeds the renewable resource requirements imposed upon BGE by Article 7-615 of the Maryland Electric Customer Choice and Competition Act of 1999, as amended from time to time, then the Operating Committee shall determine the appropriate allocation of such resources. ARTICLE 4 DELIVERY POINT; TRANSMISSION SERVICE 4.1 Title; Risk of Loss. Title to and risk of loss related to the Full Requirements Service delivered by Supplier in accordance with this Agreement shall pass to BGE at the Delivery Point. 4.2 Fixed Transmission Rights. If the PJM Control Area experiences congestion, Supplier will be responsible for any congestion costs incurred in delivering power from the Delivery Point to BGE's load busses supplying Aggregate Retail Load. During the Delivery Term, BGE shall, at no cost to Supplier, assign, transfer or pay, as applicable, to Supplier any and all transmission service rights, revenues and/or fixed transmission rights (FTR's) associated with system congestion that it receives or to which it is entitled. It is the intent of the Parties that to the extent Supplier is responsible for any congestion related costs associated with the delivery of Full Requirements Service hereunder, that any corresponding payments or benefits received by BGE associated with or related to payments in respect of congestion be paid or transferred by BGE to Supplier. 9 4.3 Network Transmission and Distribution Service. BGE shall be responsible, at its sole cost and expense, for the provision of Network Transmission Service pursuant to the PJM OATT and distribution service at and from the Delivery Point. ARTICLE 5 BGE RESPONSIBILITIES 5.1 Load Information. BGE shall provide Supplier with timely and best available information regarding the Aggregate Retail Load to be served under this Agreement as reasonably requested by Supplier from time to time during the Term. The information provided to Supplier by BGE shall be in a format reasonably acceptable to Supplier and shall permit Supplier to properly forecast, schedule and bill or verify billings of BGE for Full Requirements Service. In addition, BGE shall provide timely notice to Supplier of any changes, either additions or deletions (including loss of or addition of customers and any anticipated changes in customer usage or usage patterns), to the retail load being served by BGE. In the event that Supplier requests data in a format that requires BGE to dedicate incremental resources in excess of 40 manhours to accomplish, BGE will provide Supplier an estimate of its actual costs to provide such data format and will be under no obligation to incur such costs unless and until Supplier has agreed to reimburse BGE the amount of such actual costs. 5.2 Authorization for Supplier to Assume Certain LSE Rights and Obligations. BGE shall provide Supplier all authorizations or other demonstrations of authority required for Supplier to gain access to and assume responsibility for administration of BGE's PJM account and otherwise to facilitate Supplier's assumption of certain of BGE's rights and obligations as a Load Serving Entity as required pursuant to the terms of this Agreement. BGE hereby makes such authorizations to Supplier for the Term of this Agreement for the purpose of scheduling, electing, exercising and/or implementing BGE's rights and obligations under the PJM Operating Agreement and the Reliability Assurance Agreement as may be required to fulfill Supplier's obligations pursuant to this Agreement or as otherwise necessary in connection with this Agreement. 5.3 Reporting to PJM and Supplier. BGE shall report to PJM and to Supplier all load obligations attributable to Supplier, including hourly Aggregate Retail Load (including losses and Supplier's share of Unaccounted For Energy), Aggregate Transmission Peak Load Contribution, and Aggregate Capacity Peak Load Contribution. Reporting shall be in accordance with PJM reporting requirements to support PJM accounting and billing procedures for both estimated and actual amounts. In calculating such obligations, together with reconciliations of actual to estimated load data, BGE shall follow 10 the procedures set forth in the Electricity Supplier Coordination Tariff and PJM OATT. All data provided to Supplier in accordance with this Section 5.3 shall be allocated among the relevant customer classes, as set forth in Appendix B, to accommodate appropriate billing pursuant to Section 6.1. For purposes of invoicing and payment, the total Aggregate Retail Load, as reported to PJM on a wholesale basis for each calendar month shall equal the Full Requirements Service delivered by Supplier to BGE hereunder in such calendar month. 5.4 Active Load Management. During the Delivery Term, BGE will operate its Active Load Management ("ALM") programs as directed by the Operating Committee and otherwise in accordance with the provisions of the Electricity Supplier Coordination Tariff and the applicable Riders to BGE's Retail Electric Service Tariff, as approved by the Maryland PSC from time to time. BGE shall provide periodic reports to Supplier regarding the amount of ALM available for ALM credits to be used in the determination of capacity obligation in accordance with the Reliability Assurance Agreement. In addition, BGE shall be responsible for payment of any ALM credits to retail customers and for any penalties assessed in accordance with the Reliability Assurance Agreement for failure to implement its ALM programs when so requested by PJM. ARTICLE 6 BILLING AND PAYMENT 6.1 Billing. (a) On or before the fifth (5th) Business Day of each month, BGE shall deliver to Supplier a statement that sets forth: (i) the allocation of Aggregate Retail Load volumes for the preceding month among Price Freeze Service customers, (further allocated to each customer rate classes for which a separate Price is specified on Appendix B), Default Service customers and each individual Special Contract customer; (ii) the calculation of the amount due and payable by BGE for Price Freeze Service, based upon the volumes allocated to each customer rate class and the Prices applicable thereto as set forth on Appendix B; and (iii) all other information reasonably requested by Supplier to facilitate CPS's verification of the foregoing values, including, without limitation, volumes attributable to Interdepartmental Customers or station service supplied pursuant to Section 3.4(b). Such statement shall constitute an "invoice" or "bill" for purposes of amounts due and payable for Full Requirements Service allocated to Price Freeze Service customers. (b) On or before the tenth (10th) Business Day of each month, Supplier shall deliver to BGE an invoice for the volumes of Full Requirements Service allocated to Default Service and Special Contract Service customers for the preceding month, using the volume data provided by BGE pursuant to Section 6.1(a) and the Prices applicable thereto as set forth in Section 7.1. To the extent that Supplier's actual cost for any component of such Full Requirements Service is not finally determined at the time of such invoice, Supplier's invoice shall include an estimate for such cost, subject to reconciliation in subsequent months' invoices pursuant to Section 6.1(c) or 11 Supplier shall bill such costs in arrears. All invoices rendered by Supplier to BGE shall also set forth all other information reasonably requested by BGE to facilitate BGE's verification of Supplier's invoice. (c) Because the allocation of volumes under Section 6.1(a) are estimated and certain of Supplier's costs under Section 6.1(b) may be estimated, quantities and costs used in calculations under this Section 6.1 shall be subject to adjustment, whether positive or negative, in subsequent months' calculations, to reflect reconciliation with actual values. Any resulting billing adjustment (debit or credit) will be reflected in subsequent months' invoices pursuant to Section 6.4. 6.2 Payment. All invoices pursuant to Section 6.1(a) and (b) shall be due and payable, unless otherwise agreed by the Parties, on the first Business Day after the 19th calendar day of the month in which the invoice is rendered. Invoices shall be sent via facsimile or other means agreed to by the Parties. BGE will make payments by wire transfer, or by other mutually agreeable method(s), to the account of Supplier as designated by Supplier. Any amounts, both principal and interest, remaining unpaid after the due date will be deemed delinquent and will accrue interest at the Interest Rate, such interest to be calculated from the due date to the date the unpaid amount is paid in full. 6.3 Disputed Bills. If either Party, in good faith, disputes an invoice, the disputing Party shall immediately notify the other Party of the basis for the dispute and, in the case of a dispute by BGE, pay the portion of such statement conceded to be correct no later than the due date. Each Party shall have the right to dispute any invoice prior to the lapse of 12 months from the rendition thereof. If any disputed amount is ultimately determined to be due to Supplier, it shall be paid within two (2) days of such determination along with interest accrued at the Interest Rate until the date paid. Inadvertent overpayments by BGE shall be returned by Supplier upon request or deducted by Supplier from subsequent payments, with interest accrued at the Interest Rate until the date paid or deducted. 6.4 Billing Adjustments. (a) The invoices rendered hereunder may be adjusted by the Party rendering such invoice for any errors in arithmetic, computation, meter readings, estimating, or otherwise no later than twelve (12) months after the date the bill was rendered. Any billing adjustment shall be in writing and shall state the specific basis for the adjustment. A billing adjustment shall constitute a new bill for the purposes of this Section 6.4. An adjusted bill shall be binding on the Party that renders it twelve (12) months after the bill is rendered. Adjustments to reconcile estimated quantities or costs to actuals shall carry no interest; provided, however, that if at any time Supplier is not an Affiliate of BGE, then adjustments shall carry interest at the Interest Rate. 12 (b) Subject to Section 6.4(a), overpayments or underpayments resulting from a billing adjustment or billing challenge shall bear interest calculated at the Interest Rate. In the case of an underpayment, interest shall accrue from the due date of the bill to which the adjustment or challenge relates to the date the additional charge is paid. In the case of an overpayment, interest shall accrue from the date the amount being refunded was received by Supplier to the date the refund is made. 6.5 PJM Billing. BGE shall request PJM to invoice Supplier directly for charges and credits relating to Supplier's obligation to deliver Full Requirements Service to BGE under this Agreement. BGE shall also request PJM to invoice BGE separately for charges and credits (other than credits for the account of Supplier as described in Section 4.2) relating to BGE's rights and obligations as a network transmission customer and a Transmission Owner and otherwise as the Parties agree. Appendix A attached hereto and made a part hereof allocates the charges and credits currently included on a PJM consolidated bill between Supplier and BGE based upon the Parties' expectation of the allocation of charges and credits after the Effective Date of this Agreement. ARTICLE 7 PRICE 7.1 Price. (a) The "Price" payable by BGE to Supplier for the delivery of Full Requirements Service hereunder shall be determined as follows: (i) for each megawatt-hour of Full Requirements Service ***; (ii) for the total quantity of Full Requirements Service delivered to Default Service customers and Special Contract Service customers, the "Price" ***; and (iii) for the total quantity of station service delivered pursuant to Section 3.4(b), the "Price" is ***. *** The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24 b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. 13 7.2 Taxes. (a) Supplier shall pay all Taxes levied in respect of the Full Requirements Service, its sale, and the handling thereof prior to the Delivery Point. BGE shall pay all such Taxes levied on such Full Requirements Service at, and from, the Delivery Point. (b) For any new Taxes levied with respect to the Full Requirements Service after the Effective Date and to the extent permitted by the settlement and the Maryland PSC Order, BGE will fully support and pursue in good faith the recovery of any such new Tax levied on Supplier from BGE's Full Requirements Service customers. To the extent such new Taxes are recoverable by BGE from its Full Requirements Service customers, BGE shall reimburse Supplier for such Taxes paid by Supplier. 7.3 Sales for Resale. All Full Requirements Service delivered by Supplier to BGE hereunder shall be sales for resale, with BGE reselling such Full Requirements Service. At Supplier's request, BGE shall obtain and provide Supplier with any resale certificates to evidence that the deliveries hereunder are sales for resale. 7.4 Payment Netting. Payments owing by each Party on any day under this Agreement or any other agreement between the Parties shall be offset so that only the net amount shall be paid by the Party having the greater payment obligation on such day. ARTICLE 8 EVENTS OF DEFAULT; REMEDIES 8.1 Events of Default. An "Event of Default" shall mean, with respect to a Party ("Defaulting Party"), the occurrence of any of the following: (i) the failure to make, when due, any payment required pursuant to this Agreement if such failure is not remedied within three (3) Business Days after written notice of such failure is given by the other Party and provided the payment is not the subject of a good faith dispute as described in Article 6; (ii) any representation or warranty made by the Defaulting Party herein prove to be false or misleading in any material respect; (iii) the failure of the Defaulting Party, in a material respect, to perform or comply with any covenant set forth in this Agreement and such failure is not excused by Force Majeure or cured within three (3) Business Days after receipt of written notice thereof from the other Party; 14 (iv) the failure of the Defaulting Party to maintain any of the security requirements set forth in Article 9, and such failure is not cured or rectified within ten (10) days after notice from the other Party; and (v) the Defaulting Party shall be subject to a Bankruptcy Proceeding ("Bankruptcy Proceeding" means with respect to a Party, such Party (a) files a petition or otherwise commences a proceeding under any bankruptcy, insolvency, reorganization or similar law, or has any such petition filed or commenced against it, (b) makes an assignment or any general arrangement for the benefit of creditors, (c) otherwise becomes bankrupt or insolvent (however evidenced), (d) has a liquidator, administrator, receiver, trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets, or (e) is unable to pay its debts as they fall due). 8.2. Remedies upon an Event of Default. (a) After the occurrence of an Event of Default with respect to a Defaulting Party, the other Party (the "Non-Defaulting Party") shall have the right, without prior notice, to liquidate and terminate this Agreement at any time and from time to time, with the minimum period of notice required by FERC, if applicable, and shall calculate, in a commercially reasonable manner, a Settlement Amount for this Agreement as of the time of its termination or as soon thereafter as is reasonably practicable and shall net such Settlement Amounts in the manner provided for in Section 8.2(c). (b) "Settlement Amount" shall mean, with respect to this Agreement and the Non-Defaulting Party, the losses and costs (or gains), expressed in U.S. Dollars, which such party incurs as a result of the liquidation, including, but not limited to, losses and costs (or gains) based upon the then current replacement value of this Agreement together with, at the Non-Defaulting Party's option, but without duplication, all losses and costs which such party incurs as a result of maintaining, terminating, obtaining or re-establishing any hedge or related trading positions. The Settlement Amount shall be due to or from the Non-Defaulting Party as appropriate. In calculating a Settlement Amount, the Non-Defaulting Party shall discount to present value (in a commercially reasonable manner based on the Prime Rate as of the date of termination) any amount which would otherwise have been due at a later date and shall add interest at the Prime Rate to any amount due prior to the date of the calculation. "Prime Rate" shall mean the prime rate of interest as published from time to time under "Money Rates" by The Wall Street Journal. (c) If the Settlement Amount (i) is due the Non-Defaulting Party, the Non-Defaulting Party shall set off against the Settlement Amount any Margin then available to the Non-Defaulting Party, plus (at the Non-Defaulting Party's election) any or all other amounts due to the Defaulting Party under this Agreement; or (ii) is due the Defaulting Party, the Non-Defaulting Party shall set off against the Settlement Amount any Margin then available to the Defaulting Party, plus (at the Non-Defaulting Party's election) any or all other amounts due to the Non-Defaulting Party under this Agreement, so that all such amounts shall be netted to a single liquidated amount (the "Termination Payment") payable by one party to the other. "Margin" shall mean cash, securities or 15 other property held by or due from one Party to guarantee or secure obligations of the other party under the Agreement. (d) Notice that a liquidation pursuant to this Article 8.2 has occurred shall be given by the Non-Defaulting Party to the Defaulting Party before the close of business on the Business Day following such liquidation, provided that failure to give such notice shall not affect the validity or enforceability of the liquidation or give rise to any claim by the Defaulting Party against the Non-Defaulting Party. The notice shall specify the amount of the Termination Payment and whether it is owed by or to the Defaulting Party. The notice shall include a written statement explaining in reasonable detail the calculation of such amount. The Termination Payment shall be made by the Party that owes it on the second Business Day after such notice is given. (e) If the Defaulting Party disputes the Non-Defaulting Party's calculation of the Termination Payment, in whole or in part, the Defaulting Party shall, within two (2) Business Days of receipt of Non-Defaulting Party's calculation of the Termination Payment, provide to the Non-Defaulting Party a detailed written explanation of the basis for such dispute and, if the Termination Payment is due from the Defaulting Party, shall promptly pay to the Non-Defaulting Party such portion thereof as is conceded to be correct. If the Parties cannot resolve such dispute within three (3) Business Days of the Non-Defaulting Party's receipt of the Defaulting Party's written explanation, then the Defaulting Party may submit such dispute to arbitration in accordance with the arbitration procedures set forth in Section 14.11 hereof; provided, however, that if the Termination Payment is due from the Defaulting Party, the Defaulting Party shall first transfer collateral (of a type and in a form acceptable to the Non-Defaulting Party) to the Non-Defaulting Party in an amount equal to the disputed and unpaid portion of the Termination Payment. Any payment that is due as a result of the arbitrator's award shall be paid by the Party that owes it within two (2) Business Days after the award is rendered. 8.3 Setoffs. (a) Without limiting its rights under this Article 8 or otherwise, after an Event of Default, the Non-Defaulting Party may from time to time set off any or all amounts which the Defaulting Party owes to it (whether under the Agreement or otherwise and whether or not then due) against any or all amounts which it owes to the Defaulting Party (whether under the Agreement or otherwise and whether or not then due), provided that any amount not then due which is included in such setoff shall be discounted to present value (in the manner specified in Section 8.2(b)) as at the time of setoff (to take account of the period between the date of setoff and the date on which such amount would have otherwise been due). (b) Notwithstanding any other provision of this Agreement, after the occurrence of an Event of Default, or an event which, with the giving of notice or the passage of time or both, would constitute an Event of Default, with respect to a Party, the other Party shall have the right to suspend performance under this Agreement. 16 8.4 Other Terminating Events. (a) If performance by either Party (an "Affected Party") under this Agreement becomes subject to regulation of any kind whatsoever under any law, rule, regulation, order or the like, including any change by the FERC regarding a Party's authority to sell wholesale power at market-based rates, to a greater or different extent than that existing on the Effective Date and such regulation renders this Agreement illegal or unenforceable then such Party (or either Party if both Parties are Affected Parties) may terminate and liquidate this Agreement ("Early Termination Date") in the manner contemplated by Section 8.3 above, which notice shall specify the basis for declaring such Early Termination Date. (b) If an Early Termination Date is declared under circumstances described in Section 8.4 (a) above, both Parties shall calculate their respective gains, losses or costs in respect of this Agreement as provided in Section 8.2, and endeavor in good faith to agree upon the Termination Payment payable by either Party, and notify the other Party of the Termination Payment, as provided in Section 8.2. 8.5 Duty to Mitigate. Each Party agrees that it has a duty to mitigate damages and covenants that it will use commercially reasonable efforts to minimize any damages it may incur as a result of the other Party's failure to perform pursuant to this Agreement. ARTICLE 9 CREDIT SUPPORT 9.1 Supplier Credit Support. (a) On or before the Effective Date, unless Supplier satisfies the Creditworthiness Criteria at such time, as security for Supplier's obligations hereunder, Supplier shall deliver to BGE a guaranty of payment from either Constellation Energy Group, Inc., or another Affiliate of Supplier that satisfies the Creditworthiness Criteria, in an amount equal to the reasonably determined credit exposure of BGE to Supplier taking into account such factors as market risk, settlement risk, the underlying creditworthiness of Supplier, or such other considerations as are commercially reasonable under the circumstances. Such credit support shall be available to be drawn upon by BGE in the event of a default by Supplier of its obligations hereunder, and, subject to Sections 9.1(b) and (c), shall be maintained in effect (by annual renewal or otherwise) by Supplier for the Term of this Agreement. (b) Supplier may, at any time during the Term of this Agreement and at its election, deliver substitute credit support to BGE in any of the following forms: (i) a direct pay irrevocable letter of credit directed to BGE from a commercial bank with long-term debt ratings of "Baa2" or better from Moody's and "BBB" or better from S&P; (ii) a performance bond issued by a surety 17 company with a rating of "B+" or better from A.M. Best Company; or (iii) such other credit support that is acceptable to BGE. (c) If at any time during the Term of this Agreement Supplier satisfies the Creditworthiness Criteria, its obligation to deliver any credit support pursuant to this Section 9.1 shall be suspended for so long as Supplier continues to satisfy the Creditworthiness Criteria. From and after the date on which Supplier satisfies the Creditworthiness Criteria, Supplier shall certify to BGE within thirty (30) days after the end of every calendar quarter that Supplier satisfies the Creditworthiness Criteria (which certification shall include evidence as BGE shall reasonably request from time to time), and shall deliver financial statements to BGE certified by a firm of certified public accountants of national standing at least annually within one hundred twenty (120) days following the end of Supplier's fiscal year. If at any time thereafter Supplier no longer satisfies the Creditworthiness Criteria, then Supplier shall, within ten (10) Business Days after receipt of a written notice with respect thereto, deliver a guaranty that satisfies the requirements of Section 9.1(a) or other credit support in accordance with Section 9.1(b). 9.2 BGE Credit Support. (a) Commencing with the Effective Date and thereafter during the Term, within thirty (30) days after the end of every calendar quarter, BGE shall certify to Supplier that it satisfies the Creditworthiness Criteria (which certification shall include evidence as Supplier shall reasonably request from time to time), and shall deliver financial statements to Supplier certified by a firm of certified public accountants of national standing at least annually within one hundred twenty (120) days following the end of BGE's fiscal year. BGE may satisfy its obligation under this paragraph by delivering a copy of its parent company's Annual Report or Form 10K. If at any time during the Term BGE no longer satisfies the Creditworthiness Criteria, then BGE shall, within ten (10) Business Days after receipt of a written notice with respect thereto, deliver to Supplier, in an amount equal to the reasonably determined credit exposure of Supplier to BGE taking into account such factors as market risk, settlement risk, the underlying creditworthiness of BGE, or such other considerations as are commercially reasonable under the circumstances, either: (i) a guaranty of payment from an Affiliate that satisfies the Creditworthiness Criteria; (ii) a letter of credit directed to Supplier from a commercial bank with long-term debt ratings of "Baa2" or better from Moody's and "BBB" or better from S&P; (iii) a performance bond issued by a surety company with a rating of "B+" or better from A.M. Best Company; or (iv) such other credit support that is acceptable to Supplier. (b) If at any time after delivering credit support pursuant to Section 9.2(a), BGE satisfies the Creditworthiness Criteria, then its obligation to deliver any credit support pursuant to this Section 9.2 shall be suspended for so long as BGE continues to satisfy the Creditworthiness Criteria, as provided in Section 9.2(a). 9.3 Modification or Waiver. The Parties may agree in writing to modify or waive the provisions of Article 9. 18 ARTICLE 10 INDEMNIFICATION Each Party shall indemnify, defend and hold harmless the other Party (including the other Party's Affiliates, trustees, directors, board members, officers, employees, and agents) from any Claims arising from or out of any event, circumstance, act or incident occurring during the period when control and title to Power is vested, as between the Parties as provided in Article 8.1, in the indemnifying Party. "Claims" means all claims or actions, threatened or filed and, whether groundless, false or fraudulent, that directly or indirectly relate to the subject matter of an indemnity, and the resulting losses, damages, expenses, attorneys' fees and court costs, whether incurred by settlement or otherwise, and whether such claims or actions are threatened or filed prior to or after the termination of this Agreement. ARTICLE 11 LIMITATION OF LIABILITY THE PARTIES CONFIRM THAT THE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT SATISFY THE ESSENTIAL PURPOSES HEREOF. FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, THE OBLIGOR'S LIABILITY SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY HEREIN PROVIDED, THE OBLIGOR'S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY. SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE LIQUIDATED DAMAGES CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS. 19 ARTICLE 12 FORCE MAJEURE 12.1 Definition. (a) As used in this Agreement, "Force Majeure" means any cause beyond the reasonable control of, and without the fault or negligence of, the Party claiming Force Majeure. A Force Majeure shall include, without limitation, sabotage, strikes, riots or civil disturbance, acts of God, acts of a public enemy, drought, earthquake, flood, explosion, fire, lightning, landslide, or any similar cataclysmic occurrence, or appropriation or diversion of electricity by sale or order of any governmental authority having jurisdiction thereof, but only if and to the extent that the event adversely affects the availability of the PJM Transmission System or BGE distribution facilities, and such affected facilities are necessary to deliver Full Requirements Service electricity to the meters of customers taking Price Freeze Service, Default Service and Special Contract Service. (b) An event that affects the availability or cost of operating any transmission or distribution facilities outside the PJM Control Area, affects the availability or cost of operating a generating facility, or any event that merely causes an economic hardship to either Party shall not be deemed a Force Majeure. 12.2 Performance Excused. (a) If either Party is rendered wholly or partly unable to perform its obligations under this Agreement because of Force Majeure as defined above, that Party shall be excused from whatever performance is affected by the Force Majeure, to the extent so affected, provided that: (i) the non-performing Party promptly, but in no case longer than five (5) Business Days after the occurrence of the Force Majeure, gives the other Party written notice describing the particulars of the occurrence; (ii) the suspension of performance shall be of no greater scope and of no longer duration than is reasonably required by the Force Majeure; (iii) the non-performing Party uses reasonable efforts to remedy its inability to perform and expeditiously takes reasonable action to correct or cure the event or condition; and (iv) the non-performing Party exercises all reasonable efforts to mitigate or limit damages to the other Party. With respect to Supplier, this shall mean that Supplier must purchase, at its own expense, electricity from the PJM market to meet its obligations under this Agreement, to the extent such electricity is available and deliverable. (b) Neither Party to this Agreement will be required by the foregoing to settle a strike affecting it except when, according to its judgment, such a settlement is advisable. Nothing in 20 this Article 12 will excuse BGE from making payment for services provided under this Agreement. ARTICLE 13 REPRESENTATIONS AND WARRANTIES Each Party represents and warrants to the other Party that: (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, (ii) except for the Required Regulatory Approvals, it has all regulatory authorizations necessary for it to legally perform its obligations under this Agreement and any other documentation relating to this Agreement to which it is a party, (iii) the execution, delivery and performance of this Agreement and any other documentation relating to this Agreement to which it is a party are within its powers, have been duly authorized by all necessary action and do not violate any of the terms and conditions in its governing documents, any contracts to which it is a party or any law, rule, regulation, order or the like applicable to it, (iv) this Agreement and each other document executed and delivered in accordance with this Agreement constitutes its legally valid and binding obligation enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights and by general principles of equity, (v) there are no Bankruptcy Proceedings pending or being contemplated by it or, to its knowledge, threatened against it, (vi) there is not pending or, to its knowledge, threatened against it or any of its Affiliates any legal proceedings that could materially adversely affect its ability to perform its obligations under this Agreement or any other document relating to this Agreement to which it is a party except as disclosed in BGE's or BGE's parent company's Form 10-Q for the quarterly period ended March 31, 2000 or Annual Report for the fiscal year ended December 1999, as well as the proceedings listed on Appendix C hereto, and (vii) no Event of Default or event which, absent a cure, with the giving of notice or lapse of time, or both, would constitute an Event of Default with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any other document relating to this Agreement. ARTICLE 14 MISCELLANEOUS 14.1 Regulatory Action. If after the Effective Date, the FERC or any court or agency having jurisdiction over this Agreement, finds any term or condition to be unjust, unreasonable or otherwise unlawful, the Parties shall enter into good faith negotiations of such changes as are reasonably required to conform to the requirements of law. 21 14.2 Assignment. Neither Party shall assign this Agreement or its rights hereunder without the prior written consent of the other Party; provided, however, either Party may, without the consent of the other Party (and without relieving itself from liability hereunder), (i) transfer, sell, pledge, encumber or assign this Agreement or the accounts, revenues or proceeds hereof in connection with any financing or other financial arrangements, (ii) transfer or assign this Agreement to an Affiliate of such Party which Affiliate's creditworthiness is comparable to or higher than that of such Party, or (iii) transfer or assign this Agreement to any person or entity succeeding to all or substantially all of the assets of such Party; provided, however, that in each such case, any such assignee shall agree to in writing be bound by the terms and conditions hereof. 14.3 Compliance With Laws. At all times during the term of this Agreement, the Parties shall comply with all laws, rules, requisitions, and codes of all governmental authorities having jurisdiction over each of their respective businesses which are now applicable, or may be applicable hereafter, including without limitation, all special laws, policies, ordinances, or regulations now in force, as amended or hereafter enacted. The Parties hereto shall maintain all licenses, permits and other consents from all governmental authorities having jurisdiction for the necessary use and operation of their respective business. Nothing herein shall be deemed a waiver of the Parties' right to challenge the validity of any such law, rule or regulation. 14.4 Choice of Law and Jurisdiction. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, ENFORCED AND PERFORMED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Except as provided in Section 14.11, all disputes hereunder or relating hereto shall be resolved in the Federal or State courts of Maryland and each Party hereby irrevocably submits to the in personam jurisdiction of such courts. Each Party herein waives its respective right to any jury trial with respect to any litigation arising under or in connection with this Agreement. 14.5 Counterparts to this Agreement. This Agreement may be executed in any number of counterparts each of which shall be an original, but all of which together shall constitute one and the same instrument. 14.6 Notices. All notices, requests, statements or payments shall be made as specified below. Notices required to be in writing shall be delivered by letter, facsimile or other documentary form. Notice by facsimile or hand delivery shall be deemed to have been received by the close of the Business Day on which it was transmitted or hand delivered (unless transmitted or hand delivered after close 22 in which case it shall be deemed received at the close of the next Business Day). Notice by overnight mail or courier shall be deemed to have been received two Business Days after it was sent. A Party may change its addresses by providing notice of same in accordance herewith: To CPS: - ------- NOTICES & CORRESPONDENCE: PAYMENTS: - ------------------------ --------- Constellation Power Source, Inc. Federal Wire Transfer General Counsel *** 111 Market Place, Suite 500 *** Baltimore, Maryland 21202 Account: Constellation Power Source, Inc. FAX No.: (410) 468-3540 *** Phone No.: (410) 468-3490 INVOICES: CREDIT AND COLLECTIONS: - -------- ---------------------- Attn.: Operations Treasurer FAX No.: (410) 468-3540 FAX No. (410) 468-3540 Phone No.: (410) 468-3430 Phone No.: (410) 468-3410 SCHEDULING: - ---------- Attn: Operations FAX No.: (410) 468-3540 Phone No.: (410) 468-3430 To BGE: - ------- NOTICES & CORRESPONDENCE: PAYMENTS: - ------------------------ -------- Baltimore Gas and Electric Company Federal Wire Transfer General Counsel *** 39 W. Lexington Street *** Baltimore, Maryland 21201 Account: Baltimore Gas And Electric Company FAX No.: (410) 234-7043 *** Phone No.: (410) 234-5805 INVOICES: CREDIT AND COLLECTIONS: - -------- ---------------------- Attn: Director - Electric Supply Treasurer FAX No.: (410) 597-6403 FAX No.: (410) 783-3619 Phone No.: (410) 597-6422 Phone No.: (410) 783-3610 *** The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24 b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. 23 SCHEDULING: - ---------- Attn: Director - Electric Supply FAX No.: (410) 597-6403 Phone No.: (410) 597-6422 14.7 Confidentiality. Each Party agrees that it will treat in strictest confidence all documents, materials, and other information marked "Confidential" or "Proprietary" by the disclosing Party ("Confidential Information") which it shall have obtained regarding the other Party during the course of the negotiations leading to, and its performance of, this Agreement (whether obtained before or after the date of this Agreement). Confidential Information shall not be communicated to any third person (other than to the receiving Party's counsel, accountants, financial or tax advisors, or in connection with its financings); provided that in the event the receiving Party is required by law, regulation or court order to disclose any Confidential Information, the receiving Party will promptly notify the disclosing Party in writing prior to making any such disclosure in order to facilitate the disclosing Party's seeking a protective order or other appropriate remedy from the proper authority and further provided that the receiving Party further agrees that if the disclosing Party ultimately discloses such Confidential Information to the requesting legal body, it will furnish only that portion of the Confidential Information which is legally required and will exercise all reasonable efforts to obtain reliable assurances that confidential treatment will be accorded the Confidential Information. 14.8 General. This Agreement (including the Appendices hereto) constitutes the entire agreement between the Parties relating to the subject matter contemplated by this Agreement. The Agreement shall be considered for all purposes as prepared through the joint efforts of the parties and shall not be construed against one party or the other as a result of the preparation, substitution, submission or other event of negotiation, drafting or execution hereof. No amendment or modification to this Agreement shall be enforceable unless reduced to writing and executed by both Parties. This Agreement shall not impart any rights enforceable by any third-party (other than a permitted successor or assignee bound to this Agreement). No waiver by a Party of any default by the other Party shall be construed as a waiver of any other default. Any provision declared or rendered unlawful by any applicable court of law or regulatory agency or deemed unlawful because of a statutory change will not otherwise affect the remaining lawful obligations that arise under this Agreement. The term "including" when used in this Agreement shall be by way of example only and shall not be considered in any way to be in limitation. The headings used herein are for convenience and reference purposes only. All indemnity and audit rights shall survive the termination of this Agreement for two years. 24 14.9 Advisor. Goldman Sachs Power LLC ("GSP") is the exclusive advisor to CPS and not a principal of CPS. From time to time, CPS may designate one or more employees of GSP as CPS' agent for purposes of entering into this Agreement with Counterparty. CPS shall be solely responsible for any and all obligations and liabilities associated with this Agreement. Neither GSP, Goldman, Sachs & Co. nor J. Aron & Company, nor any of their affiliates, has any responsibility for, or liability with respect to any liabilities of CPS under this Agreement or otherwise. 14.10 Changes in Rates, Charges, Terms or Conditions. Each Party hereby waives its rights to seek any change to the rates, charges, terms and conditions contained in this Agreement under Sections 205 or 206 of the Federal Power Act, as either section may be amended or superseded or to support a complaint or other judicial, regulatory or legislative action seeking a change in this Agreement, absent mutual written agreement of the Parties. It is the intent of this Section that, to the maximum extent permitted by law, the rates, charges, terms and conditions of this Agreement shall not be subject to change, regardless of whether such change is sought (a) by the FERC acting sua sponte on behalf of a Party or a third party, (b) by a Party, (c) by a third party, or (d) in any other manner. 14.11 Arbitration Proceedings. Any dispute or need of interpretation arising out of this Agreement pertaining to the calculation of a Termination Payment or a payment required pursuant to Articles 6 or 7 may be submitted upon request of either Party to binding arbitration by one arbitrator who has not previously been employed by either Party, and does not have a direct or indirect interest in either Party or the subject matter of the arbitration. Such arbitrator shall either be as mutually agreed by the Parties within thirty (30) days after written notice from either Party requesting arbitration, or failing agreement, shall be selected under the expedited rules of the American Arbitration Association (the "AAA"). Such arbitration shall be held in alternating locations of the home offices of the Parties, commencing with Supplier's home office, or in any other mutually agreed upon location. The rules of the AAA shall apply to the extent not inconsistent with the rules herein specified. Either Party may initiate arbitration by written notice to the other Party and the arbitration shall be conducted according to the following: (a) not later than seven (7) days prior to the hearing date set by the arbitrator each Party shall submit a brief with a single proposal for settlement, (b) the hearing shall be conducted on a confidential basis without continuance or adjournment, (c) the arbitrator shall be limited to selecting only one of the two proposals submitted by the Parties, (d) each Party shall divide equally the cost of the arbitrator and the hearing and each Party shall be responsible for its own expenses and those of its counsel and representatives and (e) evidence concerning the financial position or organizational make-up of the Parties, any offer made or the details of any negotiation prior to arbitration and the cost to the Parties of their representatives and counsel shall not be permissible. Each Party agrees that it will not bring a lawsuit concerning any dispute covered by this arbitration provision. Any monetary award of the arbitrator may be enforced by the Party in whose favor such monetary award is made in any court of competent jurisdiction. 25 14.12 Audit. Each Party has the right, at its sole expense and during normal working hours, to examine the records of the other Party to the extent reasonably necessary to verify the accuracy of any statement, charge or computation made pursuant to this Agreement. If requested, a Party shall provide to the other Party statements evidencing the quantities of Full Requirements Service delivered at the Delivery Point. If any such examination reveals any inaccuracy in any statement, the necessary adjustments in such statement and the payments thereof will be made promptly and shall bear interest at the Interest Rate from the date the overpayment or underpayment was made until paid; provided, however, that no adjustment for any statement or payment will be made unless objection to the accuracy thereof was made prior to the lapse of 12 months from the rendition thereof. 26 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. BALTIMORE GAS AND ELECTRIC COMPANY By: _______________________________________ Name: Christian H. Poindexter Title: President & Chief Executive Officer CONSTELLATION POWER SOURCE, INC. By: _______________________________________ Name: John R. Collins Title: Vice President & Treasurer 27 APPENDIX A TO FULL REQUIREMENTS SERVICE AGREEMENT SAMPLE PJM BILL A-1 APPENDIX B TO FULL REQUIREMENTS SERVICE AGREEMENT Price Freeze Service Prices for Full Requirements Service Prices stated in dollars per megawatt-hour *** *** *** *** *** *** The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24 b-2 of the Securities Exchange Act of 1934. The confidential portions have been submitted separately to the Securities and Exchange Commission. B-1 APPENDIX C TO FULL REQUIREMENTS SERVICE AGREEMENT LITIGATION DISCLOSURE 1. Request of the Mid-Atlantic Power Supply Association for Rehearing to the Federal Energy Regulatory Commission in Baltimore Gas and Electric Co., et al., Docket No. EC000-57-000, dated April 28, 2000. 2. Request of the Mid-Atlantic Power Supply Association for Rehearing Federal Energy Regulatory Commission in Baltimore Gas and Electric Co., et al., Docket No. ER00-1598-000, dated April 28, 2000. 3. Request of Shell Energy, LLC for Rehearing to the Federal Energy Regulatory Commission in Baltimore Gas and Electric Co., et al., Docket No. EC000-57-000, dated May 23, 2000. 4. Appeal to the Court of Special Appeals of Maryland, dated May 19, 2000, from the judgment of the Circuit Court for Baltimore City, Maryland, dated May 18, 2000, in the Petition of Mid-Atlantic Power Supply Association for Judicial Review of the Decision of the Public Service Commission of Maryland in the Case of the Baltimore Gas and Electric Company's Proposed (A) Stranded Cost Quantification Mechanism; (B) Price Protection Mechanism; and (C) Unbundled Rates Case No. 8794 and in the Case of the Petition of the Office of People's Counsel for a Reduction in the Rates and Charges of Baltimore Gas and Electric Company, Case No. 8804 (Case No. 24-C-00-000666). 5. Motion for Stay of the Maryland Public Service Commission Order No. 75757 in the Circuit Court for Baltimore City, Maryland, in the Petition of Mid-Atlantic Power Supply Association for Judicial Review of the Decision of the Public Service Commission of Maryland in the Case of the Baltimore Gas and Electric Company's Proposed (A) Stranded Cost Quantification Mechanism; (B) Price Protection Mechanism; and (C) Unbundled Rates Case No. 8794 and in the Case of the Petition of the Office of People's Counsel for a Reduction in the Rates and Charges of Baltimore Gas and Electric Company, Case No. 8804 (Case No. 24-C-00-000666). C-1 EX-10 3 0003.txt EXHIBIT 10(B) Exhibit 10(b) CONSTELLATION ENERGY GROUP, INC. BENEFITS RESTORATION PLAN Effective January 1, 2000 CONSTELLATION ENERGY GROUP, INC. BENEFITS RESTORATION PLAN 1. Objective. The objective of this Plan is to restore the benefits provided to employees of Constellation Energy Group and its subsidiaries whose Pension Plan benefits are affected by Internal Revenue Code Limitations. 2. Definitions. All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Pension Plan. All singular terms defined in this Plan will include the plural and vice versa. As used herein, the following terms will have the meaning specified below: "Committee" means the Committee on Management of the Board of Directors of Constellation Energy Group. "Constellation Energy Group" means Constellation Energy Group, Inc., a Maryland corporation, or its successor. "Internal Revenue Code Limitations" means the limitations under Sections 415 and/or 401(a)(17) of the Internal Revenue Code. "Pension Plan" means the Pension Plan of Constellation Energy Group, Inc. as may be amended from time to time, or any successor plan. "Plan" means the Constellation Energy Group, Inc. Benefits Restoration Plan. "Plan Administrator" means, as set forth in Section 3, the Vice President - Human Resources of Constellation Energy Group. 3. Plan Administration. The Vice President - Human Resources of Constellation Energy Group is the Plan Administrator and has sole authority (except as specified otherwise herein) to interpret the Plan and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. Appeals of written decisions by the Plan Administrator may be made to the Chairman of the Board of Directors of Constellation Energy Group. Decisions by the Chairman shall be final and not subject to further appeal. The Plan Administrator shall have the power to delegate all or any part of his/her duties to one or more designees, and to withdraw such authority, by written designation. 4. Eligibility. Each employee of Constellation Energy Group or its subsidiaries whose Pension Plan benefits are reduced because of Internal Revenue Code Limitations, is a participant; provided, however that any such employee entitled to benefits payout under the Constellation Energy Group Senior Executive Supplemental Pension Plan, Executive Supplemental Plan, Senior Management Pension Plan or Senior Management Supplemental Pension Plan, is not a participant in this Plan; and provided further that any employee in a classification designated by the Chairman of the Board of Directors of Constellation Energy Group and reflected in Appendix A is also not a participant in this Plan. 5. Restoration Benefits. (a) Computation of benefits. A participant's (or if applicable, Surviving Spouse's or Alternate Beneficiary's) benefits under this Plan will be calculated as set forth below: (i) compute the participant's (or, if applicable with respect to a participant who is deceased before his/her Severance from Service Date, Surviving Spouse's or Alternate Beneficiary's) benefit under the Pension Plan without regard to any Internal Revenue Code Limitations, based on the participant's Severance from Service Date and assuming that benefit payments commence on the first of the month following the Severance From Service Date in the form of a single life annuity; provided, however, that if the participant is participating in the Traditional 2 Pension Plan and the participant is not eligible to have payments start as of such date, benefit payments will be assumed to commence on the participant's Normal Retirement Date in the form of a single life annuity; and further provided that if the participant was participating in the Traditional Pension Plan and the Surviving Spouse is not eligible to have payments start as of such date, benefit payments to the Surviving Spouse will be assumed to commence on the earliest date permitted under the Pension Plan, in the form of a single life annuity; and further provided that if a deceased participant is participating in the PEP, benefit payments to the Surviving Spouse or Alternate Beneficiary will be assumed to commence on the first of the month following the participant's death, in the form of a lump sum payment, and (ii) subtract from the amount in (i) above the amount that would be payable to the participant (or, if applicable, Surviving Spouse) under the Pension Plan as a single life annuity (or, if applicable, as an equivalent lump sum payment for a Surviving Spouse) if the Benefit Commencement Date under that plan were the same as the assumed date of benefit payment under (i); provided, however, that if the participant is participating in the PEP and dies while employed, subtract from the amount in (i) above the amount that would be payable to the Surviving Spouse or Alternate Beneficiary on the first of the month following the participant's death in the form of a lump sum payment. (b) Form of payout of benefits - generally. For a participant, the payout under this Plan will be in the form of a monthly payment, unless the present value of the Plan benefit is under $50,000, or unless the participant makes a valid election to receive his/her payout in the form of a lump sum. For this purpose, the present value of the Plan benefit will be the amount that would be payable to a participant under paragraph (d) if he or she elected to receive a lump sum. A participant may elect to receive his/her payout in the form of a lump sum by submitting to the Plan Administrator a signed Lump Sum Election Form. The Form must be received by the Plan Administrator before the beginning of the calendar year during which the participant's Severance From Service Date occurs. The election may be revoked at any time before the 3 beginning of the calendar year during which the participant's Severance From Service Date occurs, by submitting to the Plan Administrator a signed Lump Sum Revocation Form. Notwithstanding the immediately preceding paragraph, any participant whose Severance From Service Date occurs on or after January 1, 2000 and on or before December 31, 2000 may elect to receive his/her payout in the form of a lump sum by submitting to the Plan Administrator a signed Lump Sum Election Form. The Form must be received by the Plan Administrator prior to the end of the thirtieth (30th) calendar day after the date of the participant's Severance From Service Date. The election may be revoked at any time before the end of the thirty (30) day period, by submitting to the Plan Administrator a signed Lump Sum Revocation Form. For a Surviving Spouse or Alternate Beneficiary, the payout under this Plan will be in the form of a lump sum benefit payout within 60 days after the participant's death. (c) Amount, timing, and source of participant monthly benefits payout. A participant entitled to monthly benefits payout will receive monthly payments based on the amount determined under paragraph (a); provided, however, that if such amount is determined as of the participant's Normal Retirement Date, it will be multiplied by the applicable factor determined as in Appendix E of the Pension Plan. Such payments shall be paid in the form of a single life annuity, unless the participant elects as set forth in paragraph (e) to receive such payments in the form of a joint and survivor annuity, and the annuity payment is reduced by the applicable factor determined as in Appendix E of the Pension Plan. Payments under this paragraph (c) shall commence effective with the first day of the month following the participant's Severance From Service Date. Notwithstanding the immediately preceding sentence, if the participant's Severance From Service Date occurs on or after January 1, 2000 and on or before December 31, 2000, such payment shall commence as soon as practical after December 31, 2000. If such participant receives (or would have received but for the Internal Revenue Code limitations) cost of living 4 adjustment(s) under the Pension Plan, the monthly payments hereunder will be automatically increased based on the percentage of, and at the same time as, such adjustment(s). Monthly payments hereunder shall permanently cease upon the death of the participant, effective with the monthly payment for the month following the month of the participant's death. Monthly payments hereunder shall be made from general corporate assets. (d) Amount, timing, and source of participant lump sum benefits payout. A participant entitled to a lump sum benefit payout will receive a lump sum payment. This lump sum payment will be based on the same assumptions and procedures that are used for determining lump sums in the Pension Plan. Such lump sum payment shall be made within 60 days after the participant's Severance From Service Date. Notwithstanding the immediately preceding sentence, if the participant's Severance From Service Date occurs on or after January 1, 2000 and on or before December 31, 2000, such payment shall commence as soon as practical after December 31, 2000, and if the participant is participating in the PEP, such lump sum payment shall include interest at the rate of 4% per year from the first day of the month after the participant's Severance From Service Date until the date of payment. The lump sum payment shall be made from general corporate assets. (e) Amount, timing and source of Surviving Spouse or Alternate Beneficiary payout. Before Benefit Commencement Date: A Surviving Spouse or Alternate Beneficiary who is entitled to a Preretirement Survivor Annuity or a Preretirement Survivor Benefit under the Pension Plan shall receive a benefit payment under this Plan in the form of a lump sum, and equal to an amount and payable at the time determined under paragraphs (a) and (b). After Benefit Commencement Date: A participant who is entitled to begin receipt of monthly benefits payments under paragraph (c) of this Plan, may elect to provide a survivor benefit to his/her Surviving Spouse or Alternate Beneficiary (whichever is applicable) in the form of a joint and survivor annuity, the calculation of which is set forth in the Pension Plan. Payments to 5 either a Surviving Spouse or an Alternate Beneficiary under this Plan shall begin the first day of the month following the participant's death. A participant's Post-retirement Survivor Annuity or Post-retirement Survivor Benefit beneficiary election, cost, and percentage elections under the Pension Plan will automatically apply to the monthly benefit payments under paragraph (c). Notwithstanding the preceding paragraph, if a participant did not elect a Surviving Spouse or Alternate Beneficiary under the Pension Plan, or elected a lump sum under the Pension Plan, and elects survivor coverage for the monthly benefit payments under this Plan, the participant must provide all appropriate survivor benefit information in the timing and manner established by the Plan Administrator, and pursuant to the procedures set forth in Article V of the Pension Plan before commencing benefit payments under paragraph (c) of this Plan. Notwithstanding anything in this paragraph (e), survivor benefit payments under this Plan are subject to the minimum payout amount in paragraph 5(b), and payments hereunder shall be made from general corporate assets. (f) Death of participant entitled to lump sum payout. In the event of the death of a participant after his/her Severance From Service Date and before the participant receives the lump sum payment under paragraph (d), such lump sum payment shall be made to the participant's Alternate Beneficiary; and if there is no Alternate Beneficiary to the Surviving Spouse; and if there is no Surviving Spouse to the participant's beneficiary under the employer's employee life insurance plan; and if there is no beneficiary under the employer's employee life insurance plan, to the participant's estate. In the event of the death of a Surviving Spouse or Alternate Beneficiary after the participant's death and before the Surviving Spouse or Alternate Beneficiary receives the lump sum payment under paragraph (e), such lump sum payment shall be made to the participant's estate. The lump sum payment shall be the same amount and made at the same time and from the same source as set forth in paragraphs (d) and (e). 6 6. Miscellaneous. None of the benefits provided under this Plan shall be subject to alienation or assignment by any participant or beneficiary nor shall any of them be subject to attachment or garnishment or other legal process except (i) to the extent specially mandated and directed by applicable State or Federal statute; or (ii) as requested by the participant or beneficiary to satisfy income tax withholding or liability. This Plan may be amended from time to time, or suspended or terminated at any time, provided, however, that no amendment or termination shall impair the rights of any participant or beneficiary entitled to receive current or future payment hereunder at the time of such action. All amendments to this Plan which would increase or decrease the compensation of any Officer of Constellation Energy Group, either directly or indirectly, must be approved by the Board of Directors. All other permissible amendments may be made at the written direction of the Plan Administrator. Participation in this Plan shall not constitute a contract of employment between Constellation Energy Group or a subsidiary of Constellation Energy Group and any person and shall not be deemed to be consideration for, or a condition of, continued employment of any person. The Plan is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974. To the extent that any person acquires a right to receive payments from Constellation Energy Group under this Plan, such rights shall be no greater than the right of any unsecured general creditor of Constellation Energy Group. In the event Constellation Energy Group becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which Constellation Energy Group will not be the surviving corporation or in which the holders of the common stock of Constellation Energy Group will receive securities of another corporation (in any such case, the "New Company"), then the New Company shall assume the rights and obligations of Constellation Energy Group under this Plan. This Plan shall be governed in all respects by Maryland law. 7 EX-10 4 0004.txt EXHIBIT 10(C) Exhibit 10(c) CONSTELLATION ENERGY GROUP, INC. SUPPLEMENTAL PENSION PLAN Effective January 1, 2000 TABLE OF CONTENTS Page No. 1. Objective 1 2. Definitions 1 3. Plan Administration 4 4. Eligibility 4 5. Supplemental Pension Benefit 5 (a) Generally 5 (b) Retirement benefits 5 (i) Eligibility for retirement benefits 5 (ii) Computation of retirement benefits 5 (iii) Form of payout of retirement benefits 6 (iv) Amount, timing, and source of monthly retirement benefit payout 7 (v) Amount, timing, and source of lump sum retirement benefit payout 7 (vi) Death of participant entitled to lump sum payout 8 (c) Entitlement to benefit upon happening of certain events 8 (i) Computation of gross accrued benefit 8 (ii) Computation of net accrued benefit 9 (iii) Satisfaction of requirements 9 (iv) Other events 10 (1) Change in control 10 (2) Plan amendment 10 (3) Involuntary Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal without Cause 11 (v) Form of benefit payout 11 (vi) Amount, timing and source of benefit payout 11 (vii) Death of participant entitled to lump sum payout 12 6. Supplemental Survivor Annuity Benefit 12 (a) Survivor annuity benefit 12 (i) Eligibility for survivor annuity benefit 12 (ii) Computation of survivor annuity benefit 13 (iii) Form of payout of survivor annuity benefits 14 (iv) Amount, timing, and source of monthly survivor annuity benefit payout 14 7. Miscellaneous 15 CONSTELLATION ENERGY GROUP, INC. SUPPLEMENTAL PENSION PLAN 1. Objective. The objective of this Plan is to enhance the benefits provided to certain officers and key employees of Constellation Energy Group and its subsidiaries in order to attract and retain talented executive personnel. 2. Definitions. All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Pension Plan. All singular terms defined in this Plan will include the plural and vice versa. As used herein, the following terms will have the meaning specified below: "Annual Base Salary" means an amount determined by adding the monthly base rate of pay amounts (i.e., the types of such pay that are includable in the computation of Pension Plan benefits)earned over the twelve calendar months immediately preceding the month that includes the date of the computation. "Average Incentive Award" (or "Average Award") means generally the product of the percentage equal to an average of the two highest of the participant's five immediately prior year award percentages earned under Constellation Energy Group's Executive Annual Incentive Plan, Constellation Energy Group's Senior Management Annual Incentive Plan and/or other Incentive Awards Program multiplied by the participant's annualized base rate of pay amount (i.e., the types of such pay that are includable in the computation of Pension Plan benefits) in effect at the end of the prior year. "Benefit Start Date" means the date as of which the participant's benefits, if any, under this Plan commence. "Cause" means the participant's (a) failure to comply with Constellation Energy Group policy, (b) deliberate and continual refusal to satisfactorily perform employment duties on substantially a full-time basis, (c) deliberate and continual refusal to act in accordance with any specific instructions of a majority of Constellation Energy Group's Board of Directors, (d) disclosure, without the consent of a majority of Constellation Energy Group's Board of Directors, of confidential information or trade secrets concerning Constellation Energy Group which could be materially damaging to Constellation Energy Group, or (e) deliberate misconduct which could be materially damaging to Constellation Energy Group without reasonable good faith belief by the participant that such conduct was in the best interest of Constellation Energy Group. "Change in Control" means (a) the purchase or acquisition by any person, entity or group of persons, (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable successor provisions), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of Constellation Energy Group or the combined voting power of Constellation Energy Group's then outstanding shares of voting securities entitled to a vote generally, or (b) the consummation of, following the approval by the stockholders of Constellation Energy Group of a reorganization, merger, or consolidation of Constellation Energy Group, in each case, with respect to which persons who were stockholders of Constellation Energy Group immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (c) a liquidation or dissolution of Constellation Energy Group or the sale of substantially all of its assets, or (d) a change of more than one-half of the members of the Board of Directors of Constellation Energy Group within a 90-day period for reasons other than the death, disability, or retirement of such members. "Committee" means the Committee on Management of the Board of Directors of Constellation Energy Group. "Constellation Energy Group" means Constellation Energy Group, Inc., a Maryland corporation, or its successor. "Constellation Energy Group's Executive Annual Incentive Plan" means such plan or other incentive plan or arrangement designated in writing by the Plan Administrator. 2 "Constellation Energy Group's Senior Management Annual Incentive Plan" means such plan or other incentive plan or arrangement designated in writing by the Plan Administrator. "Demotion" means a transfer to a position with Constellation Energy Group or a subsidiary of Constellation Energy Group that either (a) is substantially below the position in which the participant was employed on the date of transfer, or (b) results in a substantial reduction in pay when compared to the participant's pay on the date of the transfer. Whether a position is a substantially below another position shall be determined in the reasonable discretion of the Committee, with reference to factors including whether the participant retains principal responsibility for a department or division, and whether the participant remains eligible for the perquisites enjoyed by the participant before the position change. "Early Receipt Reduction Factor" means 100% less .25% for each month that the participant is less than age 62 on the participant's Benefit Start Date. "Income Replacement Percentage" means the percentage under the LTD Plan that is used to calculate the participant's actual LTD Plan benefit. "Interest Rate" means the rate equal to the average monthly 30-year Treasury bond rate for the second calendar quarter preceding the computation date, less 50 basis points. "Internal Revenue Code Limitations" means the limitations under Sections 415 and/or 401(a)(17) of the Internal Revenue Code. "LTD Plan" means the Constellation Energy Group, Inc. Disability Insurance Plan as may be amended from time to time, or any successor plan. "Mortality Table" means the mortality table used to convert annuities to lump sums in the Pension Plan. "Other Incentive Awards Program" means the program(s) designated in writing by the Plan Administrator applicable to certain employees that provides awards; but includes only the types of awards that are includable in the computation of Pension Plan benefits. 3 "Pension Plan" means the Pension Plan of Constellation Energy Group, Inc. as may be amended from time to time, or any successor plan. "Plan" means this Constellation Energy Group, Inc. Supplemental Pension Plan. "Plan Administrator" means, as set forth in Section 3, the Committee. "Rabbi Trust" means the trust adopted by Constellation Energy Group pursuant to the Grantor Trust Agreement Dated as of April 30, 1999, between Constellation Energy Group and Citibank, N.A. "Survivor Annuity Percentage" means 50%, unless the participant elects in the timing and manner established by the Plan Administrator, a higher percentage (in multiples of 5% to a total percentage not to exceed 100%). "Termination From Employment With Constellation Energy Group" means a participant's separation from service with Constellation Energy Group or a subsidiary of Constellation Energy Group; however, a participant's retirement, disability, or transfer of employment to or from a subsidiary of Constellation Energy Group shall not constitute a Termination From Employment With Constellation Energy Group. 3. Plan Administration. The Committee is the Plan Administrator and has sole authority (except as specified otherwise herein) to interpret the Plan and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. Appeals of written decisions by the Plan Administrator may be made to the Board of Directors of Constellation Energy Group. Decisions by the Board shall be final and not subject to further appeal. The Plan Administrator shall have the power to delegate all or any part of its duties to one or more designees, and to withdraw such authority, by written designation. 4. Eligibility. The officers or key employees of Constellation Energy Group or its subsidiaries designated in Appendix A are participants under the Plan. Participation shall continue until such designation is withdrawn at the discretion and by written order of the Plan Administrator, 4 provided, however, that such withdrawal may not be made for benefits provided pursuant to Sections 5 and 6 with respect to a participant who has satisfied the eligibility requirements to retire (as set forth in Section 5(b)(i)). Notwithstanding the foregoing, any participant while classified as disabled under the LTD Plan shall continue to participate in this Plan while classified as disabled and, for purposes of the supplemental pension benefit provided by this Plan, while classified as disabled, shall be deemed to continue to accrue Credited Service until no later than his/her Normal Retirement Date. 5. Supplemental Pension Benefit. (a) Generally. A participant shall be eligible for supplemental pension benefits and supplemental survivor annuity benefits under this Plan only if the participant's supplemental pension benefits under this Plan are greater than the supplemental pension benefits computed under the Executive Benefits Plan based on the participant's age, service, and eligible compensation on the date as of which benefits become payable. (b) Retirement benefits. (i) Eligibility for retirement benefits. A participant shall be eligible to retire under this Plan on or after the participant's Normal Retirement Date, or on the first day of any month preceding his/her Normal Retirement Date, if on his/her Severance From Service Date and while a participant he/she has attained (1) age 55 and has accumulated at least 10 years of Credited Service; or (2) age 60 and has accumulated at least one year of Credited Service. (ii) Computation of retirement benefits. A participant who is eligible to retire under this Plan will be entitled to supplemental pension retirement benefits under this Plan, which will be calculated as set forth below on the participant's Benefit Start Date: (1) add the Annual Base Salary and the Average Incentive Award, (2) divide the sum by 12, 5 (3) multiply this dollar amount by the appropriate percentage, determined as follows: Chairman of the Board and President of Constellation Energy Group - 60%; all other participants (by completed years of Credited Service) 1 through 9 - 3% per year; 10 through 19 - 40%; 20 through 24 - 45%; 25 through 29 - 50%; and 30 or more - 55%, (4) multiply this dollar amount by the Early Receipt Reduction Factor; provided, however, if the participant is age 62 or older, such factor shall be one (1), (5) subtract from this dollar amount the charges relating to coverage for a preretirement survivor annuity in excess of 50%, and for a post-retirement survivor annuity in excess of 50%, and (6) subtract from the remainder the net amount payable to the participant under the Pension Plan when the participant actually commences such monthly Pension Plan payments (assuming a 50% spousal joint and survivor annuity for a married participant), or, if the participant elects a lump sum under the PEP provisions of the Pension Plan, the monthly amount that would have been payable under the Pension Plan as a life annuity for a single participant or as a 50% spousal joint and survivor annuity for a married participant, as of the Benefit Start Date under this Plan. (iii) Form of payout of retirement benefits. Each participant entitled to supplemental pension retirement benefits will receive his/her supplemental pension retirement benefits payout in the form of a monthly payment, unless the participant makes a valid election to receive his/her supplemental pension retirement benefits payout in the form of a lump sum. A participant may elect to receive his/her supplemental pension retirement benefits payout in the form of a lump sum by submitting to the Plan 6 Administrator a signed Lump Sum Election Form. The Form must be received by the Plan Administrator before the beginning of the calendar year during which the participant's Severance From Service Date occurs. The election may be revoked at any time before the beginning of the calendar year during which the participant's Severance From Service Date occurs, by submitting to the Plan Administrator a signed Lump Sum Revocation Form. (iv) Amount, timing, and source of monthly retirement benefit payout. A participant entitled to monthly supplemental pension retirement benefits will receive monthly payments equal to the amount determined under paragraph (b)(ii). Such payments shall commence effective with the first of the month following the participant's Severance From Service Date. If such participant receives (or would have received but for the Internal Revenue Code Limitations) cost of living adjustment(s) under the Pension Plan, the monthly payments hereunder will be automatically increased based on the percentage of, and at the same time as, such adjustment(s). Monthly payments hereunder shall permanently cease upon the death of the participant, effective with the monthly payment for the month following the month of the participant's death. Monthly payments hereunder shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. (v) Amount, timing, and source of lump sum retirement benefit payout. A participant entitled to a lump sum supplemental pension retirement benefit will receive a lump sum payment. This lump sum payment will be calculated by a certified actuary and will be equal to the present value of an immediate annuity including the estimated present value of post-retirement supplemental survivor annuity benefits described in Section 6, and reflecting the present value of any deferred Pension Plan payments using (1) the supplemental pension retirement benefit amount calculated under paragraph (b)(ii), which is expressed as a monthly amount, (2) the Interest Rate computed on the 7 participant's Benefit Start Date, and (3) the Mortality Table. Such lump sum payment shall be made within 60 days after the participant's Retirement Date. The lump sum payment shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. A participant who receives a lump sum payment shall not be entitled to any cost of living or other pension payment adjustments or to post-retirement survivor annuity coverage under the Plan. (vi) Death of participant entitled to lump sum payout. In the event of the death of a participant after his/her Severance From Service Date and before the participant receives the lump sum payment under paragraph (b)(v), such lump sum payment shall be made to the participant's surviving spouse (as defined in Section 6(i)). The lump sum payment shall be the same amount and made at the same time and from the same sources as set forth in paragraph (b)(v). If there is no surviving spouse at the date of the participant's death, no payments shall be made pursuant to Sections 5 or 6. A surviving spouse who receives a lump sum benefit under this paragraph (b)(vi) shall not be entitled to any cost of living or other pension payment adjustments or to post-retirement survivor annuity coverage under the Plan. (c) Entitlement to benefit upon happening of certain events. (i) Computation of gross accrued benefit. The computation of the gross accrued supplemental pension benefit for a participant as of the date of the computation will be made as follows: (1) add the Annual Base Salary and the Average Incentive Award, (2) divide the sum by 12, and (3) multiply this dollar amount by the appropriate percentage, determined as follows: Chairman of the Board and President 8 of Constellation Energy Group - 60%; all other participants (by completed years of Credited Service as of the date of the computation) 1 through 9 - 3% per year; 10 through 19 - 40%; 20 through 24 - 45%; 25 through 29 - 50%; and 30 or more - 55%. (ii) Computation of net accrued benefit. The computation of the net accrued supplemental pension benefit for a participant as of the date of the computation will be made by subtracting from the gross accrued benefit determined under paragraph (c)(i) the amount of the participant's Gross Pension under the Pension Plan determined as of the date of the computation and assuming that monthly payments of such Gross Pension begin on the first of the month after the later of reaching age 62 or the date of the computation. If the participant is not eligible for payment of a Gross Pension under the Pension Plan, the participant's Accrued Gross Pension determined as of the date of the computation shall be substituted for the Gross Pension described above, with the appropriate reduction for early receipt applied as if the participant were eligible to begin payment of his Accrued Gross Pension on the first of the month after the later of reaching age 62 or the date of the computation. (iii)Satisfaction of requirements. A participant who has satisfied the age and Credited Service requirements set forth in Section 5(b)(i) while eligible as set forth in Section 4, but who the Committee determines does not retire under the Plan due to Demotion, Termination From Employment With Constellation Energy Group, or the withdrawal of a participant's eligibility to participate under Section 5, shall be entitled to his/her net accrued supplemental pension benefit. The effective date of the Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal event shall be the date of such Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal. 9 (iv) Other events. A participant, regardless of his/her age and years of Credited Service, shall be entitled to his/her net accrued supplemental pension benefit upon the happening of any of the following entitlement events, but only if such entitlement event occurs while a participant and before a participant retires under this Plan: (1) Change in Control. A Change in Control, followed within two years by the participant's Demotion, a participant's Termination From Employment With Constellation Energy Group, or the withdrawal of the participant's eligibility to participate under the Plan, is an entitlement event. The effective date of the entitlement event shall be the date of the Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal. (2) Plan amendment. A Plan amendment that has the effect of reducing a participant's gross accrued supplemental pension benefit is an entitlement event. In determining whether such a reduction has occurred, the participant's gross accrued supplemental pension benefit calculated on the day immediately preceding the effective date of the amendment shall be compared to the participant's gross accrued supplemental pension benefit calculated on the effective date of the amendment. An amendment that has the effect of reducing future benefit accruals is not an entitlement event. It is intended that an entitlement event under this paragraph (c)(iv)(2) will occur only with respect to those amendments that are substantially similar to amendments that are prohibited by Internal Revenue Code section 411(d)(6) with respect to qualified pension plans. The effective date of the entitlement event shall be the effective date of the Plan amendment. 10 (3) Involuntary Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal without Cause. A participant's involuntary Demotion or involuntary Termination From Employment With Constellation Energy Group without Cause, or the withdrawal of a participant's eligibility to participate under Sections 5 or 6 of the Plan without Cause, is an entitlement event. The effective date of the entitlement event shall be the effective date of the participant's involuntary Demotion or involuntary Termination From Employment With Constellation Energy Group without Cause, or the eligibility withdrawal without Cause. (v) Form of benefit payout. Each participant entitled to a payout under this paragraph (c) will receive such payout in the form of a lump sum payment. (vi) Amount, timing, and source of benefit payout. A participant entitled to a payout of his/her net accrued benefit, as a result of the occurrence of an event described in paragraphs (c)(iii), (c)(iv)(1), (2), or (3) will be entitled to a lump sum benefit. This lump sum benefit will be calculated by a certified actuary as the present value, determined as of the date of payment, of an annuity beginning at age 62 (or the participant's actual age, if the participant is older than age 62 on the date the lump sum benefit is payable), including the estimated present value of post-retirement survivor annuity benefits described in Section 6, using (1) the net accrued benefit amount calculated under paragraph (d)(ii) on the effective date of the entitlement event, which is expressed as a monthly amount, (2) the Interest Rate computed on the date the lump sum benefit is payable, and (3) the Mortality Table. The lump sum benefit shall be payable as of the participant's Severance From service Date, and shall be made within 60 days after such date in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. A participant who receives a lump sum benefit under this paragraph (c)(vi) shall not be entitled to 11 any cost of living or other pension payment adjustments or to preretirement or post-retirement survivor annuity coverage. (vii) Death of participant entitled to lump sum payout. In the event of the death of a participant after the occurrence of an event described in paragraphs (c)(iii), (c)(iv)(1), (2), or (3) and before the participant receives the lump sum payment under paragraph (c)(v), such lump sum payment shall be made to the participant's surviving spouse (as defined in Section 6(i)). The lump sum payment will be calculated by a certified actuary and will be equal to 100% of the lump sum that would have been paid to the participant under paragraph (vi), as of the date on which the lump sum is payable under this paragraph (vii), provided that the participant's date of death is on or after his/her Severance From Service Date. If the participant's date of death is before his/her Severance From Service Date, 50% shall be substituted for 100% in the preceding sentence. The lump sum benefit shall be payable as of the earlier of the participant's Severance From Service Date or date of death, and shall be made within 60 days after such date in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. If there is no surviving spouse at the date of the participant's death, no payments shall be made pursuant to Sections 5 or 6. A surviving spouse who receives a lump sum benefit under this paragraph (c) (vii) shall not be entitled to any cost of living or other pension payment adjustments or to preretirement or post-retirement survivor annuity coverage under the Plan. 6. Supplemental Survivor Annuity Benefit. (a) Survivor annuity benefit. (i) Eligibility for survivor annuity benefit. Following the death of a participant (other than a participant who satisfied the requirements of Section 5(e)(i) upon such participant's Termination From Employment With Constellation Energy Group)who is fully vested under the Pension 12 Plan,a supplemental survivor annuity may be paid to the participant's surviving spouse until the death of that spouse, using the Survivor Annuity Percentage. The participant will not bear the cost of up to a 50% survivor annuity benefit, but will bear the cost of a survivor annuity benefit in excess of 50%. For purposes of this Section 6(a), a participant's surviving spouse is the individual married to the participant on the date of the participant's death. If there is no surviving spouse, or if the participant or the participant's spouse previously received or is entitled to receive a lump sum payment under Section 5, no supplemental survivor annuity will be payable. (ii) Computation of survivor annuity benefit. The amount of the supplemental survivor annuity will be determined as follows: (1) if the participant's Benefit Start Date occurred prior to the date of death: (a) begin with the monthly pension benefit (under Section 5(b) of this Plan) that the participant was receiving prior to the date of death, and (b) multiply this dollar amount by the Survivor Annuity Percentage. (2) otherwise: (a) begin with the monthly Early Retirement pension benefit (under both the Pension Plan and Section 5(b) of this Plan) to which the participant would have been entitled to receive if the: the participant had been retired at the later of age 60 or his/her actual age on the date of death for purposes of computing the Early Receipt Reduction Factor, (b) multiply this dollar amount by the Survivor Annuity Percentage, 13 (c) subtract from the product the net amount, if any, of the survivor annuity provided on behalf of the participant under the Pension Plan if the participant is participating in the Traditional Pension Plan, or the monthly annuity that would have been provided to the participant's spouse assuming that he or she had been designated as the participant's beneficiary and had chosen to receive a survivor benefit in the form of a monthly annuity, if the participant is participating in the PEP, and (d) subtract from this dollar amount the charges relating to coverage (under both the Pension Plan and this Plan) for a preretirement survivor annuity in excess of 50%, and for a post-retirement survivor annuity in excess of 50%. (iii) Form of payout of survivor annuity benefits. Each surviving spouse entitled to a supplemental survivor annuity benefit will receive his/her survivor annuity benefit payout in the form of a monthly payment. (iv) Amount, timing, and source of monthly survivor annuity benefit payout. A surviving spouse entitled to monthly supplemental survivor annuity benefits will receive a monthly payment equal to the amount determined under (ii) above. Such payments shall commence effective with the first day of the month following the month of the participant's death. If such surviving spouse receives (or would have received but for the Internal Revenue Code Limitations) cost of living adjustment(s) under the Pension Plan, the monthly payments hereunder will be automatically increased based on the percentage of, and at the same time as, such adjustment(s). Monthly payments hereunder shall permanently cease upon the death of the surviving spouse, effective with the monthly payment for the month following the month of the surviving spouse's death. Monthly payments hereunder shall be made in accordance with 14 the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. 7. Miscellaneous. None of the benefits provided under this Plan shall be subject to alienation or assignment by any participant or beneficiary nor shall any of them be subject to attachment or garnishment or other legal process except (i) to the extent specially mandated and directed by applicable State or Federal statute; or (ii) as requested by the participant or beneficiary to satisfy income tax withholding or liability. This Plan may be amended from time to time, or suspended or terminated at any time, provided, however, that no amendment or termination shall reduce any previously accrued supplemental pension benefit under this Plan or impair the rights of any participant or beneficiary entitled to receive current or future payment hereunder at the time of such action. All amendments to this Plan which would increase or decrease the compensation of any Officer of Constellation Energy Group, either directly or indirectly, must be approved by the Board of Directors. All other permissible amendments may be made at the written direction of the Committee. Participation in this Plan shall not constitute a contract of employment between Constellation Energy Group and any person and shall not be deemed to be consideration for, or a condition of, continued employment of any person. The Plan, notwithstanding the creation of the Rabbi Trust, is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974. Constellation Energy Group shall make contributions to the Rabbi Trust in accordance with the terms of the Rabbi Trust. Any funds which may be invested and any assets which may be held to provide benefits under this Plan shall continue for all purposes to be a part of the general funds and assets of Constellation Energy Group and no person other than Constellation Energy Group shall by virtue of the provisions of this Plan have any interest in such funds and assets. To the extent that any person acquires a right to receive payments from Constellation Energy Group under this Plan, such rights shall be no greater than the right of any unsecured general creditor of Constellation Energy Group. 15 In the event Constellation Energy Group becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which Constellation Energy Group will not be the surviving corporation or in which the holders of the common stock of Constellation Energy Group will receive securities of another corporation (in any such case, the "New Company"), then the New Company shall assume the rights and obligations of Constellation Energy Group under this Plan. This Plan shall be governed in all respects by Maryland law. 16 EX-10 5 0005.txt EXHIBIT 10(D) Exhibit 10(d) CONSTELLATION ENERGY GROUP, INC. SENIOR EXECUTIVE SUPPLEMENTAL PLAN Effective January 1, 2000 CONSTELLATION ENERGY GROUP, INC. SENIOR EXECUTIVE SUPPLEMENTAL PLAN 1. Objective. The objective of this Plan is to enhance the benefits provided to certain senior executive officers of Constellation Energy Group and its subsidiaries in order to attract and retain talented executive personnel. 2. Definitions. All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Pension Plan. All singular terms defined in this Plan will include the plural and vice versa. As used herein, the following terms will have the meaning specified below: "Average Annual Base Salary" means an amount determined by (a) computing the monthly base rate of pay amounts (i.e., the types of such pay that are includable in the computation of Pension Plan benefits) paid during the prior five consecutive twelve month periods immediately preceding the month that includes the date of the computation, and (b) averaging the two twelve month periods during which the highest amounts were paid. "Average Incentive Award" (or "Average Award") means the average of the two highest of the participant's five immediately prior year awards earned under Constellation Energy Group's Executive Annual Incentive Plan, Constellation Energy Group's Senior Management Annual Incentive Plan and/or Other Incentive Awards Program. "Benefit Start Date" means the date as of which the participant's benefits, if any, under this Plan commence. "Cause" means the participant's (a) failure to comply with Constellation Energy Group policy, (b) deliberate and continual refusal to satisfactorily perform employment duties on substantially a full-time basis, (c) deliberate and continual refusal to act in accordance with any specific instructions of a majority of Constellation Energy Group's Board of Directors, (d) disclosure, without the consent of a majority of Constellation Energy Group's Board of Directors, of confidential information or trade secrets concerning Constellation Energy Group which could be materially damaging to Constellation Energy Group, or (e) deliberate misconduct which could be materially damaging to Constellation Energy Group without reasonable good faith belief by the participant that such conduct was in the best interest of Constellation Energy Group. "Change in Control" means (a) the purchase or acquisition by any person, entity or group of persons, (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), or any comparable successor provisions), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the outstanding shares of common stock of Constellation Energy Group or the combined voting power of Constellation Energy Group's then outstanding shares of voting securities entitled to a vote generally, or (b) the consummation of, following the approval by the stockholders of Constellation Energy Group of a reorganization, merger, or consolidation of Constellation Energy Group, in each case, with respect to which persons who were stockholders of Constellation Energy Group immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding securities, or (c) a liquidation or dissolution of Constellation Energy Group or the sale of substantially all of its assets, or (d) a change of more than one-half of the members of the Board of Directors of Constellation Energy Group within a 90-day period for reasons other than the death, disability, or retirement of such members. "Committee" means the Committee on Management of the Board of Directors of Constellation Energy Group. "Constellation Energy Group" means Constellation Energy Group, Inc., a Maryland corporation, or its successor. "Constellation Energy Group's Executive Annual Incentive Plan" means such plan or other incentive plan or arrangement designated in writing by the Plan Administrator. "Constellation Energy Group's Senior Management Annual Incentive Plan" means such plan or other incentive plan or arrangement designated in writing by the Plan Administrator. 2 "Demotion" means a transfer to a position with Constellation Energy Group or a subsidiary of Constellation Energy Group that either (a) is substantially below the position in which the participant was employed on the date of transfer, or (b) results in a substantial reduction in pay when compared to the participant's pay on the date of the transfer. Whether a position is substantially below another position shall be determined in the reasonable discretion of the Committee, with reference to factors including whether the participant retains principal responsibility for a department or division, and whether the participant remains eligible for the perquisites enjoyed by the participant before the position change. "Early Receipt Reduction Factor" means 100% less 1/3 of 1% for each month that the participant is less than age 62 on the participant's Benefit Start Date. "Interest Rate" means the rate equal to the average monthly 30-year Treasury bond rate for the second calendar quarter preceding the computation date, less 50 basis points. "Internal Revenue Code Limitations" means the limitations under Section 415 and/or 401(a)(17) of the Internal Revenue Code. "LTD Plan" means the Constellation Energy Group, Inc. Disability Insurance Plan as may be amended from time to time, or any successor plan. "Mortality Table" means the mortality table used to convert annuities to lump sums in the Pension Plan. "Other Incentive Awards Program" means the program(s) designated in writing by the Plan Administrator applicable to certain employees that provides awards; but includes only the types of awards that are includable in the computation of Pension Plan benefits. "Pension Plan" means the Pension Plan of Constellation Energy Group, Inc. as may be amended from time to time, or any successor plan. "Plan" means this Constellation Energy Group, Inc. Senior Executive Supplemental Plan. 3 "Plan Administrator" means, as set forth in Section 3, the Committee. "Rabbi Trust" means the trust adopted by Constellation Energy Group pursuant to the Grantor Trust Agreement Dated as of April 30, 1999, between Constellation Energy Group and Citibank, N.A. "Survivor Annuity Percentage" means 50%, unless the participant elects, in the timing and manner established by the Plan Administrator, a higher percentage (in multiples of 5% to a total percentage not to exceed 100%). "Termination From Employment With Constellation Energy Group" means a participant's separation from service with Constellation Energy Group or a subsidiary of Constellation Energy Group; however, a participant's retirement, disability, or transfer of employment to or from a subsidiary of Constellation Energy Group shall not constitute a Termination From Employment With Constellation Energy Group. "Total SERP Service" means (a) Credited Service accumulated while designated as a participant with respect to supplemental pension benefits under this Plan or while a participant under the Constellation Energy Group Supplemental Pension Plan, or while a participant under any predecessor executive supplemental pension benefit plan, plus (b) one fourth of Credited Service accumulated while not such a participant. 3. Plan Administration. The Committee is the Plan Administrator and has sole authority (except as specified otherwise herein) to interpret the Plan and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. Appeals of written decisions by the Plan Administrator may be made to the Board of Directors of Constellation Energy Group. Decisions by the Board shall be final and not subject to further appeal. The Plan Administrator shall have the power to delegate all or any part of its duties to one or more designees, and to withdraw such authority, by written designation. 4. Eligibility. Each senior executive officer of Constellation Energy Group or its subsidiaries may be designated in 4 writing by the Plan Administrator as a participant with respect to one or more benefits under the Plan. Once designated, participation shall continue until such designation is withdrawn at the discretion and by written order of the Plan Administrator, provided, however, that such withdrawal may not be made with respect to a participant who has satisfied the eligibility requirements to retire (as set forth in Section 5(b)(i)). Notwithstanding the foregoing, any participant while classified as disabled under the LTD Plan shall continue to participate in this Plan while classified as disabled and, for purposes of the supplemental pension benefit provided by this Plan, while classified as disabled, shall be deemed to continue to accrue Credited Service until no later than his/her Normal Retirement Date. 5. Supplemental Pension Benefit. (a) Generally. A participant in the Plan as of January 1, 2000, as well as an individual who becomes a participant in this Plan after such date and who was a participant in the Constellation Energy Group Supplemental Pension Plan as of January 1, 2000, shall be eligible for supplemental pension benefits under this Plan only if the participant's supplemental pension benefits under this Plan are greater than the supplemental pension benefits computed under the Constellation Energy Group Supplemental Pension Plan based on the participant's age, service, and eligible compensation on the date as of which benefits become payable. Any other participant in the Plan shall be eligible for benefits under this Plan without regard to any computation under the Constellation Energy Group Supplemental Pension Plan. (b) Retirement benefits. (i) Eligibility for retirement benefits. A participant shall be eligible to retire under this Plan on or after the participant's Normal Retirement Date, or on the first day of any month preceding his/her Normal Retirement Date, if on his/her Severance From Service Date and while a participant he/she has attained (1) age 55 and has accumulated at least 10 years of Credited Service; or (2) age 62 and has accumulated at least five years of Credited Service. 5 (ii) Computation of retirement benefits. A participant who is eligible to retire under this Plan will be entitled to supplemental pension retirement benefits under this Plan, which will be calculated as set forth below on the participant's Benefit Start Date: (1) add the Average Annual Base Salary and the Average Incentive Award, (2) divide the sum by 12, (3) multiply this dollar amount by the appropriate percentage, determined as follows: Chairman of the Board and President of Constellation Energy Group - 60%; all other participants (by years of Total SERP Service) 5.5% per year, (maximum is 55%). (4) multiply this dollar amount by the Early Receipt Reduction Factor; provided, however, if the participant is age 62 or older on his/her Benefit Start Date, such factor shall be one (1), (5) subtract from this dollar amount the charges relating to coverage for a pre-retirement survivor annuity in excess of 50%, and for a post-retirement survivor annuity in excess of 50%, and (6) subtract from the remainder the net monthly amount payable to the participant under the Pension Plan when the participant actually commences such monthly Pension Plan payments (assuming a 50% spousal joint and survivor annuity for a married participant), or, if the participant elects a lump sum under the PEP provisions of the Pension Plan, the monthly amount that would have been payable under the Pension Plan as a life annuity for a single participant or as a 50% spousal joint and survivor annuity for a married participant, as of the Benefit Start Date under this Plan. 6 (iii) Form of payout of retirement benefits. Each participant entitled to supplemental pension retirement benefits will receive his/her supplemental pension retirement benefits payout in the form of a monthly payment, unless the participant makes a valid election to receive his/her supplemental pension retirement benefits payout in the form of a lump sum. A participant may elect to receive his/her supplemental pension retirement benefits payout in the form of a lump sum by submitting to the Plan Administrator a signed Lump Sum Election Form. The Form must be received by the Plan Administrator before the beginning of the calendar year during which the participant's Severance From Service Date occurs. The election may be revoked at any time before the beginning of the calendar year during which the participant's Severance From Service Date occurs, by submitting to the Plan Administrator a signed Lump Sum Revocation Form. (iv) Amount, timing, and source of monthly retirement benefit payout. A participant entitled to monthly supplemental pension retirement benefits will receive monthly payments equal to the amount determined under paragraph (b)(ii). Such payments shall commence effective with the first of the month following the Participant's Severance From Service Date. If such participant receives (or would have received but for the Internal Revenue Code Limitations) cost of living adjustment(s) under the Pension Plan, the monthly payments hereunder will be automatically increased based on the percentage of, and at the same time as, such adjustment(s). Monthly payments hereunder shall permanently cease upon the death of the participant, effective with the monthly payment for the month following the month of the participant's death. Monthly payments hereunder shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. (v) Amount, timing, and source of lump sum retirement benefit payout. A participant entitled to a lump 7 sum supplemental pension retirement benefit will receive a lump sum payment. This lump sum payment will be calculated by a certified actuary and will be equal to the present value of an immediate annuity including the estimated present value of post-retirement supplemental survivor annuity benefits described in Section 6, and reflecting the present value of any deferred Pension Plan payments using (1) the supplemental pension retirement benefit amount calculated under paragraph (b)(ii), which is expressed as a monthly amount, (2) the Interest Rate computed on the participant's Benefit Start Date, and (3) the Mortality Table. Such lump sum payment shall be made within 60 days after the participant's Severance From Service Date. The lump sum payment shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. A participant who receives a lump sum payment shall not be entitled to any cost of living or other pension payment adjustments or to post-retirement survivor annuity coverage under the Plan. (vi) Death of participant entitled to lump sum payout. In the event of the death of a participant after his/her Severance From Service Date and before the participant receives the lump sum payment under paragraph (b)(v), such lump sum payment shall be made to the participant's surviving spouse (as defined in Section 6(i)). The lump sum payment shall be the same amount and made at the same time and from the same sources as set forth in paragraph (b)(v). If there is no surviving spouse at the date of the participant's death, no payments shall be made pursuant to Sections 5 or 6. A surviving spouse who receives a lump sum benefit under this paragraph (b)(vi) shall not be entitled to any cost of living or other pension payment adjustments or to post-retirement survivor annuity coverage under the Plan. 8 (c) Entitlement to benefit upon happening of certain events. (i) Computation of gross accrued benefit. The computation of the gross accrued supplemental pension benefit for a participant as of the date of the computation will be made as follows: (1) add the Average Annual Base Salary and the Average Incentive Award, (2) divide the sum by 12, and (3) multiply this dollar amount by the appropriate percentage, determined as follows: Chairman of the Board and President of Constellation Energy Group - 60%; all other participants (by years of Total SERP Service as of the date of the computation) 5.5% per year (maximum is 55%). (ii) Computation of net accrued benefit. The computation of the net accrued supplemental pension benefit for a participant as of the date of the computation will be made by subtracting from the gross accrued benefit determined under paragraph (c)(i) the amount of the participant's Gross Pension under the Pension Plan determined as of the date of the computation and assuming that monthly payments of such Gross Pension begin on the first of the month after the later of reaching age 62 or the date of the computation. If the participant is not eligible for payment of a Gross Pension under the Pension Plan, the participant's Accrued Gross Pension determined as of the date of the computation shall be substituted for the Gross Pension described above, with the appropriate reduction for early receipt applied as if the participant were eligible to begin payment of his Accrued Gross Pension on the first of the month after the later of reaching age 62 or the date of the computation. (iii)Satisfaction of requirements. A participant who has satisfied the age and Credited Service requirements set forth in Section 5(b)(i) while eligible as set forth in Section 4, but who does 9 not retire under the Plan due to Demotion, Termination From Employment With Constellation Energy Group, or the withdrawal of a participant's eligibility to participate under Section 5, shall be entitled to his/her net accrued supplemental pension benefit. The effective date of the Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal event shall be the date of such Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal. (iv) Other events. A participant, regardless of his/her age and years of Credited Service, shall be entitled to his/her net accrued supplemental pension benefit upon the happening of any of the following entitlement events, but only if such entitlement event occurs while a participant and before a participant retires under this Plan: (1) Change in Control. A Change in Control, followed within two years by the participant's Demotion, a participant's Termination From Employment With Constellation Energy Group, or the withdrawal of the participant's eligibility to participate under the Plan, is an entitlement event. The effective date of the entitlement event shall be the date of the Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal. (2) Plan amendment. A Plan amendment that has the effect of reducing a participant's gross accrued supplemental pension benefit is an entitlement event. In determining whether such a reduction has occurred, the participant's gross accrued supplemental pension benefit calculated on the day immediately preceding the effective date of the amendment shall be compared to the participant's gross accrued supplemental pension benefit calculated on the effective date of the amendment. An amendment that has the effect of reducing future benefit 10 accruals is not an entitlement event. It is intended that an entitlement event under this paragraph (c)(iii)(2) will occur only with respect to those amendments that are substantially similar to amendments that are prohibited by Internal Revenue Code section 411(d)(6) with respect to qualified pension plans. The effective date of the entitlement event shall be the effective date of the Plan amendment. (3) Involuntary Demotion, Termination From Employment With Constellation Energy Group, or eligibility withdrawal without Cause. A participant's involuntary Demotion or involuntary Termination From Employment With Constellation Energy Group without Cause, or the withdrawal of a participant's eligibility to participate under Sections 5 or 6 of the Plan without Cause, is an entitlement event. The effective date of the entitlement event shall be the effective date of the participant's involuntary Demotion or involuntary Termination From Employment With Constellation Energy Group without Cause, or the eligibility withdrawal without Cause. (v) Form of benefit payout. Each participant entitled to a payout under this paragraph (c) will receive such payout in the form of a lump sum payment. (vi) Amount, timing, and source of benefit payout. A participant entitled to a payout of his/her net accrued benefit, as a result of the occurrence of an event described in paragraphs (c)(iii), (c)(iv)(1), (2), or (3) will be entitled to a lump sum benefit. This lump sum benefit will be calculated by a certified actuary as the present value, determined as of the date of payment, of an annuity beginning at age 62 (or the participant's actual age, if the participant is older than age 62 on the date the lump sum benefit is payable), including the estimated present value of post-retirement survivor annuity benefits described in Section 6, using (1) the net accrued benefit amount calculated under paragraph (d)(iv) on the effective date of the entitlement event, which is 11 expressed as a monthly amount, (2) the Interest Rate computed on the date the lump sum benefit is payable, and (3) the Mortality Table. The lump sum benefit shall be payable as of the participant's Severance From Service Date, and shall be made within 60 days after such date in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. A participant who receives a lump sum benefit under this paragraph (c)(vi) shall not be entitled to any cost of living or other pension payment adjustments or to pre-retirement or post-retirement survivor annuity coverage. (vii)Death of participant entitled to lump sum payout. In the event of the death of a participant after the occurrence of an event described in paragraphs (c)(iii), (c)(iv)(1), (2), or (3) and before the participant receives the lump sum payment under paragraph (c)(vi), a lump sum payment shall be made to the participant's surviving spouse (as defined in Section 6(i)). The lump sum payment will be calculated by a certified actuary and will be equal to 100% of the lump sum that would have been paid to the participant under paragraph (vi), as of the date on which the lump sum is payable under this paragraph (vii), provided that the participant's date of death is on or after his/her Severance From Service Date. If the participant's date of death is before his/her Severance From Service Date, 50% shall be substituted for 100% in the preceding sentence. The lump sum benefit shall be payable as of the earlier of the participant's Severance From Service Date or date of death, and shall be made within 60 days after such date in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. If there is no surviving spouse at the date of the participant's death, no payments shall be made pursuant to Sections 5 or 6. A surviving spouse who receives a lump sum benefit under this paragraph (c) (vii) shall not be entitled to any cost of living or other pension payment adjustments or to pre-retirement or post- 12 retirement survivor annuity coverage under the Plan. 6. Supplemental Survivor Annuity Benefit. (a) Survivor annuity benefit. (i) Eligibility for survivor annuity benefit. Following the death of a participant who is fully vested under the Pension Plan, a supplemental survivor annuity may be paid to the participant's surviving spouse until the death of that spouse, using the Survivor Annuity Percentage. The participant will not bear the cost of up to a 50% survivor annuity benefit, but will bear the cost of a survivor annuity benefit in excess of 50%. For purposes of this Section 6(a), a participant's surviving spouse is the individual married to the participant on the date of the participant's death. If there is no surviving spouse, or if the participant or the participant's spouse previously received or is entitled to receive a lump sum payment under Section 5, no supplemental survivor annuity will be payable. (ii) Computation of survivor annuity benefit. The amount of the supplemental survivor annuity will be determined as follows: (1) if the participant's Benefit Start Date occurred prior to the date of death: (a) begin with the monthly pension benefit (under Section 5(b) of this Plan) that the participant was receiving prior to the date of death, and (b) multiply this dollar amount by the Survivor Annuity Percentage. (2) otherwise: (a) begin with the monthly Early Retirement pension benefit (under both the Pension Plan and Section 5(b) of this Plan) to which the participant would have been 13 entitled if the participant had been retired at the later of age 60 or his/her actual age on the date of death for purposes of computing the Early Receipt Reduction Factor, (b) multiply this dollar amount by the Survivor Annuity Percentage, (c) subtract from the product the net amount, if any, of the survivor annuity provided on behalf of the participant under the Pension Plan if the participant is participating in the Traditional Pension Plan, or the monthly annuity that would have been provided to the participant's spouse assuming that he or she had been designated as the participant's beneficiary and had chosen to receive a survivor benefit in the form of a monthly annuity, if the participant is participating in the PEP, and (d) subtract from this dollar amount the charges relating to coverage (under both the Pension Plan and this Plan) for a pre-retirement survivor annuity in excess of 50%, and for a post-retirement survivor annuity in excess of 50%. (iii) Form of payout of survivor annuity benefits. Each surviving spouse entitled to a supplemental survivor annuity benefit will receive his/her survivor annuity benefit payout in the form of a monthly payment. (iv) Amount, timing, and source of monthly survivor annuity benefit payout. A surviving spouse entitled to monthly supplemental survivor annuity benefits will receive a monthly payment equal to the amount determined under (ii) above. Such payments shall commence effective with the first day of the month following the month of the participant's death. If such surviving spouse receives (or would have received but for the Internal Revenue Code Limitations) cost of living 14 adjustment(s) under the Pension Plan, the monthly payments hereunder will be automatically increased based on the percentage of, and at the same time as, such adjustment(s). Monthly payments hereunder shall permanently cease upon the death of the surviving spouse, effective with the monthly payment for the month following the month of the surviving spouse's death. Monthly payments hereunder shall be made in accordance with the provisions of the Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust, from general corporate assets. 7. Death Benefit. Constellation Energy Group shall make arrangements, through its split-dollar life insurance program or otherwise, for life insurance coverage for each designated participant providing that the participant's beneficiary shall receive, as a pre-retirement death benefit, an amount which is approximately equal to three times the participant's base salary control point plus target annual incentive (as determined in the sole discretion of the Plan Administrator), and as a post-retirement death benefit, an amount which is approximately equal to two times the participant's base salary control point plus target annual incentive (as determined in the sole discretion of the Plan Administrator), as set forth in a separate agreement between the participant and his/her employer. As determined in the sole discretion of the Plan Administrator, in the event that either (i) a participant is ineligible to receive the type of life insurance coverage provided to other participants under this Plan, or (ii) such coverage is not available on reasonably cost-effective terms as a result of any penalty for smoking or other factors that are reflected in the insurance carrier's rates, then Constellation Energy Group shall provide a benefit that, in the discretion of the Plan Administrator, is substantially equivalent to the cost of the benefit provided to other participants under this Plan. 8. Dependent Death Benefit. For a participant with a split-dollar policy under Section 7, in the event of the death of a participant's qualified dependent while the participant is an active employee of Constellation Energy Group or a subsidiary of Constellation Energy Group, Constellation Energy Group shall make a death benefit payment to the 15 participant, from general corporate assets. For purposes of this Section 8, qualified dependent shall have the same meaning as set forth in Constellation Energy Group's Family Life Insurance Plan. For purposes of this Section 8, the amount of death benefit payment shall be the highest amount of insurance that would have been payable with respect to such qualified dependent if coverage had been provided under Constellation Energy Group's Family Life Insurance Plan. The dependent death benefit payment under this Plan shall be grossed-up for income tax withholding. 9. Miscellaneous. None of the benefits provided under this Plan shall be subject to alienation or assignment by any participant or beneficiary nor shall any of them be subject to attachment or garnishment or other legal process except (i) to the extent specially mandated and directed by applicable State or Federal statute; (ii) as requested by the participant or beneficiary to satisfy income tax withholding or liability; and (iii) any policy of insurance written by a commercial carrier on a split-dollar basis shall be assignable. This Plan may be amended from time to time, or suspended or terminated at any time, provided, however, that no amendment or termination shall reduce any previously accrued supplemental pension benefit under this Plan or impair the rights of any participant or beneficiary entitled to receive current or future payment hereunder at the time of such action. All amendments to this Plan which would increase or decrease the compensation of any Officer of Constellation Energy Group, either directly or indirectly, must be approved by the Board of Directors. All other permissible amendments may be made at the written direction of the Committee. Participation in this Plan shall not constitute a contract of employment between Constellation Energy Group and any person and shall not be deemed to be consideration for, or a condition of, continued employment of any person. The Plan, notwithstanding the creation of the Rabbi Trust, is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974. Constellation Energy Group shall make contributions to the Rabbi Trust in accordance with the terms of the Rabbi Trust. Any funds which may be invested and any assets which may be held to provide benefits under this Plan shall continue for 16 all purposes to be a part of the general funds and assets of Constellation Energy Group and no person other than Constellation Energy Group shall by virtue of the provisions of this Plan have any interest in such funds and assets. To the extent that any person acquires a right to receive payments from Constellation Energy Group under this Plan, such rights shall be no greater than the right of any unsecured general creditor of Constellation Energy Group. In the event Constellation Energy Group becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which Constellation Energy Group will not be the surviving corporation or in which the holders of the common stock of Constellation Energy Group will receive securities of another corporation (in any such case, the "New Company"), then the New Company shall assume the rights and obligations of Constellation Energy Group under this Plan. This Plan shall be governed in all respects by Maryland law. 17 EX-10 6 0006.txt EXHIBIT 10(E) Exhibit 10(e) CONSTELLATION ENERGY GROUP, INC. SUPPLEMENTAL BENEFITS PLAN Effective January 1, 2000 CONSTELLATION ENERGY GROUP, INC. SUPPLEMENTAL BENEFITS PLAN 1. Objective. The objective of this Plan is to enhance the benefits provided to certain officers and key employees of Constellation Energy Group and its subsidiaries in order to attract and retain talented executive personnel. 2. Definitions. All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Pension Plan. All singular terms defined in this Plan will include the plural and vice versa. As used herein, the following terms will have the meaning specified below: "Average Incentive Award" (or "Average Award") means the two highest of the participant's five immediately prior year awards earned under Constellation Energy Group's Executive Annual Incentive Plan, Constellation Energy Group's Senior Management Annual Incentive Plan and/or the Results Incentive Awards Program. "Committee" means the Committee on Management of the Board of Directors of Constellation Energy Group. "Constellation Energy Group" means Constellation Energy Group, Inc., a Maryland corporation, or its successor. "Constellation Energy Group's Executive Annual Incentive Plan" means such plan or other incentive plan or arrangement designated in writing by the Plan Administrator. "Constellation Energy Group's Senior Management Annual Incentive Plan" means such plan or other incentive plan or arrangement designated in writing by the Plan Administrator. "Income Replacement Percentage" means the percentage under the LTD Plan that is used to calculate the participant's actual LTD Plan benefit. 2 "LTD Plan" means the Constellation Energy Group, Inc. Disability Insurance Plan as may be amended from time to time, or any successor plan. "Pension Plan" means the Pension Plan of Constellation Energy Group, Inc. as may be amended from time to time, or any successor plan. "Plan Administrator" means, as set forth in Section 3, the Committee. "Results Incentive Awards Program" means the program(s) designated in writing by the Plan Administrator applicable to certain employees that provides awards; but includes only the types of awards that are includable in the computation of Pension Plan benefits. 3. Plan Administration. The Committee is the Plan Administrator and has sole authority (except as specified otherwise herein) to interpret the Plan and, in general, to make all other determinations advisable for the administration of the Plan to achieve its stated objective. Appeals of written decisions by the Plan Administrator may be made to the Board of Directors of Constellation Energy Group. Decisions by the Board shall be final and not subject to further appeal. The Plan Administrator shall have the power to delegate all or any part of its duties to one or more designees, and to withdraw such authority, by written designation. 4. Eligibility. Each officer or key employee of Constellation Energy Group or its subsidiaries may be designated in writing by the Plan Administrator as a participant with respect to one or more benefits under the Plan. Once designated, participation shall continue until such designation is withdrawn at the discretion and by written order of the Plan Administrator. Notwithstanding the foregoing, any participant while classified as disabled under the LTD Plan shall continue to participate in this Plan (except under Sections 8 and 9) while classified as disabled. 5. Supplemental Long-Term Disability Benefit. (i) Eligibility for disability benefits. Any participant who has completed at least one full calendar month of 3 service with Constellation Energy Group or its subsidiaries, who has elected coverage under the LTD Plan, and who is disabled (as determined under the LTD Plan) will be entitled to supplemental disability benefits under this Plan. (ii) Computation of disability benefits. The amount of such supplemental disability benefits shall be determined as follows: (1) multiply the monthly base rate of pay amount in effect immediately prior to becoming entitled to benefits under the LTD Plan by twelve, (2) add the Average Incentive Award to the product, (3) add certain bonuses and incentives that are included in the computation of Average Pay under the Pension Plan (except that awards included in the computation of Average Incentive Award shall be excluded), earned over the last 12 months to the product, (4) divide the sum by 12, (5) multiply this monthly dollar amount by the Income Replacement Percentage, and (6) subtract from the product the gross monthly amount provided for the participant under the LTD Plan before such amount is reduced for other benefits as set forth under the LTD Plan. (iii)Form of payment of disability benefits. Each participant entitled to supplemental disability benefits will receive his/her supplemental disability benefit payout in the form of a monthly payment. (iv) Amount, timing, and source of monthly disability benefit payout. A participant entitled to supplemental disability benefits will receive a monthly payment equal to the amount determined under (ii) above. Such payments shall commence effective with the commencement of the participant's LTD Plan benefit payments. Monthly payments shall permanently cease when benefit payments under the LTD Plan cease. Monthly payments 4 shall be made from Constellation Energy Group's general corporate assets. If a participant receiving payments pursuant to this Section 5 receives cost of living or other inflation/indexing adjustment(s) under the LTD Plan, the payments hereunder will be automatically increased based on the same percentage of, and at the same time as, such adjustment(s). (v) Bonus. Any participant who has less than ten years of Credited Service shall be entitled to a monthly taxable cash bonus, equal to an amount based on the cost of LTD Plan coverage, using the formula for computing Constellation Energy Group-provided Flexible Benefits Plan credits for LTD Plan coverage and taking into account the Participant's Credited Service and covered compensation. Such cash bonus shall be made from general corporate assets. 6. Death Benefit. Constellation Energy Group shall make arrangements, through its split-dollar life insurance program or otherwise, for life insurance coverage for each participant who had a split-dollar policy in effect on April 1, 2000 and who does not have a split-dollar policy under the Senior Executive Supplemental Plan, providing that the participant's beneficiary shall receive, as a pre-retirement death benefit, an amount which is approximately equal to three times the participant's compensation in effect on April 1, 2000, and as a post-retirement death benefit, an amount which is approximately equal to two times the participant's compensation in effect on April 1, 2000, as set forth in a separate agreement between the participant and his/her employer. As determined in the sole discretion of the Plan Administrator, in the event that either (i) a participant is ineligible to receive the type of life insurance coverage provided to other participants under this Plan, or (ii) such coverage is not available on reasonably cost-effective terms as a result of any penalty for smoking or other factors that are reflected in the insurance carrier's rates, then Constellation Energy Group shall provide a benefit that, in the discretion of the Plan Administrator, is substantially equivalent to the cost of the benefit provided to other participants under this Plan. 5 7. Dependent Death Benefit. For a participant with a split-dollar policy under Section 6 and who is not eligible to participate in Constellation Energy Group's Employee Life Insurance Plan, in the event of the death of a participant's qualified dependent while the participant is an active employee of Constellation Energy Group or a subsidiary of Constellation Energy Group, Constellation Energy Group shall make a death benefit payment to the participant, from general corporate assets. For purposes of this Section 7, qualified dependent shall have the same meaning as set forth in Constellation Energy Group's Family Life Insurance Plan. For purposes of this Section 7, the amount of the death benefit payment shall be the highest amount of insurance that would have been payable with respect to such qualified dependent if coverage had been provided under Constellation Energy Group's Family Life Insurance Plan. The dependent death benefit payment under this Plan shall be grossed-up for income tax withholding. 8. Sickness Benefit. Each participant, without regard to length of service, shall be entitled to the greater of the benefits stipulated under his/her employer's sick benefit policy for employees or twenty-six (26) weeks of paid sick benefits within a rolling 52-week period. 9. Vacation Benefit. Each participant, without regard to length of service, shall be entitled to the greater of the benefits stipulated under his/her employer's vacation benefit policy for employees or five weeks of paid vacation during a calendar year. 10. Planning Benefit. Each participant shall be entitled to certain personal financial, tax, and estate planning services paid for by Constellation Energy Group but provided through designated professional firms. This entitlement shall be subject to any dollar limitation established by the Plan Administrator with respect to all such fees. The services shall be provided to each participant by the chosen firm(s) on a personalized and confidential basis; and each firm shall have sole responsibility for quality of the services which it may render. The services to be provided shall be on an on-going and continuous basis, but shall be limited to (i) the development and legal documentation of both career-oriented 6 financial plans and personal estate plans, and (ii) tax counseling regarding personal tax return preparation and the most advantageous structuring, tax-wise, of proposed personal transactions. Such planning benefit shall continue during the year of retirement plus the next two calendar years (the year of retirement plus the next calendar year for January 1 retirements) and include the completion of the federal and state personal tax returns for the second calendar year following retirement (the calendar year following retirement for January 1 retirements). However, if a retired member of senior management continues to serve as a member of the Board of Directors of Constellation Energy Group, his/her planning benefit period shall be extended until he/she no longer serves as a member of the Board of Directors. Upon the death of a participant entitled to the planning benefit provided hereunder, his/her surviving spouse shall be entitled to receive the following planning benefit: (i) if the deceased was not retired at the time of death, the surviving spouse shall be entitled to the planning benefit for the year in which the death occurred plus the next two calendar years, including completion of the federal and state personal tax returns for the second calendar year after the year in which the death occurred; or (ii) if the deceased was retired at the time of death, then the surviving spouse shall receive a planning benefit equal to that the deceased would have received if he/she had not died prior to expiration of the planning benefit. The surviving spouse of a retired member of senior management whose death occurs while serving as a member of the Board of Directors of Constellation Energy Group, shall be entitled to a planning benefit as set forth in (i) above. The planning benefit provided under this Plan shall be grossed-up for income tax withholding. 11. Miscellaneous. None of the benefits provided under this Plan shall be subject to alienation or assignment by any participant or beneficiary nor shall any of them be subject to attachment or garnishment or other legal process except (i) to the extent specially mandated and directed by applicable State or Federal statute; (ii) as requested by the participant or beneficiary to satisfy income tax withholding or liability; and (iii) any policy of insurance written by a commercial carrier on a split-dollar basis shall be assignable. This Plan may be amended from time to time, or suspended or terminated at any time, provided, however, that no amendment 7 or termination shall impair the rights of any participant or beneficiary entitled to receive current or future payment hereunder at the time of such action. All amendments to this Plan which would increase or decrease the compensation of any Officer of Constellation Energy Group, either directly or indirectly, must be approved by the Board of Directors. All other permissible amendments may be made at the written direction of the Committee. Participation in this Plan shall not constitute a contract of employment between Constellation Energy Group or a subsidiary of Constellation Energy Group and any person and shall not be deemed to be consideration for, or a condition of, continued employment of any person. Except for benefits, if any, provided through life insurance policies under Section 6, all payments made under the Plan shall be made from general corporate assets. The Plan, is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974. To the extent that any person acquires a right to receive payments from Constellation Energy Group under this Plan, such rights shall be no greater than the right of any unsecured general creditor of Constellation Energy Group. In the event Constellation Energy Group becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which Constellation Energy Group will not be the surviving corporation or in which the holders of the common stock of Constellation Energy Group will receive securities of another corporation (in any such case, the "New Company"), then the New Company shall assume the rights and obligations of Constellation Energy Group under this Plan. This Plan shall be governed in all respects by Maryland law. 8 EX-12 7 0007.txt EXHIBIT 12 (A) CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
12 Months Ended -------------------------------------------------------------------------------------- June December December December December December 2000 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- ----------- (In Millions of Dollars) Income from Continuing Operations (Before Extraordinary Loss) $ 287.3 $ 326.4 $ 305.9 $ 254.1 $ 272.3 $ 297.4 Taxes on Income, Including Tax Effect for BGE Preference Stock Dividends 171.8 182.5 169.3 145.1 148.3 152.0 ----------- ----------- ----------- ----------- ----------- ----------- Adjusted Income $ 459.1 $ 508.9 $ 475.2 $ 399.2 $ 420.6 $ 449.4 ----------- ----------- ----------- ----------- ----------- ----------- Fixed Charges: Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness $ 252.3 $ 245.7 $ 255.3 $ 234.2 $ 203.9 $ 206.7 Earnings required for BGE Preference Stock Dividends 20.8 21.0 33.8 45.1 59.4 61.0 Capitalized Interest 5.7 2.7 3.6 8.4 15.7 15.0 Interest Factor in Rentals 2.2 1.8 1.9 1.9 1.5 2.1 ----------- ----------- ----------- ----------- ----------- ----------- Total Fixed Charges $ 281.0 $ 271.2 $ 294.6 $ 289.6 $ 280.5 $ 284.8 ----------- ----------- ----------- ----------- ----------- ----------- Earnings (1) $ 734.4 $ 777.4 $ 766.2 $ 680.4 $ 685.4 $ 719.2 =========== =========== =========== =========== =========== =========== Ratio of Earnings to Fixed Charges 2.61 2.87 2.60 2.35 2.44 2.52
(1) Earnings are deemed to consist of income from continuing operations (before extraordinary loss) that includes earnings of Constellation Energy's consolidated subsidiaries, equity in the net income of BGE's unconsolidated subsidiary, income taxes (including deferred income taxes, investment tax credit adjustments, and the tax effect of BGE's preference stock dividends), and fixed charges other than capitalized interest. EX-12 8 0008.txt EXHIBIT 12 (B) BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS
12 Months Ended -------------------------------------------------------------------------------------- June December December December December December 2000 1999 1998 1997 1996 1995 ----------- ---------- ----------- ----------- ----------- ----------- (In Millions of Dollars) Income from Continuing Operations (Before Extraordinary Loss) $ 287.4 $ 328.4 $ 327.7 $ 282.8 $ 310.8 $ 338.0 Taxes on Income 164.3 182.0 181.3 161.5 169.2 172.4 ----------- ---------- ----------- ----------- ----------- ----------- Adjusted Income $ 451.7 $ 510.4 $ 509.0 $ 444.3 $ 480.0 $ 510.4 ----------- ---------- ----------- ----------- ----------- ----------- Fixed Charges: Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness $ 187.2 $ 206.4 $ 255.3 $ 234.2 $ 203.9 $ 206.7 Capitalized Interest - 0.4 3.6 8.4 15.7 15.0 Interest Factor in Rentals 0.9 1.0 1.9 1.9 1.5 2.1 ----------- ---------- ----------- ----------- ----------- ----------- Total Fixed Charges $ 188.1 $ 207.8 $ 260.8 $ 244.5 $ 221.1 $ 223.8 ----------- ---------- ----------- ----------- ----------- ----------- Preferred and Preference Dividend Requirements: (1) Preferred and Preference Dividends $ 13.2 $ 13.5 $ 21.8 $ 28.7 $ 38.5 $ 40.6 Income Tax Required 7.6 7.5 12.0 16.4 20.9 20.4 ----------- ---------- ----------- ----------- ----------- ----------- Total Preferred and Preference Dividend Requirements $ 20.8 $ 21.0 $ 33.8 $ 45.1 $ 59.4 $ 61.0 ----------- ---------- ----------- ----------- ----------- ----------- Total Fixed Charges and Preferred and Preference Dividend Requirements $ 208.9 $ 228.8 $ 294.6 $ 289.6 $ 280.5 $ 284.8 =========== ========== =========== =========== =========== =========== Earnings (2) $ 639.8 $ 717.8 $ 766.2 $ 680.4 $ 685.4 $ 719.2 =========== ========== =========== =========== =========== =========== Ratio of Earnings to Fixed Charges 3.40 3.45 2.94 2.78 3.10 3.21 Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements 3.06 3.14 2.60 2.35 2.44 2.52
(1) Preferred and preference dividend requirements consist of an amount equal to the pre-tax earnings that would be required to meet dividend requirements on preferred stock and preference stock. (2) Earnings are deemed to consist of income from continuing operations (before extraordinary loss) that includes earnings of BGE's consolidated subsidiaries, equity in the net income of BGE's unconsolidated subsidiary, income taxes (including deferred income taxes and investment tax credit adjustments), and fixed charges other than capitalized interest. EX-27 9 0009.txt EXHIBIT 27 (A)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSTELLATION ENERGY'S JUNE 30, 2000 INTERIM CONSOLIDATED INCOME STATEMENT, BALANCE SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0001004440 Constellation Energy Group 1,000,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 PER-BOOK 5,559 2,256 2,236 585 0 10,636 1,502 0 1,485 3,011 0 190 2,953 0 0 215 883 0 0 0 3,384 10,636 1,861 79 1,544 1,623 238 6 244 132 112 0 112 126 123 342 0.75 0.75
EX-27 10 0010.txt EXHIBIT 27 (B)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALTIMORE GAS AND ELECTRIC COMPANY'S JUNE 30, 2000 INTERIM CONSOLIDATED INCOME STATEMENT, BALANCE SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000009466 Baltimore Gas and Electric Company 1,000,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 PER-BOOK 5,559 434 608 565 0 7,166 1,496 0 836 2,332 0 190 2,120 0 0 199 503 0 0 0 1,822 7,166 1,380 65 1,120 1,185 195 6 201 94 107 7 100 0 88 392 0 0
EX-99 11 0011.txt PRO FORMA FINANCIAL STATEMENTS EXHIBIT 99 BGE PRO FORMA FINANCIAL STATEMENTS - GENERATION ASSET TRANSFER BACKGROUND In Exhibit 99 to our Current Report on Form 8-K dated June 30, 2000, we presented pro forma financial statements for Baltimore Gas and Electric Company (BGE), a subsidiary of Constellation Energy Group, Inc. (Constellation Energy). Effective July 1, 2000, BGE transferred its generation assets and related liabilities to Calvert Cliffs Nuclear Power Plant, Inc. (CCNPP) and Constellation Power Source Generation, Inc. (CPSG), nonregulated subsidiaries of Constellation Energy. The pro forma financial statements and description of the pro forma adjustments reflect these transfers and other financial impacts surrounding the deregulation of BGE's electric generation business. At the time the June 30, 2000 Form 8-K was filed, BGE's quarter ended June 30, 2000 results were not available. Accordingly, we have updated the pro forma financial statements to include our June 30, 2000 results. In addition, the updated condensed pro forma balance sheet included in this Exhibit reflects the actual June 30, 2000 book value of the transferred assets and liabilities. 1 DESCRIPTION OF PRO FORMA FINANCIAL INFORMATION The following updated consolidated financial statements for BGE are filed with this Exhibit: o Unaudited Condensed Pro Forma Balance Sheet At June 30, 2000, and o Unaudited Condensed Pro Forma Income Statement for the Year Ended December 31, 1999 and for the Six Month Period Ended June 30, 2000. The following major assumptions were made in preparing these updated pro forma financial statements: o The transfers described above were assumed to occur as of June 30, 2000 for the purposes of the condensed pro forma balance sheet. o The transfers described above were assumed to occur as of January 1, 1999 for the purposes of the condensed pro forma income statement for the year ended December 31, 1999. The transfers were assumed to occur as of January 1, 2000 for the purposes of the condensed pro forma income statement for the six-month period ended June 30, 2000. In viewing these statements, it should be recognized that weather conditions can have a great impact on our results for interim periods. This means that results for interim periods do not necessarily represent results to be expected for the year. o The transfer of the generating assets and decommissioning trusts was assumed to occur at book value and on a non-taxable basis. o The provisions of the Maryland Public Service Commission's (Maryland PSC) Restructuring Order are assumed to be effective as of the beginning of each period presented for the purposes of developing BGE's revenues and electric purchased fuel and energy expenses included in the condensed pro forma income statements. o An effective tax rate of approximately 35% was utilized to develop the income tax effects of adjustments to the condensed pro forma income statement for the year ended December 31, 1999. An effective tax rate of approximately 39.55% was utilized for the six-month period ended June 30, 2000. The difference in the effective tax rate results from the comprehensive changes in the state and local tax laws that began January 1, 2000. We discuss these comprehensive tax law changes in Note 4 of our 1999 Annual Report on Form 10-K. These pro forma financial statements have been prepared for comparative purposes only and do not purport to be indicative of the results of operations or financial condition which would have actually resulted if the transfer of the generation assets or other related transactions had been made on the dates or for the periods presented, or which may result in the future. Further, these pro forma financial statements have been prepared using information available at the date of this filing. As a result, certain amounts indicated herein are preliminary in nature and, therefore, are subject to change in the future. Please refer to Part II, Item 5 Forward-Looking Statements in this Form 10-Q for additional factors. 2 DESCRIPTION OF PRO FORMA ADJUSTMENTS The Unaudited Condensed Pro Forma Income Statements and Balance Sheet filed with this Exhibit reflect the following adjustments: Income Statements Adjustments - ----------------------------- 1. The expected reduction of BGE's revenues to remove $112 million of interchange and other wholesale sales for the year ended December 31, 1999 ($54 million for the six-month period ended June 30, 2000), which will no longer be a part of its business once electric deregulation occurs. 2. The adjustment of BGE's revenues to reflect the $54 million average, annual residential rate reduction provided for in the Restructuring Order for the year ended December 31, 1999 ($26 million for the six-month period ended June 30, 2000). 3. The anticipated transfer to CCNPP of approximately $164 million of BGE's revenues that will fund nuclear decommissioning and stranded costs for the year ended December 31, 1999 ($80 million for the six-month period ended June 30, 2000). 4. The reversal of BGE's actual electric fuel and purchased energy costs of approximately $487 million for the year ended December 31, 1999 ($244 million for the six-month period ended June 30, 2000), and its replacement with the estimated $1,187 million cost of power BGE would have purchased from CPS to meet its system sales load for the year ended December 31, 1999 ($519 million for the six-month period ended June 30, 2000) at standard offer service rates provided for in the Restructuring Order. 5. The expected elimination of operation and maintenance expenses directly and indirectly relating to the generation function for the respective period. 6. The anticipated elimination of approximately $165 million of depreciation, amortization, and nuclear decommissioning expense relating to the transferred assets for the year ended December 31, 1999 ($85 million for the six-month period ended June 30, 2000). 7. The removal from results of the nonrecurring impact of $75 million of amortization expense relating to the $150 million reduction of electric generation plant under the terms of the Restructuring Order for the year ended December 31, 1999 ($75 million for the six-month period ended June 30, 2000). 8. The estimated reduction to taxes other than income taxes resulting from the transfer of the generation function for the respective period. 9. The reduction to other income associated with the elimination of the equity portion of the allowance for funds used during construction relating to generation construction projects, equity in the earnings of Safe Harbor Water Power Corporation, and after-tax earnings on the nuclear decommissioning trusts. 10. The reflection in other income of approximately $22 million of interest income expected to be earned on the unsecured promissory notes described in this Form 10-Q for the year ended December 31, 1999 ($11 million for the six-month period ended June 30, 2000). 11. The reduction of fixed charges to approximate interest expense expected to be avoided on transferred tax-exempt debt. 12. The estimated income tax effects using the effective income tax rates for the respective period. 13. The elimination of the amortization of deferred investment tax credits transferred along with the associated generation assets. 3 Balance Sheet Adjustments - ------------------------- 1. The amount of the transfer of fuel stocks including SO2 emission allowances, materials and supplies, and nuclear fuel inventories relating to the generation function. 2. The reflection of the unsecured promissory notes described in this Form 10-Q. 3. The amount of the transfer of nuclear decommissioning to CCNPP. 4. The amount of the transfer of BGE's investment in Safe Harbor Water Power Corporation to CPSG. 5. The amount of the transfers of utility plant in service, accumulated depreciation reserves, construction work in progress, plant held for future use, unamortized investment tax credits, and miscellaneous other generation-related assets and liabilities. 6. The transfer of the approximately $13 million current (included in other current liabilities) and $21 million non-current (included in other deferred credits and other liabilities) portions of liabilities accrued in connection with certain purchased power contracts that will become the responsibility of the nonregulated generation business. 7. The reflection of the impact on accumulated deferred income taxes of the transfer of the generation assets and nuclear decommissioning, and the reflection of the Restructuring Order as described in this Exhibit. 8. The transfer of certain tax-exempt debt and related unamortized discount. 9. The amount of the net reduction in BGE's common shareholder's equity relating to the other balance sheet adjustments described above. 4 Baltimore Gas and Electric Company Unaudited Condensed Pro Forma Statement of Income Six Months Ended June 30, 2000
As Reported Adjustments Pro Forma ----------- ----------- ----------- (In Millions) Revenues Electric $ 1,090.0 $ (160.0) (1,2,3) $ 930.0 Gas 287.8 - 287.8 Nonregulated 2.3 - 2.3 ----------- ----------- ----------- Total Revenues 1,380.1 (160.0) 1,220.1 ----------- ------------ ----------- Operating Expenses Electric fuel and purchased energy 244.1 275.0 (4) 519.1 Gas purchased for resale 143.8 - 143.8 Operations and maintenance 369.5 (200.0) (5) 169.5 Nonregulated - selling, general, and administrative 1.7 - 1.7 Depreciation and amortization 249.8 (160.0) (6,7) 89.8 Taxes other than income taxes 110.6 (41.0) (8) 69.6 ----------- ------------ ----------- Total operating expenses 1,119.5 (126.0) 993.5 ----------- ------------ ----------- Income from Operations 260.6 (34.0) 226.6 Other Income 5.7 6.0 (9,10) 11.7 ----------- ------------ ----------- Income Before Fixed Charges and Income Taxes 266.3 (28.0) 238.3 Fixed Charges 94.4 (7.0) (11) 87.4 ----------- ------------ ----------- Income Before Income Taxes 171.9 (21.0) 150.9 ----------- ------------ ----------- Income Taxes Income taxes 69.4 (11.2) (12) 58.2 Investment tax credit adjustments (4.1) 3.0 (13) (1.1) ----------- ------------ ----------- Total income taxes 65.3 (8.2) 57.1 ----------- ------------ ----------- Net Income $ 106.6 $ (12.8) $ 93.8 =========== ============ ===========
5 Baltimore Gas and Electric Company Unaudited Condensed Pro Forma Statement of Income Twelve Months Ended December 31, 1999
As Reported Adjustments Pro Forma ----------- ------------ ----------- (In Millions) Revenues Electric $ 2,259.5 $ (330.0) (1,2,3) $ 1,929.5 Gas 485.3 - 485.3 Nonregulated 283.5 - 283.5 ----------- ------------ ----------- Total Revenues 3,028.3 (330.0) 2,698.3 ----------- ------------ ----------- Operating Expenses Electric fuel and purchased energy 486.8 700.0 (4) 1,186.8 Gas purchased for resale 233.7 - 233.7 Operations and maintenance 728.8 (390.0) (5) 338.8 Nonregulated - selling, general, and administrative 222.1 - 222.1 Depreciation and amortization 427.9 (240.0) (6,7) 187.9 Taxes other than income taxes 224.7 (85.0) (8) 139.7 ----------- ------------ ----------- Total operating expenses 2,324.0 (15.0) 2,309.0 ----------- ------------ ----------- Income from Operations 704.3 (315.0) 389.3 Other Income 8.4 11.0 (9,10) 19.4 ----------- ------------ ----------- Income Before Fixed Charges and Income Taxes 712.7 (304.0) 408.7 Fixed Charges 205.9 (13.0) (11) 192.9 ----------- ------------ ----------- Income Before Income Taxes 506.8 (291.0) 215.8 ----------- ------------ ----------- Income Taxes Income taxes 186.9 (108.0) (12) 78.9 Investment tax credit adjustments (8.5) 6.0 (13) (2.5) ----------- ------------ ----------- Total income taxes 178.4 (102.0) 76.4 ----------- ------------ ----------- Income Before Extraordinary Loss $ 328.4 $ (189.0) $ 139.4 =========== ============ ===========
6 Baltimore Gas and Electric Company and Subsidiaries Unaudited Condensed Pro Forma Balance Sheet June 30, 2000
As Reported Adjustments Pro Forma ----------- ------------ ----------- (In Millions) ASSETS Current Assets Fuel stocks $ 84.7 $ (52.4)(1) $ 32.3 Materials and supplies 126.5 (99.5)(1) 27.0 Notes receivable, affiliated companies - 366.3 (2) 366.3 Other current assets 396.8 (0.3)(5) 396.5 ----------- ------------ ----------- Total current assets 608.0 214.1 822.1 ----------- ------------ ----------- Investments And Other Assets Nuclear decommissioning trust fund 230.3 (230.3)(3) - Safe Harbor Water Power Corporation 34.5 (34.5)(4) - Other investments and other assets 169.0 (3.3)(5) 165.7 ------------ ------------ ----------- Total investments and other assets 433.8 (268.1) 165.7 ------------ ------------ ----------- Utility Plant Plant in service Electric 7,157.4 (3,991.2)(5) 3,166.2 Gas 975.2 - 975.2 Common 557.8 (41.1)(5) 516.7 ------------ ------------ ----------- Total plant in service 8,690.4 (4,032.3) 4,658.1 Accumulated depreciation (3,572.2) 1,928.1 (5) (1,644.1) ------------ ------------ ----------- Net plant in service 5,118.2 (2,104.2) 3,014.0 Construction work in progress 277.7 (168.5)(5) 109.2 Nuclear fuel (net of amortization) 150.7 (150.7)(1) - Plant held for future use 12.9 (3.2)(5) 9.7 ------------ ------------ ----------- Net utility plant 5,559.5 (2,426.6) 3,132.9 ------------ ------------ ----------- Deferred Charges 564.5 (2.8)(5) 561.7 ------------ ------------ ----------- Total Assets $ 7,165.8 $ (2,483.4) $ 4,682.4 ============ ============ =========== LIABILITIES AND CAPITALIZATION Current Liabilities Current portions of long-term debt $ 503.4 $ - $ 503.4 Other current liabilities 602.0 (42.3)(5,6) 559.7 ------------ ------------ ----------- Total current liabilities 1,105.4 (42.3) 1,063.1 ------------ ------------ ----------- Deferred Credits And Other Liabilities Deferred income taxes 997.4 (479.5)(7) 517.9 Deferred investment tax credits 105.4 (79.2)(5) 26.2 Other deferred credits and other liabilities 316.0 (22.4)(5,6) 293.6 ------------ ------------ ----------- Total deferred credits and other liabilities 1,418.8 (581.1) 837.7 ------------ ------------ ----------- Long-Term Debt First refunding mortgage bonds of BGE 1,321.7 (8.5)(8) 1,313.2 Other long-term debt of BGE 1,028.4 (269.8)(8) 758.6 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely 7.16% debentures of BGE 250.0 - 250.0 Long-term debt of nonregulated businesses 33.0 - 33.0 Unamortized discount and premium (9.6) 2.1 (8) (7.5) Current portion of long-term debt (503.4) - (503.4) ------------- ----------- ---------- Total long-term debt 2,120.1 (276.2) 1,843.9 ------------- ----------- ---------- BGE Preference Stock Not Subject To Mandatory Redemption 190.0 - 190.0 ------------- ----------- ---------- Common Shareholder's Equity 2,331.5 (1,583.8)(9) 747.7 ------------ ------------ ---------- Total Capitalization 4,641.6 (1,860.0) 2,781.6 ------------ ------------ ---------- Total Liabilities And Capitalization $ 7,165.8 $(2,483.4) $ 4,682.4 ============ ============ ==========
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