10-Q

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

Commission File Number	Exact name of registrant as specified in its charter	IRS Employer Identification No.
1-12869	CONSTELLATION ENERGY GROUP, INC.	52-1964611
1-1910	BALTIMORE GAS AND ELECTRIC COMPANY	52-0280210

MARYLAND
(State of Incorporation of both registrants)

750 E. PRATT STREET,                BALTIMORE, MARYLAND                21202
                                         (Address of principal executive offices)                (Zip Code)

410-783-2800

(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 ý        No o

         Indicate by check mark whether Constellation Energy Group, Inc. is an accelerated filer Yes ý        No o

         Indicate by check mark whether Baltimore Gas and Electric Company is an accelerated filer Yes o        No ý

COMMON STOCK, WITHOUT PAR VALUE 175,463,780 SHARES OUTSTANDING OF
CONSTELLATION ENERGY GROUP, INC. ON JULY 30, 2004.

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

TABLE OF CONTENTS

Part I—Financial Information
	Item 1—Financial Statements
		Constellation Energy Group, Inc. and Subsidiaries
		Consolidated Statements of Income
		Consolidated Statements of Comprehensive Income
		Consolidated Balance Sheets
		Consolidated Statements of Cash Flows
		Baltimore Gas and Electric Company and Subsidiaries
		Consolidated Statements of Income
		Consolidated Statements of Comprehensive Income
		Consolidated Balance Sheets
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations
		Introduction and Overview
		Strategy
		Business Environment
		Critical Accounting Policies
		Events of 2004
		Results of Operations
		Financial Condition
		Capital Resources
		Market Risk
		Other Matters
	Item 3—Quantitative and Qualitative Disclosures About Market Risk
	Item 4—Controls and Procedures
Part II—Other Information
	Item 1—Legal Proceedings
	Item 4—Submission of Matters to a Vote of Security Holders
	Item 5—Other Information
	Item 6—Exhibits and Reports on Form 8-K
	Signature

2

PART 1—FINANCIAL INFORMATION

Item 1—Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

		Three Months Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In millions, except per share amounts)
Revenues
	Nonregulated revenues	$	2,204.3		$	1,692.2		$	4,438.5		$	3,233.8
	Regulated electric revenues		477.2			436.9			961.6			923.2
	Regulated gas revenues		111.5			137.5			429.4			435.7
	Total revenues		2,793.0			2,266.6			5,829.5			4,592.7
Expenses
	Operating expenses		2,393.9			1,845.4			4,997.3			3,821.6
	Impairment losses and other costs		2.6			—			2.6			—
	Workforce reduction costs		—			0.7			—			1.4
	Depreciation and amortization		130.2			116.9			253.2			227.9
	Accretion of asset retirement obligations		12.4			10.7			23.5			21.3
	Taxes other than income taxes		62.4			64.3			127.3			130.0
	Total expenses		2,601.5			2,038.0			5,403.9			4,202.2
Net Gain on Sales of Investments and Other Assets			4.4			0.5			5.9			14.2
Income from Operations			195.9			229.1			431.5			404.7
Other Income			5.5			6.0			10.3			14.9
Fixed Charges
	Interest expense		83.5			83.5			168.3			165.8
	Interest capitalized and allowance for borrowed funds used during construction		(3.2	)		(2.8	)		(5.8	)		(7.2	)
	BGE preference stock dividends		3.3			3.3			6.6			6.6
	Total fixed charges		83.6			84.0			169.1			165.2
Income from Continuing Operations Before Income Taxes			117.8			151.1			272.7			254.4
Income Taxes			(13.1	)		54.3			29.3			90.6
Income from Continuing Operations and Before Cumulative Effects of Changes in Accounting Principles			130.9			96.8			243.4			163.8
	Loss from discontinued operations, net of income taxes of $2.6 and $26.4, respectively		(2.7	)		—			(49.0	)		—
	Cumulative effects of changes in accounting principles, net of income taxes of $119.5		—			—			—			(198.4	)
Net Income (Loss)		$	128.2		$	96.8		$	194.4		$	(34.6	)
Earnings (Loss) Applicable to Common Stock		$	128.2		$	96.8		$	194.4		$	(34.6	)
Average Shares of Common Stock Outstanding—Basic			168.7			165.8			168.4			165.4
Average Shares of Common Stock Outstanding—Diluted			169.6			166.2			169.4			165.5
Earnings Per Common Share from Continuing Operations and Before Cumulative Effects of Changes in Accounting Principles—Basic		$	0.78		$	0.58		$	1.45		$	0.99
	Loss from discontinued operations—Basic		(0.02	)		—			(0.30	)		—
	Cumulative effects of changes in accounting principles—Basic		—			—			—			(1.20	)
Earnings (Loss) Per Common Share—Basic		$	0.76		$	0.58		$	1.15		$	(0.21	)
Earnings Per Common Share—from Continuing Operations and Before Cumulative Effects of Changes in Accounting Principles—Diluted		$	0.77		$	0.58		$	1.44		$	0.99
	Loss from discontinued operations—Diluted		(0.01	)		—			(0.29	)		—
	Cumulative effects of changes in accounting principles—Diluted		—			—			—			(1.20	)
Earnings (Loss) Per Common Share—Diluted		$	0.76		$	0.58		$	1.15		$	(0.21	)
Dividends Declared Per Common Share		$	0.285		$	0.260		$	0.570		$	0.520

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

			Three Months Ended June 30,						Six Months Ended June 30,
			2004			2003			2004			2003
			(In millions)
Net Income (Loss)			$	128.2		$	96.8		$	194.4		$	(34.6	)
	Other comprehensive income (OCI)
		Reclassification of net losses (gains) on sales of securities from OCI to net income, net of taxes		—			2.3			(0.3	)		(0.3	)
		Reclassification of net gains on hedging instruments from OCI to net income, net of taxes		(44.4	)		(3.7	)		(69.2	)		(9.7	)
		Net unrealized gains on hedging instruments, net of taxes		102.5			13.5			198.8			7.5
		Net unrealized (losses) gains on securities, net of taxes		(12.9	)		26.5			14.0			14.8
Comprehensive Income (Loss)			$	173.4		$	135.4		$	337.7		$	(22.3	)

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

3

CONSOLIDATED BALANCE SHEETS

Constellation Energy Group, Inc. and Subsidiaries

			June 30, 2004*			December 31, 2003
			(In millions)
Assets
	Current Assets
		Cash and cash equivalents	$	457.0		$	721.3
		Accounts receivable (net of allowance for uncollectibles of $40.7 and $51.7, respectively)		1,206.8			1,563.0
		Mark-to-market energy assets		514.1			488.3
		Risk management assets		588.0			249.5
		Materials and supplies		217.6			203.2
		Fuel stocks		177.4			186.7
		Other		147.6			221.4
		Total current assets		3,308.5			3,633.4
	Investments and Other Assets
		Nuclear decommissioning trust funds		979.8			736.1
		Investments in qualifying facilities and power projects		319.4			332.6
		Mark-to-market energy assets		368.5			261.9
		Risk management assets		274.3			158.4
		Goodwill		142.5			144.0
		Other		318.3			343.8
		Total investments and other assets		2,402.8			1,976.8
	Property, Plant and Equipment
		Nonregulated property, plant and equipment		8,495.2			8,110.0
		Regulated property, plant and equipment		5,340.7			5,266.7
		Nuclear fuel (net of amortization)		229.9			202.9
		Accumulated depreciation		(4,078.5	)		(3,978.1	)
		Net property, plant and equipment		9,987.3			9,601.5
	Deferred Charges
		Regulatory assets (net)		195.9			229.5
		Other		164.6			149.6
		Total deferred charges		360.5			379.1
	Total Assets		$	16,059.1		$	15,590.8

* Unaudited

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

4

CONSOLIDATED BALANCE SHEETS

Constellation Energy Group, Inc. and Subsidiaries

			June 30, 2004*			December 31, 2003
			(In millions)
Liabilities and Equity
	Current Liabilities
		Short-term borrowings	$	4.5		$	9.6
		Current portion of long-term debt		534.5			343.2
		Accounts payable		705.5			1,149.2
		Customer deposits and collateral		318.5			181.7
		Mark-to-market energy liabilities		539.9			474.6
		Risk management liabilities		157.1			134.6
		Other		470.1			542.1
		Total current liabilities		2,730.1			2,835.0
	Deferred Credits and Other Liabilities
		Deferred income taxes		1,474.0			1,384.4
		Asset retirement obligations		794.7			595.9
		Mark-to-market energy liabilities		354.3			258.0
		Risk management liabilities		407.5			170.1
		Postretirement and postemployment benefits		372.6			361.8
		Net pension liability		196.8			225.7
		Deferred investment tax credits		74.8			78.4
		Other		189.7			198.4
		Total deferred credits and other liabilities		3,864.4			3,272.7
	Long-term Debt
		Long-term debt of Constellation Energy		3,350.0			3,350.0
		Long-term debt of nonregulated businesses		383.2			389.2
		First refunding mortgage bonds of BGE		351.1			476.1
		Other long-term debt of BGE		919.6			919.6
		6.20% deferrable interest subordinated debentures due October 15, 2043 to BGE wholly owned BGE Capital Trust II relating to trust preferred securities		257.7			257.7
		Unamortized discount and premium		(12.0	)		(10.2	)
		Current portion of long-term debt		(534.5	)		(343.2	)
		Total long-term debt		4,715.1			5,039.2
	Minority Interests			118.8			113.4
	BGE Preference Stock Not Subject to Mandatory Redemption			190.0			190.0
	Common Shareholders' Equity
		Common stock		2,237.9			2,179.8
		Retained earnings		2,180.7			2,081.9
		Accumulated other comprehensive income (loss)		22.1			(121.2	)
		Total common shareholders' equity		4,440.7			4,140.5
	Commitments, Guarantees, and Contingencies (see Notes)
	Total Liabilities and Equity		$	16,059.1		$	15,590.8

* Unaudited

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

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

Six Months Ended June 30,				2004			2003
				(In millions)
Cash Flows From Operating Activities
	Net income (loss)			$	194.4		$	(34.6	)
	Adjustments to reconcile to net cash provided by operating activities
		Loss from discontinued operations			49.0			—
		Cumulative effects of changes in accounting principles			—			198.4
		Depreciation and amortization			319.5			293.4
		Accretion of asset retirement obligations			23.5			21.3
		Deferred income taxes			56.0			33.6
		Investment tax credit adjustments			(3.6	)		(3.7	)
		Deferred fuel costs			10.9			(4.0	)
		Pension and postemployment benefits			(22.4	)		(86.7	)
		Net gain on sales of investments and other assets			(5.9	)		(14.2	)
		Impairment losses and other costs			2.6			—
		Workforce reduction costs			—			1.4
		Equity in earnings of affiliates less than dividends received			18.2			20.1
		Changes in
			Accounts receivable		374.7			(332.4	)
			Mark-to-market energy assets and liabilities		35.8			101.9
			Risk management assets and liabilities		(0.6	)		(56.7	)
			Materials, supplies and fuel stocks		3.2			(9.5	)
			Other current assets		61.1			(57.9	)
			Accounts payable		(453.5	)		238.5
			Other current liabilities		19.1			123.5
			Other		(20.7	)		(48.1	)
	Net cash provided by operating activities				661.3			384.3
Cash Flows From Investing Activities
	Acquisitions, net of cash acquired				(430.0	)		(517.3	)
	Purchases of property, plant and equipment				(322.0	)		(321.1	)
	Contributions to nuclear decommissioning trust funds				(13.2	)		(8.8	)
	Proceeds from sale of discontinued operations				72.7			—
	Sales of investments and other assets				14.1			102.8
	Other investments				(10.1	)		(60.2	)
	Net cash used in investing activities				(688.5	)		(804.6	)
Cash Flows From Financing Activities
	Net (maturity) issuance of short-term borrowings				(5.1	)		0.9
	Proceeds from issuance of
		Common stock			30.5			49.6
		Long-term debt			—			740.6
	Repayment of long-term debt				(172.4	)		(150.5	)
	Common stock dividends paid				(91.4	)		(82.4	)
	Other				1.3			(1.9	)
	Net cash (used in) provided by financing activities				(237.1	)		556.3
Net (Decrease) Increase in Cash and Cash Equivalents					(264.3	)		136.0
Cash and Cash Equivalents at Beginning of Period					721.3			615.0
Cash and Cash Equivalents at End of Period				$	457.0		$	751.0

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

6

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Baltimore Gas and Electric Company and Subsidiaries

			Three Months Ended June 30,						Six Months Ended June 30,
			2004			2003			2004			2003
			(In millions)
Revenues
	Electric revenues		$	477.2		$	437.0		$	961.6		$	923.3
	Gas revenues			112.6			140.0			432.1			443.6
	Total revenues			589.8			577.0			1,393.7			1,366.9
Expenses
	Operating expenses
		Electricity purchased for resale		254.3			237.2			494.7			480.8
		Gas purchased for resale		59.5			86.3			275.5			289.4
		Operations and maintenance		109.2			88.7			204.4			168.7
		Workforce reduction costs		—			0.2			—			0.5
	Depreciation and amortization			60.7			56.0			120.6			111.9
	Taxes other than income taxes			40.5			39.4			83.1			81.8
	Total expenses			524.2			507.8			1,178.3			1,133.1
Income from Operations				65.6			69.2			215.4			233.8
Other Income				—			0.7			1.0			1.1
Fixed Charges
	Interest expense			24.3			29.1			49.7			59.1
	Allowance for borrowed funds used during construction			(0.2	)		(0.5	)		(0.5	)		(1.0	)
	Total fixed charges			24.1			28.6			49.2			58.1
Income Before Income Taxes				41.5			41.3			167.2			176.8
Income Taxes				16.3			16.3			66.0			70.0
Net Income				25.2			25.0			101.2			106.8
Preference Stock Dividends				3.3			3.3			6.6			6.6
Earnings Applicable to Common Stock			$	21.9		$	21.7		$	94.6		$	100.2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Baltimore Gas and Electric Company and Subsidiaries

			Three Months Ended June 30,					Six Months Ended June 30,
			2004			2003		2004			2003
			(In millions)
Net Income			$	21.9		$	21.7	$	94.6		$	100.2
	Other comprehensive income
		Reclassification of unrealized gain on hedging instruments from OCI to net income, net of taxes		(0.1	)		—		(0.1	)		—
		Unrealized gain on hedging instruments, net of taxes		—			0.8		—			0.8
Comprehensive Income			$	21.8		$	22.5	$	94.5		$	101.0

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

7

CONSOLIDATED BALANCE SHEETS

Baltimore Gas and Electric Company and Subsidiaries

				June 30, 2004*			December 31, 2003
				(In millions)
Assets
	Current Assets
		Cash and cash equivalents		$	8.6		$	11.0
		Accounts receivable (net of allowance for uncollectibles of $12.2 and $10.7, respectively)			327.4			354.8
		Investment in cash pool, affiliated company			247.7			230.2
		Accounts receivable, affiliated companies			1.5			4.5
		Fuel stocks			61.7			62.8
		Materials and supplies			33.4			29.9
		Prepaid taxes other than income taxes			0.2			42.8
		Other			30.3			9.9
		Total current assets			710.8			745.9
	Other Assets
		Receivable, affiliated company			158.3			131.6
		Other			92.9			90.4
		Total other assets			251.2			222.0
	Utility Plant
		Plant in service
			Electric		3,688.3			3,599.3
			Gas		1,075.6			1,064.7
			Common		477.2			467.7
			Total plant in service		5,241.1			5,131.7
		Accumulated depreciation			(1,863.2	)		(1,807.7	)
		Net plant in service			3,377.9			3,324.0
		Construction work in progress			94.4			130.5
		Plant held for future use			5.2			4.5
		Net utility plant			3,477.5			3,459.0
	Deferred Charges
		Regulatory assets (net)			195.9			229.5
		Other			47.8			50.2
		Total deferred charges			243.7			279.7
	Total Assets			$	4,683.2		$	4,706.6

* Unaudited

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

8

CONSOLIDATED BALANCE SHEETS

Baltimore Gas and Electric Company and Subsidiaries

			June 30, 2004*			December 31, 2003
			(In millions)
Liabilities and Equity
	Current Liabilities
		Current portion of long-term debt	$	224.0		$	330.6
		Accounts payable		78.6			111.2
		Accounts payable, affiliated companies		317.3			151.7
		Customer deposits		61.6			59.7
		Accrued taxes		5.4			33.0
		Accrued interest		22.8			22.3
		Other		31.8			43.3
		Total current liabilities		741.5			751.8
	Deferred Credits and Other Liabilities
		Deferred income taxes		595.8			585.8
		Postretirement and postemployment benefits		280.2			279.2
		Other		40.3			49.5
		Total deferred credits and other liabilities		916.3			914.5
	Long-term Debt
		First refunding mortgage bonds of BGE		351.1			476.1
		Other long-term debt of BGE		919.6			919.6
		6.20% deferrable interest subordinated debentures due October 15, 2043 to wholly owned BGE Capital Trust II relating to trust preferred securities		257.7			257.7
		Long-term debt of nonregulated businesses		25.0			25.0
		Unamortized discount and premium		(3.5	)		(4.1	)
		Current portion of long-term debt		(224.0	)		(330.6	)
		Total long-term debt		1,325.9			1,343.7
	Minority Interest			18.7			18.9
	Preference Stock Not Subject to Mandatory Redemption			190.0			190.0
	Common Shareholder's Equity
		Common stock		912.2			912.2
		Retained earnings		577.9			574.7
		Accumulated other comprehensive income		0.7			0.8
		Total common shareholder's equity		1,490.8			1,487.7
	Commitments, Guarantees, and Contingencies (see Notes)
	Total Liabilities and Equity		$	4,683.2		$	4,706.6

* Unaudited

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

9

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Baltimore Gas and Electric Company and Subsidiaries

Six Months Ended June 30,				2004			2003
				(In millions)
Cash Flows From Operating Activities
	Net income			$	101.2		$	106.8
	Adjustments to reconcile to net cash provided by operating activities
		Depreciation and amortization			122.2			113.4
		Deferred income taxes			10.7			19.4
		Investment tax credit adjustments			(0.9	)		(0.9	)
		Deferred fuel costs			10.9			(4.0	)
		Pension and postemployment benefits			(24.1	)		(69.7	)
		Workforce reduction costs			—			0.5
		Allowance for equity funds used during construction			(0.9	)		(1.7	)
		Changes in
			Accounts receivable		27.4			34.6
			Receivables, affiliated companies		3.0			107.0
			Materials, supplies, and fuel stocks		(2.4	)		(14.5	)
			Other current assets		22.2			31.6
			Accounts payable		(32.6	)		(20.7	)
			Accounts payable, affiliated companies		165.6			35.7
			Other current liabilities		(36.7	)		(13.5	)
			Other		(7.6	)		7.0
	Net cash provided by operating activities				358.0			331.0
Cash Flows From Investing Activities
	Utility construction expenditures (excluding AFC)				(124.9	)		(100.4	)
	Investment in cash pool at parent				(17.5	)		(236.7	)
	Sales of investments and other assets				4.9			—
	Other				—			0.4
	Net cash used in investing activities				(137.5	)		(336.7	)
Cash Flows From Financing Activities
	Distribution to parent				(91.4	)		(38.1	)
	Proceeds from issuance of long-term debt				—			196.8
	Repayment of long-term debt				(124.9	)		(150.3	)
	Preference stock dividends paid				(6.6	)		(6.6	)
	Other				—			1.2
	Net cash (used in) provided by financing activities				(222.9	)		3.0
Net Decrease in Cash and Cash Equivalents					(2.4	)		(2.7	)
Cash and Cash Equivalents at Beginning of Period					11.0			10.2
Cash and Cash Equivalents at End of Period				$	8.6		$	7.5

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

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Basis of Presentation

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

Earnings Per Share

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

        Our dilutive common stock equivalent shares were 0.9 million consisting of stock options for the quarter ended June 30, 2004. Stock options to purchase approximately 1.5 million shares during the quarter ended June 30, 2004 were not dilutive and were excluded from the computation of diluted EPS for that period. Our dilutive common stock equivalent shares were 0.4 million consisting of stock options for the quarter ended June 30, 2003. Stock options to purchase approximately 1.2 million shares during the quarter ended June 30, 2003 were not dilutive and were excluded from the computation of diluted EPS for that period.

        Our dilutive common stock equivalent shares were 1.0 million consisting of stock options for the six months ended June 30, 2004. Stock options to purchase approximately 1.0 million shares during the six months ended June 30, 2004 were not dilutive and were excluded from the computation of diluted EPS for that period. Our dilutive common stock equivalent shares were 0.1 million consisting of stock options for the six months ended June 30, 2003. Stock options to purchase approximately 2.7 million shares during the six months ended June 30, 2003 were not dilutive and were excluded from the computation of diluted EPS for that period.

Stock-Based Compensation

Under our long-term incentive plans, we granted stock options, performance-based stock units, performance-based restricted stock, service-based restricted stock, and equity to officers, key employees, and members of the Board of Directors. As permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, we measure our stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations. We discuss these plans and accounting further in Note 14 of our 2003 Annual Report on Form 10-K.

        The following table illustrates the effect on net income and earnings per share had we applied the fair value recognition provision of SFAS No. 123 to all outstanding stock options and stock awards in each period.

		Quarter Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In millions, except per share amounts)
Net income (loss), as reported		$	128.2		$	96.8		$	194.4		$	(34.6	)
Add: Stock-based compensation expense determined under intrinsic value method and included in reported net income (loss), net of related tax effects			3.2			3.1			5.3			4.1
Deduct: Stock-based compensation expense determined under fair value based method for all awards, net of related tax effects			(5.3	)		(5.4	)		(8.9	)		(8.5	)
Pro-forma net income (loss)		$	126.1		$	94.5		$	190.8		$	(39.0	)
Earnings (loss) per share:
	Basic – as reported	$	0.76		$	0.58		$	1.15		$	(0.21	)
	Basic – pro forma	$	0.75		$	0.57		$	1.13		$	(0.24	)
	Diluted – as reported	$	0.76		$	0.58		$	1.15		$	(0.21	)
	Diluted – pro forma	$	0.74		$	0.57		$	1.13		$	(0.24	)

Impairment Losses and Other Costs

In the second quarter of 2004, our other nonregulated businesses recognized an impairment loss of $2.6 million pre-tax, or $1.6 million after-tax, related to an other than temporary decline in fair value of one of our financial investments.

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Accretion of Asset Retirement Obligations

SFAS No. 143, Accounting for Asset Retirement Obligations, provides the accounting requirements for recognizing an estimated liability for legal obligations associated with the retirement of tangible long-lived assets. We measure the liability at fair value when incurred and capitalize a corresponding amount as part of the book value of the related long-lived assets. The increase in the capitalized cost is included in determining depreciation expense over the estimated useful life of these assets. Since the fair value of the asset retirement obligations is determined using a present value approach, accretion of the liability due to the passage of time is recognized each period to "Accretion of asset retirement obligations" in our Consolidated Statements of Income until the settlement of the liability. We record a gain or loss when the liability is settled after retirement.

        The change in our "Asset retirement obligations" liability during 2004 was as follows:

	(In millions)
Liability at January 1, 2004	$	595.9
Accretion expense		23.5
Liabilities incurred		177.3
Other		(2.0	)
Liabilities settled		—
Revisions to cash flows		—
Liability at June 30, 2004	$	794.7

        "Liabilities incurred" in the table above reflects the asset retirement obligation recorded in connection with our acquisition of the R.E. Ginna Nuclear Power Plant (Ginna). We discuss the acquisition of Ginna in more detail in the Acquisition of Ginna section on the next page. "Other" in the table above represents the asset retirement obligation associated with our geothermal facility in Hawaii that was sold during the quarter ended June 30, 2004. At the time of the sale, the asset retirement obligation was transferred to the buyer of the geothermal facility. We discuss the sale of the geothermal facility in more detail in the Loss from Discontinued Operations section below.

Net Gain on Sales of Investments and
Other Assets

2004

During the six months ended June 30, 2004, our other nonregulated businesses recognized $5.9 million pre-tax, or $3.7 million after-tax, gains on the sale of non-core assets as follows:

•

a $1.1 million pre-tax gain in the first quarter on an installment sale of real estate,

•

a $0.4 million pre-tax gain in the first quarter on the sale of a financial investment,

•

a $3.3 million pre-tax gain in the second quarter on the sale of a financial investment, and

•

a $1.1 million pre-tax gain in the second quarter on the sale of real estate.

2003

During the six months ended June 30, 2003, our other nonregulated businesses recognized $14.2 million pre-tax, or $8.6 million after-tax, gains on the sale of non-core assets as follows:

•

a $7.2 million pre-tax gain in the first quarter of 2003 on the sale of an oil tanker to the U.S. Navy,

•

a $5.3 million pre-tax gain in the first quarter of 2003 on the favorable settlement of a contingent obligation we had previously reserved relating to the sale of our Guatemalan power plant operation in the fourth quarter of 2001,

•

a $1.2 million pre-tax gain in the first quarter of 2003 on an installment sale of real estate, and

•

a $0.5 million pre-tax gain in the second quarter of 2003 on the sale of financial investments.

Loss from Discontinued Operations

In the fourth quarter of 2003, we began to re-evaluate our strategy regarding our geothermal generating facility in Hawaii. The reevaluation of our strategy included soliciting bids to determine the level of interest in the facility. As of December 31, 2003, management determined that disposal of the facility was more likely than not to occur. As a result, we evaluated the facility for impairment as of December 31, 2003, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and determined that the facility was not impaired primarily due to indicative bids from third parties above the carrying value of the assets.

        In March 2004, after reviewing final binding offers, management committed to a plan to sell the facility that met the "held for sale" criteria under SFAS No. 144. Under SFAS No. 144, we record assets and liabilities held for sale at the lesser of the carrying amount or fair value less cost to sell.

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        We estimated that the fair value of the facility as of March 31, 2004, based on the bids under consideration to be below carrying value; therefore, we recorded a $71.6 million pre-tax, or $47.3 million after-tax, impairment charge during the first quarter of 2004. We reported the after-tax impairment charge as a component of "Loss from discontinued operations" in our Consolidated Statements of Income.

        Additionally, we recognized the $1.5 million pre-tax, or $1.0 million after-tax, of earnings from the facility for the quarter ended March 31, 2004 as a component of "Loss from discontinued operations."

        During the second quarter of 2004, we completed the sale of the facility. We recognized an additional loss on sale of $5.9 million pre-tax, or $3.0 million after-tax, based on the final sales price, as a component of "Loss from discontinued operations." We also recognized $0.6 million pre-tax, or $0.3 million after-tax, of earnings from the facility for the quarter ended June 30, 2004 as a component of "Loss from discontinued operations."

        We have not reclassified the prior year results of operations, which were reported under the equity method as "Nonregulated revenues," because we believe that reclassification of immaterial prior period results would be less useful than consistent reporting of prior year amounts. The facility had a $4.7 million net loss, including a $1.1 million cumulative effect of change in accounting principle for the adoption of SFAS No. 143, during the six months ended June 30, 2003.

Acquisition of Ginna

On June 10, 2004, we completed our purchase of the R.E. Ginna nuclear facility (Ginna), which is located in Ontario, New York from Rochester Gas & Electric (RG&E) Corporation. Ginna consists of a 495 megawatt single-unit pressurized water reactor that entered service in 1970 and is licensed to operate until 2029.

        We purchased 100 percent of Ginna for $454.4 million including direct costs associated with the acquisition, of which $430.0 million was paid in cash at closing. We accrued a liability for the remaining $24.4 million which is expected to be paid, subject to any adjustments, in the third quarter of 2004 after the completion of a final valuation of certain assets and liabilities. RG&E also transferred to us $200.5 million in decommissioning funds.

        We will sell 90 percent of Ginna's output back to RG&E at an average price of nearly $44 per megawatt-hour for approximately 10 years under a unit contingent power purchase agreement (if the output is not available because the plant is not operating, there is no requirement to provide output from other sources). We expect the acquisition of Ginna to be immediately accretive to earnings.

        We accounted for this transaction as an asset acquisition. Our preliminary purchase price allocation for the net assets acquired is as follows:

Ginna Net Assets Acquired

At June 10, 2004
	(In millions)
Current assets	$	27.6
Nuclear decommissioning trust fund		200.5
Nuclear fuel		14.3
Net property, plant and equipment		381.2
Intangible assets (details below)		38.4
Other assets		123.9
Total assets acquired		785.9
Current liabilities		20.9
Asset retirement obligations		177.3
Deferred credits and other liabilities		133.3
Net assets acquired	$	454.4

        The intangible assets acquired consist of the following:

Description	Amount		Weighted- Average Useful Life
	(In millions)		(In years)
Operating procedures and manuals	$	25.9	25
Permits and licenses		8.4	25
Software		4.1	5
Total intangible assets	$	38.4

Information by Operating Segment

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

•

Our nonregulated merchant energy business in North America includes:

–

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

–

our competitive supply activities which include:

–

origination of structured transactions (such as load-serving and power purchase agreements), and risk management services to various customers (including hedging of output from generating facilities and fuel costs),

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–

electric and gas retail energy services to commercial and industrial customers, and

–

generation and consulting services.

•

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

•

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

        Our remaining nonregulated businesses:

•

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

•

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

        In addition, we own several investments that we do not consider to be core operations. These include financial investments, real estate projects, and interests in a Latin American power distribution project and in a fund that holds interests in two South American energy projects.

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

	Reportable Segments
	Merchant Energy Business			Regulated Electric Business		Regulated Gas Business			Other Nonregulated Businesses			Eliminations			Consolidated
	(In millions)
For the three months ended June 30,
2004
Unaffiliated revenues	$	2,105.4		$	477.2	$	111.5		$	98.9		$	—		$	2,793.0
Intersegment revenues		262.3			—		1.1			—			(263.4	)		—
Total revenues		2,367.7			477.2		112.6			98.9			(263.4	)		2,793.0
Loss from discontinued operations		(2.7	)		—		—			—			—			(2.7	)
Net income (loss)		106.5			25.2		(3.3	)		(0.2	)		—			128.2
2003
Unaffiliated revenues	$	1,549.1		$	436.9	$	137.5		$	143.1		$	—		$	2,266.6
Intersegment revenues		273.5			0.1		2.5			—			(276.1	)		—
Total revenues		1,822.6			437.0		140.0			143.1			(276.1	)		2,266.6
Net income (loss)		75.2			20.8		0.9			(0.1	)		—			96.8
For the six months ended June 30,
2004
Unaffiliated revenues	$	4,235.9		$	961.6	$	429.4		$	202.6		$	—		$	5,829.5
Intersegment revenues		516.6			—		2.7			—			(519.3	)		—
Total revenues		4,752.5			961.6		432.1			202.6			(519.3	)		5,829.5
Loss from discontinued operations		(49.0	)		—		—			—			—			(49.0	)
Net income (loss)		99.7			70.3		24.5			(0.1	)		—			194.4
2003
Unaffiliated revenues	$	2,935.1		$	923.2	$	435.7		$	298.7		$	—		$	4,592.7
Intersegment revenues		560.7			0.1		7.9			—			(568.7	)		—
Total revenues		3,495.8			923.3		443.6			298.7			(568.7	)		4,592.7
Cumulative effects of changes in accounting principles		(198.4	)		—		—			—			—			(198.4	)
Net (loss) income		(143.7	)		71.0		29.5			8.6			—			(34.6	)

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

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Pension and Postretirement Benefits

In December 2003, the President signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act). This legislation provides a prescription drug benefit for Medicare beneficiaries, a benefit we provide to our Medicare eligible retirees.

        We concluded that prescription drug benefits available under our postretirement health care plan are currently "actuarially equivalent" to Medicare Part D and thus qualify for the subsidy under the Act and the expected subsidy will offset or reduce our share of the cost of the underlying postretirement prescription drug coverage. We believe the impact of this legislation will be to reduce our Accumulated Postretirement Benefit Obligation by $30.5 million and reduce our annual postretirement benefit expense during 2004 by $4.0 million. We will reflect the impact of the Act beginning in the third quarter of 2004 in accordance with Financial Accounting Standards Board (FASB) Staff Position 106-2—Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003, as discussed in the Accounting Standards Issued section on page 23.

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

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Components of net periodic pension benefit cost
Service cost	$	11.4		$	9.6		$	20.0		$	18.4
Interest cost		21.8			23.0			41.1			44.3
Expected return on plan assets		(26.4	)		(27.0	)		(48.8	)		(51.9	)
Amortization of unrecognized prior service cost		1.6			1.7			2.9			3.2
Recognized net actuarial loss		3.7			1.4			7.2			2.7
Amount capitalized as construction cost		(1.2	)		(0.7	)		(1.9	)		(1.6	)
Net periodic pension benefit cost	$	10.9		$	8.0		$	20.5		$	15.1

        We made a $50 million contribution to our qualified pension plans on January 16, 2004 even though there is no IRS required minimum contribution.

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

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Components of net periodic postretirement benefit cost
Service cost	$	2.6		$	1.8		$	3.9		$	3.6
Interest cost		7.0			7.8			13.6			15.3
Amortization of transition obligation		0.7			0.6			1.3			1.2
Recognized net actuarial (gain) loss		(0.1	)		1.7			1.9			3.4
Amortization of unrecognized prior service cost		(1.1	)		(1.0	)		(2.1	)		(2.1	)
Amount capitalized as construction cost		(1.6	)		(3.1	)		(4.0	)		(5.2	)
Net periodic postretirement benefit cost	$	7.5		$	7.8		$	14.6		$	16.2

        Our non-qualified pension plans and our postretirement benefit programs are not funded; however, we have trust assets securing certain executive pension benefits. We estimate that we will incur approximately $3 million in pension benefit payments for our non-qualified pension plans and approximately $30 million for retiree health and life insurance benefit payments during 2004.

Financing Activities

Constellation Energy

During the first quarter of 2004, we decided to continue our ownership in a synthetic fuel processing facility in South Carolina. We discuss this facility in more detail in the Income Taxes section on the next page. In connection with our decision to continue with our ownership in this facility, we are committed to making fixed payments until the end of 2007. Accordingly, during the first quarter of 2004, we recorded a liability of $39.3 million in "Long-term debt" in our Consolidated Balance Sheets for these fixed payments.

        In June 2004, Constellation Energy arranged an $800.0 million three-year revolving credit facility and a $300.0 million five-year revolving credit facility replacing a $447.5 million 364-day revolving credit facility. The facility that was replaced expired in the second quarter of 2004. Constellation Energy also has an existing $640.0 million revolving credit facility expiring in June 2005 and a $447.5 million facility expiring in June 2006.

15

        We use these facilities to ensure adequate liquidity to support our operations. We can borrow directly from the banks or use the facilities to allow the issuance of commercial paper. Additionally, we use the facilities to support letters of credit primarily for our merchant energy business.

        These revolving credit facilities allow the issuance of letters of credit up to approximately $2.2 billion. In addition, BGE maintains $200.0 million in credit facilities as discussed below. At June 30, 2004, letters of credit that totaled $860.8 million were issued under our facilities.

        Under our continuous offering program, employee benefit plans, and shareholder investment plans we issued $30.5 million of common stock during the six months ended June 30, 2004.

        Additionally, on July 1, 2004, we issued 6.0 million shares of common stock for net proceeds of $226.9 million to fund a portion of the acquisition of Ginna.

BGE

During the second quarter of 2004, certain credit facilities expired and BGE renewed those facilities. BGE continues to maintain $200.0 million in annual committed credit facilities, expiring August 2004 through June 2005, to ensure adequate liquidity to support its operations. We can borrow directly from the banks or use the facilities to allow commercial paper to be issued. As of June 30, 2004, BGE had no outstanding commercial paper, which results in $200.0 million in unused credit facilities.

        BGE announced in July 2004 a partial call of $4.8 million principal amount of its Remarketed Floating Rate Series due September 1, 2006 First Refunding Mortgage Bonds in connection with its annual sinking fund. The redemption will be made pursuant to the sinking fund provisions of BGE's mortgage. Bonds to be called were randomly selected by lot. Bonds called for the sinking fund will be redeemed in whole or in part on August 25, 2004 at the sinking fund call price of 100% of principal amount, plus accrued interest from June 1, 2004 to, but not including, August 25, 2004.

Income Taxes

Our merchant energy business has investments in facilities that manufacture solid synthetic fuel produced from coal as defined under Section 29 of the Internal Revenue Code for which we claim tax credits on our Federal income tax return. We recognize the tax benefit of these credits in our Consolidated Statements of Income when we believe it is highly probable that the credits will be sustained. The synthetic fuel process involves combining coal material with a chemical reagent to create a significant chemical change. A taxpayer may request a private letter ruling from the Internal Revenue Service (IRS) to support its position that the synthetic fuel produced undergoes a significant chemical change and thus qualifies for Section 29 credits.

        As of June 30, 2004, we have recognized cumulative tax benefits associated with Section 29 credits of $158.7 million, of which $58.6 million was recognized during the quarter ended June 30, 2004 and $80.7 million during the six months ended June 30, 2004.

        We own a minority ownership in four synthetic fuel facilities located in Ohio, Virginia, and West Virginia. These facilities have received private letter rulings from the IRS. In January 2004, the IRS concluded its examination of the partnership that owns these facilities for the tax years 1998 through 2001 and the IRS did not disallow any of the previously recognized synthetic fuel credits. During the second quarter of 2004, we received final written notice of the resolution of the examination from the IRS.

        In 2003, we purchased 99% ownership in a South Carolina facility that produces synthetic fuel. We did not recognize in our Consolidated Statements of Income the tax benefit of $35.9 million for credits claimed on our South Carolina facility in 2003 pending receipt of a favorable private letter ruling. On April 15, 2004, we received a favorable private letter ruling. We believe receipt of the private letter ruling provides assurance that it is highly probable that the credits will be sustained. Therefore, we recognized the tax benefit of $35.9 million in our Consolidated Statements of Income during the quarter ended June 30, 2004.

        While we believe the production and sale of synthetic fuel from all of our synthetic fuel facilities meet the conditions to qualify for tax credits under Section 29 of the IRS Code, we cannot predict the timing or outcome of any future challenge by the IRS, legislative or regulatory action, or the ultimate impact of such events on the Section 29 credits that we have claimed to date or expect to claim in the future, but the impact could be material to our financial results.

16

        Our recognition of the Section 29 credits reduced our effective tax rate as detailed in the table below. Total income taxes are different from the amount that would be computed by applying the statutory Federal income tax rate of 35% to book income before income taxes as follows:

		Quarter Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In millions)
Income before income taxes (excluding BGE preference stock dividends)		$	121.1		$	154.4		$	279.3		$	261.0
Statutory federal income tax rate			35	%		35	%		35	%		35	%
Income taxes computed at statutory federal rate			42.4			54.0			97.8			91.4
(Decreases) increases in income taxes due to:
	Synthetic fuel tax credits (2004)		(22.7	)		(9.5	)		(44.8	)		(17.9	)
	Synthetic fuel tax credits (2003)*		(35.9	)		—			(35.9	)		—
	State income taxes, net of federal tax benefit		2.2			9.3			9.5			15.7
	Other		0.9			0.5			2.7			1.4
Total income taxes		$	(13.1	)	$	54.3		$	29.3		$	90.6
Effective tax rate			(10.8	)%		35.2	%		10.5	%		34.7	%

* Credits associated with 2003 production at our South Carolina facility.

Commitments, Guarantees, and Contingencies

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

•

purchase of electric generating capacity and energy,

•

procurement and delivery of fuels,

•

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

•

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

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

        Our regulated gas business enters into various long-term contracts for the procurement, transportation, and storage of gas.

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

        Corporately, we have committed to long-term service agreements and other obligations related to our information technology systems.

        At June 30, 2004, the total amount of commitments was $4,338.7 million, which are primarily related to our merchant energy business.

Long-Term Power Sales Contracts

We enter into long-term power sales contracts in connection with our load-serving activities. We also enter into long-term power sales contracts associated with certain of our power plants. Our load-serving power sales contracts extend for terms through 2012 and provide for the sale of full requirements energy to electricity distribution utilities and certain retail customers. Our power sales contracts associated with our power plants extend for terms into 2014 and provide for the sale of all or a portion of the actual output of certain of our power plants. All long-term contracts were executed at pricing that approximated market rates, including profit margin, at the time of execution.

Guarantees

The terms of our guarantees are as follows:

	Expiration
	2004		2005- 2006		2007- 2008		Thereafter		Total
	(In millions)
Competitive Supply	$	3,121.1	$	1,090.5	$	307.0	$	500.3	$	5,018.9
Other		10.4		4.6		—		1,044.6		1,059.6
Total	$	3,131.5	$	1,095.1	$	307.0	$	1,544.9	$	6,078.5

        At June 30, 2004, Constellation Energy had a total of $6,078.5 million of guarantees outstanding related to loans, credit facilities, and contractual performance of certain of its subsidiaries as described on the next page. These guarantees do not represent incremental obligations and we do not expect to fund the full amount under these guarantees.

17

•

Constellation Energy guaranteed $5,018.9 million on behalf of our subsidiaries for competitive supply activities. These guarantees are put into place in order to allow our subsidiaries the flexibility needed to conduct business with counterparties without having to post substantial collateral. While the face amount of these guarantees is $5,018.9 million, our calculated fair value of obligations covered by these guarantees was $1,180.7 million at June 30, 2004. If the parent company was required to fund defaulted subsidiary obligations, the total amount at current market prices is $1,180.7 million. The recorded fair value of obligations in our Consolidated Balance Sheets for these guarantees was $656.2 million at June 30, 2004.

•

Constellation Energy guaranteed $723.3 million primarily on behalf of our nuclear facilities related to nuclear insurance and decommissioning.

•

Constellation Energy guaranteed $42.3 million on behalf of our other nonregulated businesses primarily for loans and performance bonds of which $25.0 million was recorded in our Consolidated Balance Sheets at June 30, 2004.

•

Our merchant energy business guaranteed $18.0 million for loans and other performance guarantees related to certain power projects in which we have an investment.

•

Our other nonregulated business guaranteed $12.7 million for performance bonds.

•

BGE guaranteed two-thirds of certain debt of Safe Harbor Water Power Corporation, an unconsolidated investment. At June 30, 2004, Safe Harbor Water Power Corporation had outstanding debt of $20.0 million. The maximum amount of BGE's guarantee is $13.3 million.

•

BGE guaranteed the Trust Preferred Securities of $250.0 million of BGE Capital Trust II, an unconsolidated investment, as discussed in more detail in Note 9 of our 2003 Annual Report on Form 10-K.

        The total recorded fair value of obligations in our Consolidated Balance Sheets was $681.2 million and not the $6.1 billion of total guarantees. We assess the risk of loss from these guarantees to be minimal.

Environmental Matters

We are subject to regulation by various federal, state, and local authorities with regard to:

•

air quality,

•

water quality, and

•

treatment, storage, and disposal of solid and hazardous waste.

Clean Air Act

The Clean Air Act affects both existing generating facilities and new projects. The Clean Air Act and many state laws impose significant requirements relating to emissions of sulfur dioxide (SO₂), nitrogen oxide (NOx), particulate matter, and other pollutants that result from burning fossil fuels. The Clean Air Act also contains other provisions that could materially affect some of our projects. Various provisions may require permits, inspections, or installation of additional pollution control technology or may require the purchase of emission allowances. Certain of these provisions are described in more detail below.

        The Environmental Protection Agency (EPA) established new National Ambient Air Quality Standards for very fine particulates and revised standards for ozone. In April 2004, the EPA identified the areas that would be in ozone nonattainment for the new standards. The affected states will be required to submit plans for compliance within three years. The EPA has also proposed a rule to address the interstate transport of SO₂ and NOx emissions from fossil fired power plants located primarily in the Eastern United States. While any new standards may require increased controls at some of our fossil generating plants in the future, planning and implementation of unit specific requirements will likely take place over several years. We are unable to estimate the cost of compliance until the states and the EPA have finalized their plans for meeting the standards or finalized the proposed rule.

        We own several generating facilities in currently designated severe ozone nonattainment areas in Maryland and California. The Clean Air Act requires states to assess fees against every major stationary source of NOx and volatile organic chemicals in severe ozone nonattainment areas if national air quality standards are not achieved by a specified deadline. If implemented, the fee would be assessed based on the magnitude of a source's emissions as compared to its emissions when the area failed to meet the deadline. The exact method of computing these fees has not been established and will depend in part on state implementation regulations that have not been finalized.

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        The current deadline for most severe nonattainment areas is 2005, including those in which our generating facilities are located. Assessment of fees would commence in 2006 if the current effective date is maintained. However, there is significant uncertainty regarding the date when fees would be assessed in light of pending federal legislation and anticipated EPA rulemaking. Currently, we are unable to estimate the ultimate timing or financial impact of the standard in light of the uncertainty surrounding its effective date and the methodology that will be used in calculating the fees.

        The EPA and several states filed suits against a number of coal-fired power plants in Mid-Western and Southern states alleging violations of the Prevention of Significant Deterioration and Non-Attainment provisions of the Clean Air Act's new source review requirements. The EPA requested information relating to modifications made to our Brandon Shores, Crane, and Wagner plants in Baltimore, Maryland. The EPA also sent similar, but narrower, information requests to two of our newer Pennsylvania waste-coal burning plants in which we have an ownership interest. We have responded to the EPA, and as of the date of this report the EPA has taken no further action.

        Based on the level of emissions control that the EPA and states are seeking in these new source review enforcement actions, we believe that material additional costs and penalties could be incurred, and planned capital expenditures could be accelerated, if the EPA was successful in any future actions regarding our facilities.

        On October 27, 2003, the EPA's new source review rule on routine maintenance was published in the Federal Register. The new regulations would establish an equipment replacement cost threshold for determining when major new source review requirements are triggered. Plant owners may spend up to 20% of the replacement value of a generation unit on certain improvements each year without triggering requirements for new pollution controls. Parties had until December 26, 2003, the effective date of the rule, to appeal the agency's decision in court. An appeal was filed with the United States Court of Appeals. The effective date of the rule has been delayed pending review.

        The Clean Air Act required the EPA to evaluate the public health impacts of emissions of mercury, a hazardous air pollutant, from coal-fired plants. The EPA decided to control mercury emissions from coal-fired plants. On December 15, 2003, the EPA proposed two alternatives for controlling mercury emissions from generating facilities. The EPA may require the installation of mercury reduction equipment. Alternatively, the EPA may revise standards to allow for the purchase of allowances. Compliance could be required as soon as 2007, or by 2010 depending on which alternative is selected. We believe final regulations could be issued in 2005 and could affect all oil-fired and coal-fired boilers. The cost of compliance with the final regulations could be material.

        Future initiatives regarding greenhouse gas emissions and global warming continue to be the subject of much debate. As a result of our diverse fuel portfolio, our contribution to greenhouse gases varies by plant type. Fossil fuel-fired power plants are significant sources of carbon dioxide emissions, a principal greenhouse gas. Our compliance costs with any mandated federal greenhouse gas reductions in the future could be material.

Clean Water Act

Our facilities are subject to a variety of federal and state regulations governing existing and potential water/wastewater and storm water discharges.

        In April 2002, the EPA proposed rules under the Clean Water Act that require cooling water intake structures to reflect the best technology available for minimizing adverse environmental impacts. In February 2004, the proposed rules were finalized and published in the Federal Register on July 9, 2004. The final rules require the installation of additional intake screens or other protective measures, as well as extensive site-specific study and monitoring requirements. We currently have six facilities affected by the regulation. The rule allows for a number of compliance options that will be assessed over the next four years. We are currently reviewing the final rules and their potential impact to us. Our compliance costs associated with the final rules could be material.

        Under current provisions of the Clean Water Act, existing permits are renewed every five years, at which time permit limits come under extensive review and can be modified to account for more stringent regulations. In addition, the permits can be modified at any time. Changes to the water discharge permits of our coal or other fuel suppliers due to federal or state initiatives may increase the cost of fuel, which in turn could have a significant impact on our operations.

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Waste Disposal

The EPA and several state agencies have notified us that we are considered a potentially responsible party with respect to the clean-up of certain environmentally contaminated sites owned and operated by others. We cannot estimate the clean-up costs for all of these sites.

        However, based on a Record of Decision (ROD) issued by the EPA in 1997, we can estimate that BGE's current 15.47% share of the reasonably possible clean-up costs at one of these sites, Metal Bank of America, a metal reclaimer in Philadelphia, could be as much as $1.3 million higher than amounts we believe are probable and have recorded as a liability in our Consolidated Balance Sheets. There has been no significant regulatory activity with respect to actual site remediation since the EPA's ROD in 1997. EPA and the potentially responsible parties, including BGE, are currently pursuing claims against Metal Bank of America for an equitable share of expected site remediation costs.

        In 1999, the EPA proposed to add the 68^th Street Dump in Baltimore, Maryland to the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") National Priorities List ("NPL"), which is its list of sites targeted for clean-up and enforcement, and sent a general notice letter to BGE and 19 other parties identifying them as potentially liable parties at the 68^th Street Dump site. In April 2003, EPA re-proposed the 68^th Street site to the NPL, but decided not to include the site in its September 2003 update. We and other potentially responsible parties formed the 68^th Street Coalition in March 2004 with the intent of entering into consent order negotiations with the EPA to investigate clean-up options for the site. At this stage, it is not possible to predict the outcome of those discussions or our share of the liability. However, the costs could have a material effect on our financial results.

        In late December 1996, BGE signed a consent order with the Maryland Department of the Environment that required BGE to implement remedial action plans for contamination at and around the Spring Gardens site, located in Baltimore, Maryland. The Spring Gardens site was once used to manufacture gas from coal and oil. Based on the remedial action plans, the costs BGE considers to be probable to remedy the contamination are estimated to total $47 million. BGE recorded these costs as a liability in its Consolidated Balance Sheets and deferred these costs, net of accumulated amortization and amounts it recovered from insurance companies, as a regulatory asset. Because of the results of studies at this site, it is reasonably possible that additional costs could exceed the amount BGE recognized by approximately $14 million. Through June 30, 2004, BGE spent approximately $40 million for remediation at this site. BGE also investigated other small sites where gas was manufactured in the past. We do not expect the clean-up costs of the remaining smaller sites to have a material effect on our financial results.

        The EPA issued its ROD for the Kane and Lombard Drum site located in Baltimore, Maryland on September 30, 2003. The ROD specifies the clean-up plan for the site, consisting of enhanced reductive dechlorination, a soil management plan, and institutional controls. The ROD was consistent with the proposed remedy the EPA released in December 2002. On July 1, 2004, the EPA issued a Special Notice/Demand Letter to BGE and three other potentially responsible parties regarding implementation of the remedy. The total clean-up costs are estimated to be $7.3 million. We estimate our current share of site-related costs to be 11.1%. Our share of these future costs has not been determined and it may vary from the current estimate. In December 2002, we recorded a liability in our Consolidated Balance Sheets for our share of the clean-up costs that we believe is probable.

Nuclear Insurance

We maintain nuclear insurance coverage for Calvert Cliffs, Nine Mile Point, and Ginna in four program areas: liability, worker radiation, property, and accidental outage. These policies contain certain industry standard exclusions, including, but not limited to, ordinary wear and tear and war.

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        In November 2002, the President signed into law the Terrorism Risk Insurance Act ("TRIA") of 2002. Under the TRIA, property and casualty insurance companies are required to offer insurance for losses resulting from Certified acts of terrorism. Certified acts of terrorism are determined by the Secretary of State and Attorney General and primarily are based upon the occurrence of significant acts of international terrorism. Our nuclear property and accidental outage insurance programs, as discussed later in this section, provide coverage for Certified acts of terrorism.

        If there were an accident or an extended outage at any unit of Calvert Cliffs, Nine Mile Point, or Ginna, it could have a substantial adverse impact on our financial results.

Nuclear Liability Insurance

Pursuant to the Price-Anderson Act, we are required to insure against public liability claims resulting from nuclear incidents to the full limit of public liability. This limit of liability consists of the maximum available commercial insurance of $300 million and mandatory participation in an industry-wide retrospective premium assessment program. The retrospective premium assessment is $100.6 million per reactor, increasing the total amount of insurance for public liability to approximately $10.8 billion. Under the retrospective assessment program, we can be assessed up to $503 million per incident at any commercial reactor in the country, payable at no more than $50 million per incident per year. This assessment also applies in excess of our worker radiation claims insurance and is subject to inflation and state premium taxes. Claims resulting from non-certified acts of terrorism are limited to the commercial insurance discussed above, regardless of the number of nuclear plants affected. In addition, the U.S. Congress could impose additional revenue-raising measures to pay claims.

Worker Radiation Claims Insurance

We participate in the American Nuclear Insurers Master Worker Program that provides coverage for worker tort claims filed for radiation injuries. Effective January 1, 1998, this program was modified to provide coverage to all workers whose nuclear-related employment began on or after the commencement date of reactor operations. Waiving the right to make additional claims under the old policy was a condition for coverage under the new policy. We describe the old and new policies below:

•

Nuclear worker claims reported on or after January 1, 1998 are covered by a new insurance policy with a single industry aggregate limit of $300 million for radiation injury claims against all those insured by this policy.

•

All nuclear worker claims reported prior to January 1, 1998 are still covered by the old policy. 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 through 2007. If radiation injury claims under these old policies exceed the policy reserves, all policyholders could be retroactively assessed, with our share being up to $6.3 million.

        The sellers of Nine Mile Point retain the liabilities for existing and potential claims that occurred prior to November 7, 2001. In addition, the Long Island Power Authority, which continues to own 18% of Unit 2 at Nine Mile Point, is obligated to assume its pro rata share of any liabilities for retrospective premiums and other premiums assessments. RG&E, the seller of Ginna, retains the liabilities for existing and potential claims that occurred prior to June 10, 2004. If claims under these policies exceed the coverage limits, the provisions of the Price-Anderson Act would apply.

Nuclear Property Insurance

Our policies provide $500 million in primary coverage at Calvert Cliffs, Nine Mile Point, and Ginna. In addition, we maintain $2.25 billion of excess coverage at Calvert Cliffs and Nine Mile Point and $1.77 billion of excess coverage at Ginna for property damage, decontamination, and premature decommissioning liability. This coverage currently is purchased through an industry mutual insurance company. If accidents at plants insured by the mutual insurance company cause a shortfall of funds, all policyholders could be assessed, with our share being up to $91.8 million.

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        Losses resulting from non-certified acts of terrorism are covered as a common occurrence, meaning that if non-certified terrorist acts occur against one or more commercial nuclear power plants insured by our nuclear property insurance company within a 12-month period, they would be treated as one event and the owners of the plants would share one full limit of liability (currently $3.24 billion).

Accidental Nuclear Outage Insurance

Our policies provide indemnification on a weekly basis for losses resulting from an accidental outage of a nuclear unit. Coverage begins after a 12-week deductible period and continues at 100% of the weekly indemnity limit for 52 weeks and then 80% of the weekly indemnity limit for the next 110 weeks. Our coverage is up to $490.0 million per unit at Calvert Cliffs and Ginna, $420.0 million for Unit 1 of Nine Mile Point, and $412.6 million for Unit 2 of Nine Mile Point. This amount can be reduced by up to $98.0 million per unit at Calvert Cliffs and $82.5 million for Nine Mile Point if an outage of more than one unit is caused by a single insured physical damage loss.

Non-nuclear Property Insurance

Our conventional property insurance provides coverage of $1.0 billion per occurrence for Certified acts of terrorism as defined under the Terrorism Risk Insurance Act of 2002. Certified acts of terrorism are determined by the Secretary of State and Attorney General of the United States and primarily are based upon the occurrence of significant acts of international terrorism. Our conventional property insurance program also provides coverage for non-certified acts of terrorism up to an annual aggregate limit of $333 million. If a terrorist act occurs at any of our facilities, it could have a significant adverse impact on our financial results.

SFAS No. 133 Hedging Activities

We are exposed to market risk, including changes in interest rates and the impact of market fluctuations in the price and transportation costs of electricity, natural gas, and other commodities. We discuss our market risk in more detail in the Market Risk section on page 57.

Interest Rates

We use interest rate swaps to manage our interest rate exposures associated with new debt issuances and to optimize the mix of fixed and floating rate debt. The swaps used to manage our exposure prior to the issuance of new debt are designated as cash-flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, with gains and losses, net of associated deferred income tax effects, recorded in "Accumulated other comprehensive income" in our Consolidated Balance Sheets, in anticipation of planned financing transactions. We reclassify gains and losses on the hedges from "Accumulated other comprehensive income" into "Interest expense" in our Consolidate Statements of Income during the periods in which the interest payments being hedged occur. We record any gains or losses on swaps used to manage our fixed rate debt, as well as changes in the fair value of the debt being hedged in "Interest expense," and we record any changes in fair value of the swaps and the debt in "Risk management assets and liabilities" and "Long-term debt" in our Consolidated Balance Sheets. In addition, we record the difference between interest on hedged fixed rate debt and floating rate swaps in "Interest expense" in the periods that the swaps settle.

        At June 30, 2004, we have net unrealized pre-tax gains of $19.8 million related to interest rate hedges recorded in "Accumulated other comprehensive income." We expect to reclassify $2.9 million of pre-tax net gains on these swap contracts from "Accumulated other comprehensive income" into "Interest expense" during the next twelve months.

Commodity Prices

At June 30, 2004 our merchant energy business had designated certain purchase and sale contracts as cash-flow hedges of forecasted transactions for the years 2004 through 2011 under SFAS No. 133.

        Under the provisions of SFAS No. 133, we record gains and losses on energy derivative contracts designated as cash-flow hedges of forecasted transactions in "Accumulated other comprehensive income" in our Consolidated Balance Sheets prior to the settlement of the anticipated hedged physical transaction. We reclassify these gains or losses into earnings upon settlement of the underlying hedged transaction. We record derivatives used for hedging activities from our merchant energy business in "Risk management assets and liabilities" in our Consolidated Balance Sheets.

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        At June 30, 2004, our merchant energy business has net unrealized pre-tax gains of $205.4 million on these hedges recorded in "Accumulated other comprehensive income." We expect to reclassify $405.2 million of net pre-tax gains on cash-flow hedges from "Accumulated other comprehensive income" into earnings during the next twelve months based on the market prices at June 30, 2004. However, the actual amount reclassified into earnings could vary from the amounts recorded at June 30, 2004 due to future changes in market prices.

        We recognized into earnings a pre-tax loss of $4.9 million for the quarter ended June 30, 2004 and a pre-tax gain of $9.5 million for the quarter ended June 30, 2003 related to the ineffective portion of our hedges.

        We recognized into earnings a pre-tax gain of $4.4 million for the six months ended June 30, 2004 and a pre-tax gain of $9.3 million for the six months ended June 30, 2003 related to the ineffective portion of our hedges.

Accounting Standards Issued

FSP 106-2

In May 2004, the FASB issued FASB Staff Position 106-2, which addresses accounting and disclosure requirements pertaining to Medicare Prescription Drug Improvement and Modernization Act of 2003, and is effective July 1, 2004. We discuss the expected impacts of this standard in the Pension and Postretirement Benefits section on page 15.

Accounting Standards Adopted

FIN 46/FIN 46R

In January 2003, the FASB issued Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities, which was subsequently revised in its entirety with the issuance of FIN 46R in December 2003.

        FIN 46R establishes conditions under which an entity must be consolidated based upon variable interests rather than voting interests. Variable interests are ownership interests or contractual relationships that enable the holder to share in the financial risks and rewards resulting from the activities of a Variable Interest Entity (VIE). A VIE can be a corporation, partnership, trust, or any other legal structure used for business purposes. An entity is considered a VIE under FIN 46R if it does not have an equity investment sufficient for it to finance its activities without assistance from variable interests or if its equity investors lack any of the following characteristics of a controlling financial interest:

•

control through voting rights,

•

obligation to absorb expected losses or

•

right to receive expected residual returns.

        FIN 46R requires us to consolidate VIEs for which we are the primary beneficiary and to disclose certain information about significant variable interests we hold. The primary beneficiary of a VIE is the entity that receives the majority of a VIE's expected losses, expected residual returns, or both.

        FIN 46R was effective March 31, 2004 for all VIEs except special purpose entities (SPEs), for which the effective date was December 31, 2003. Therefore, at December 31, 2003, we and BGE deconsolidated BGE Capital Trust II, an SPE established to issue trust preferred securities as described in Note 9 of our 2003 Annual Report on Form 10-K, because BGE is not its primary beneficiary. As a result, we currently record $257.7 million of deferrable interest subordinated debentures due to BGE Capital Trust II, and $7.7 million equity investment in BGE Capital Trust II in "Other investments" in our and BGE's Consolidated Balance Sheets.

        As a result of adopting the remainder of the provisions of FIN 46R as of March 31, 2004, we were not required to consolidate or deconsolidate any non-SPE entities with which we are involved through variable interests. We had preliminarily determined that we were the primary beneficiary for an unconsolidated investment in a hydroelectric generating plant located in Pennsylvania because our two-thirds voting interest is disproportionate to our 50% interest in the plant's earnings. However, we subsequently determined that the entity is not a VIE because less than substantially all of the plant's activities are conducted on our behalf, and therefore we do not have to consolidate the entity.

        We have a significant interest in the following VIEs for which we are not the primary beneficiary:

VIE	Nature of Involvement	Date of Involvement
Power projects and fuel supply entities	Equity investment and guarantees	Prior to 2003
Natural gas producing facility	Volumetric and price swap	July 2003

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        The following is summary information about these entities as of June 30, 2004:

	(In millions)
Total assets	$	289
Total liabilities		149
Our ownership interest		41
Other ownership interests		99
Our maximum exposure to loss		108

        The maximum exposure to loss represents the loss that we would incur in the unlikely event that our interests in all of these entities were to become worthless and we were required to fund the full amount of all guarantees associated with these entities. Our maximum exposure to loss as of June 30, 2004 consists of the following:

•

the carrying amount of our investment totaling $41 million,

•

debt and performance guarantees totaling $13 million, and

•

volumetric and price variability of up to $54 million associated with a natural gas producer swap, based on contract volumes and gas prices as of June 30, 2004.

        We assess the risk of a loss equal to our maximum exposure to be remote.

Related Party Transactions—BGE

Income Statement

BGE is providing standard offer service to customers at fixed rates over various time periods during the initial transition period from July 1, 2000 to June 30, 2006, for those customers that do not choose an alternate supplier. Our wholesale marketing and risk management operation is under contract to provide BGE the energy and capacity required to meet its standard offer service obligations for the transition period. The cost of BGE's purchased energy from nonregulated affiliates of Constellation Energy to meet its standard offer service obligation was as follows:

	Quarter Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
	(In millions)
Purchased energy	$	254.1	$	237.2	$	494.5	$	480.8

        In addition, Constellation Energy charges BGE for the costs of certain corporate functions. Certain costs are directly assigned to BGE. We allocate other corporate function costs based on a total percentage of expected use by BGE. Management believes this method of allocation is reasonable and approximates the cost BGE would have incurred as an unaffiliated entity. These costs were $25.3 million for the quarter ended June 30, 2004 compared to $19.9 million for the same period in June 30, 2003 and $42.9 million for the six months ended June 30, 2004 compared to $34.7 million for the same period in 2003.

Balance Sheet

BGE participates in a cash pool under a Master Demand Note agreement with Constellation Energy. Under this arrangement, participating subsidiaries may invest in or borrow from the pool at market interest rates. Constellation Energy administers the pool and invests excess cash in short-term investments or issues commercial paper to manage consolidated cash requirements. BGE had invested $247.7 million at June 30, 2004 and $230.2 million at December 31, 2003 under this arrangement.

        Amounts related to corporate functions performed at the Constellation Energy holding company, BGE's purchases to meet its standard offer service obligation, BGE's charges to Constellation Energy and its nonregulated affiliates for certain services it provides them, and the participation of BGE's employees in the Constellation Energy pension plan result in intercompany balances in BGE's Consolidated Balance Sheets.

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Item 2. Management's Discussion

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

Introduction and Overview

Constellation Energy Group, Inc. (Constellation Energy) is a North American energy company that conducts its business through various subsidiaries including a merchant energy business and Baltimore Gas and Electric Company (BGE). We describe our operating segments in the Notes to Consolidated Financial Statements on page 13.

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

        Our merchant energy business is a competitive provider of energy solutions for large customers in North America. It has electric generation assets located in various regions of the United States and provides energy solutions to meet customers' needs. Our merchant energy business focuses on serving the full energy and capacity requirements (load-serving activities) of, and providing other risk management activities for various customers, such as utilities, municipalities, cooperatives, retail aggregators, and commercial and industrial customers. These load-serving activities typically occur in regional markets in which end-use customer electricity rates have been deregulated and thereby separated from the cost of generation supply.

        Our wholesale marketing and risk management operation actively uses energy and energy-related commodities in order to manage our portfolio of energy purchases and sales to customers through structured transactions. As part of our risk management activities we trade power and gas to enable price discovery and facilitate the hedging of our load-serving and other risk management products and services. Within our trading function we allow limited risk-taking activities for profit. These activities are actively managed through daily value at risk and liquidity position limits. We discuss value at risk in more detail in the Market Risk section on page 57.

        BGE is a regulated electric transmission and distribution and a regulated gas distribution utility company with a service territory that covers the City of Baltimore and all or part of ten counties in central Maryland.

        Our other nonregulated businesses:

•

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

•

provide home improvements, service heating, air conditioning, plumbing, electrical, and indoor air quality systems, and provide natural gas retail marketing to residential customers in central Maryland.

        In addition, we own several investments that we do not consider to be core operations. These include financial investments, real estate projects, and interests in a Latin American distribution project and in a fund that holds interests in two South American energy projects.

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

•

factors which affect our businesses,

•

our earnings and costs in the periods presented,

•

changes in earnings and costs between periods,

•

sources of earnings,

•

impact of these factors on our overall financial condition,

•

expected future expenditures for capital projects, and

•

expected sources of 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, 2004 and 2003. We analyze and explain the differences between periods in the specific line items of the Consolidated Statements of Income.

        We have organized our discussion and analysis as follows:

•

First, we discuss our strategy.

•

We then describe the business environment in which we operate including how regulation, weather, and other factors affect our business.

•

Next, we discuss our critical accounting policies. These are the accounting policies that are most important to both the portrayal of our financial condition and results and require management's most difficult, subjective or complex judgment.

•

We highlight significant events that occurred in 2004 that are important to understanding our results of operations and financial condition.

•

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

•

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

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•

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

Strategy

We are pursuing a balanced strategy to distribute energy through our North American competitive supply activities and our regulated utility located in Maryland, BGE.

        Our merchant energy business focuses on long-term, high-value sales of energy, capacity, and related products to large customers, including distribution utilities, municipalities, cooperatives, industrial customers, and commercial customers primarily in the regional markets in which end-use customer electricity rates have been deregulated and thereby separated from the cost of generation supply. These markets include:

•

the New England, New York, and Mid-Atlantic regions,

•

Texas,

•

the Mid-West region,

•

the West region, and

•

certain areas in Canada.

        We obtain this energy through both owned and contracted generation. Our generation fleet is strategically located in deregulated markets across the country and is diversified by fuel type, including nuclear, coal, gas, oil, and renewable sources. Where we do not own generation, we contract for power from other merchant providers, typically through power purchase agreements. We intend to remain diversified between regulated transmission and distribution and competitive supply. We will use both our owned generation and our contracted generation to support our competitive supply operation.

        We are a leading national competitive supplier of energy in the deregulated markets previously discussed. In our wholesale and commercial and industrial retail marketing activities we are leveraging our recognized expertise in providing full requirements energy and energy related services to enter markets, capture market share, and organically grow these businesses. Through the application of technology, intellectual capital, and increased scale, we are seeking to reduce the cost of delivering full requirements energy and energy related services and managing risk.

        We are also responding proactively to customer needs by expanding the variety of products we offer. Our wholesale competitive supply activities include a growing customer products operation that markets physical energy products and risk management and logistics services sold to generators, distributors, producers of coal, natural gas and fuel oil, and other consumers.

        Within our retail competitive supply activities, we are marketing a broader array of products and expanding our markets. Over time, we may consider integrating the sale of electricity and natural gas to provide one energy procurement solution for our customers.

        Collectively, the integration of owned and contracted electric generation assets with origination, fuel procurement, and risk management expertise allows our merchant energy business to earn incremental margin and more effectively manage energy and commodity price risk over geographic regions and over time. Our focus is on providing solutions to customers' energy needs, and our wholesale marketing and risk management operation adds value to our owned and contracted generation assets by providing national market access, market infrastructure, real-time market intelligence, risk management and arbitrage opportunities, and transmission and transportation expertise. Generation capacity supports our wholesale marketing and risk management operation by providing a source of reliable power supply that provides a physical hedge for some of our load-serving activities.

        To achieve our strategic objectives, we expect to continue to pursue opportunities that expand our access to customers and to support our wholesale marketing and risk management operation with generation assets that have diversified geographic, fuel, and dispatch characteristics. We also expect to grow organically through selling a greater number of physical energy products and services to large energy customers. We expect to achieve operating efficiencies within our competitive supply operation and our generation fleet by selling more products through our existing sales force, benefiting from efficiencies of scale, adding to the capacity of existing plants, and making our business processes more efficient.

        We expect BGE and our other retail energy service businesses to grow through focused and disciplined expansion primarily from new customers. At BGE, we are also focused on enhancing reliability and customer satisfaction.

        Customer choice, regulatory change, and energy market conditions significantly impact our business. In response, we regularly evaluate our strategies with these goals in mind: to improve our competitive position, to anticipate and adapt to the business environment and regulatory changes, and to maintain a strong balance sheet and investment-grade credit quality.

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        Beginning in the fourth quarter of 2001, we undertook a number of initiatives to reduce our costs towards competitive levels and to ensure that our resources are focused on our core energy businesses. These initiatives included the implementation of workforce reduction programs, the acceleration of our exit strategy for certain non-core assets, and the implementation of productivity initiatives.

        We are constantly reevaluating our strategies and might consider:

•

acquiring or developing additional generating facilities to support our merchant energy business,

•

mergers or acquisitions of utility or non-utility businesses or assets, and

•

sale of assets or one or more businesses.

Business Environment

With the shift toward customer choice, competition, and the growth of our merchant energy business, various factors affect our financial results.

        We discuss these various factors in the Forward Looking Statements section on page 63. We discuss our market risks in the Market Risk section on page 57.

        In this section, we discuss in more detail several issues that affect our businesses.

Merchant Competition

During the transition of the energy industry to competitive markets, it is difficult for us to assess our overall position versus the position of existing power providers and new entrants because each company may employ widely differing strategies in their fuel supply and power sales contracts with regard to pricing, terms and conditions. Further difficulties in making competitive assessments of our company arise from states considering different types of regulatory initiatives concerning competition in the power industry.

        Increased competition that resulted from some of these initiatives in several states contributed in some instances to a reduction in electricity prices and put pressure on electric utilities to lower their costs, including the cost of purchased electricity. Some states that were considering deregulation have slowed their plans or postponed consideration of deregulation, while other states are reconsidering deregulation. In addition, our merchant energy business is also affected by regional regulatory or legislative decisions, which may impact our financial results and our ability to successfully execute our growth strategy.

        We believe there is adequate growth potential in the current deregulated market. However, in response to regional market differences and to promote competitive markets, the Federal Energy Regulatory Commission (FERC) proposed initiatives promoting the formation of Regional Transmission Organizations and a standard market design. If approved, these market changes could provide additional opportunities for our merchant energy business. We discuss these initiatives in the FERC Regulation—Regional Transmission Organizations and Standard Market Design section on page 29.

        As the economy continues to recover and the market for commercial and industrial supply continues to grow, we have experienced increased competition in our retail commercial and industrial supply activities. The increase in retail competition and the impact of wholesale power prices compared to the rates charged by local utilities may affect the margins that we will realize from our customers. However, we believe that our experience and expertise in assessing and managing risk will help us to remain competitive during volatile or otherwise adverse market circumstances.

Regulated Electric Competition

We are facing competition in the sale of electricity to retail customers.

Maryland

As a result of the deregulation of electric generation in Maryland, the following occurred effective July 1, 2000:

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All customers can choose their electric energy supplier. BGE provides fixed price standard offer service over various time periods for different classes of customers that do not select an alternative supplier until June 30, 2006.

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While BGE does not sell electric commodity to all customers in its service territory, BGE does deliver electricity to all customers and provides meter reading, billing, emergency response, regular maintenance, and balancing services.

•

BGE provided a market rate standard offer service for those commercial and industrial customers who were no longer eligible for fixed price standard offer service through June 30, 2004.

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BGE residential base rates will not change before July 2006. While total residential base rates remain unchanged over the transition period (July 1, 2000 through June 30, 2006), annual standard offer service rate increases are offset by corresponding decreases in the competitive transition charge (CTC) that BGE receives from its customers.

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•

Commercial and industrial customers had several service options that fixed electric energy rates through June 30, 2004 and will fix transition charges through June 30, 2006.

Standard Offer Service

Our wholesale marketing and risk management operation provided BGE with 100% of the energy and capacity required to meet its commercial and industrial standard offer service obligations through June 30, 2004, and provides 100% of the energy and capacity required to meet its residential standard offer service obligations through June 30, 2006. BGE obtained its supply for standard offer service to its commercial and industrial customers beginning July 1, 2004, and will obtain its supply for standard offer service to its residential customers beginning July 1, 2006, through a competitive wholesale bidding process as discussed in the Standard Offer Service—Provider of Last Resort (POLR) section below.

        Beginning July 1, 2002, the fixed price standard offer service rate ended for certain of our large commercial and industrial customers. As a result, the majority of these customers purchase their electricity from alternate suppliers, including subsidiaries of Constellation Energy. The remaining large commercial and industrial customers that continued to receive their electric supply from BGE were provided market rate standard offer service rates through June 30, 2004.

        Beginning July 1, 2004, all commercial and industrial customers that receive their electric supply from BGE are charged market-based standard offer service rates. Beginning July 1, 2006, BGE's current obligation to provide fixed price standard offer service to residential customers ends, and all residential customers that receive their electric supply from BGE will be charged market-based standard offer service rates.

Standard Offer Service—Provider of Last Resort (POLR)

In April 2003, the Maryland Public Service Commission (Maryland PSC) approved a settlement agreement reached by BGE and parties representing customers, industry, utilities, suppliers, the Maryland Energy Administration, the Maryland PSC's Staff, and the Office of People's Counsel which, among other things, extends BGE's obligation to supply standard offer service for a second transition period. Under the settlement agreement, BGE is obligated to provide market-based standard offer service to residential customers until June 30, 2010, and for commercial and industrial customers for one, two or four year periods beyond June 30, 2004, depending on customer load. The POLR rates charged during this time will recover BGE's wholesale power supply costs and include an administrative fee.

        In September 2003, the Maryland PSC approved a second settlement agreement. This phase deals with the bid procurement process that utilities must follow to obtain wholesale power supply to serve retail customers on standard offer service during the second transition period. The settlement contained a model request for proposals, a model wholesale power supply contract, and various requirements pertaining to, among other things, bidder qualifications and bid evaluation criteria. Bidding to supply BGE's standard offer service to commercial and industrial customers beyond June 30, 2004 occurred through a multi-round competitive bidding process in February and March 2004. BGE executed one and two-year contracts for commercial and industrial electric power supply totaling approximately 2,300 megawatts.

Regulated Gas Competition

The wholesale price of natural gas is not subject to regulation. All BGE gas customers have the option to purchase gas from alternate suppliers.

Regulation by the Maryland PSC

In addition to electric restructuring, regulation by the Maryland PSC influences BGE's businesses. The Maryland PSC determines the rates that BGE can charge customers for the electric distribution and gas businesses. The Maryland PSC incorporates into BGE's electric rates the transmission rates determined by FERC. The rates for BGE's regulated gas business continue to consist of a "base rate" and a "fuel rate."

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        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 and higher operating 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.

Electric Base Rates

BGE's electric rates are unbundled to show separate components for delivery service, competitive transition charges, standard offer services (generation), transmission, universal service, and taxes. As a result of the deregulation of electric generation in Maryland, BGE's residential electric base rates are frozen until June 30, 2006. Electric delivery service rates were frozen until June 30, 2004 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. We discuss the impact on base rates beyond 2004 in the Regulated Electric Competition—Maryland section on page 27.

Gas Base Rate

The base rate is the rate the Maryland PSC allows BGE to charge its customers for the cost of providing them service, plus a profit. Gas base rates are not affected by seasonal changes.

Gas Fuel Rate

BGE charges its gas customers separately for natural gas purchases. The price charged 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 49 and in Note 1 of our 2003 Annual Report on Form 10-K.

FERC Regulation

Regional Transmission Organizations and StandardMarket Design

In 1997, BGE turned over the operation of its transmission facilities to PJM, a power pool in the Mid-Atlantic region. In December 1999, FERC issued Order 2000, amending its regulations under the Federal Power Act to advance the formation of Regional Transmission Organizations (RTOs) that would allow easier access to transmission. PJM received FERC approval of its RTO status in December 2002 pending certain compliance filings.

        On July 31, 2002, the FERC issued a proposed rulemaking regarding implementation of a standard market design (SMD) for wholesale electric markets. The SMD rulemaking is intended to complement FERC's RTO order, and would require RTOs to substantially comply with its provisions. The SMD proposals also required transmission providers to turn over the operation of their facilities to an independent operator that will operate them consistent with a revised market structure proposed by the FERC. According to the FERC, the revised market structure will reduce inefficiencies caused by inconsistent market rules and barriers to transmission access. The FERC proposed that its rule be implemented in stages by October 1, 2004. Comments on the SMD proposal were submitted in February 2003.

        In April 2003, the FERC issued a report that indicated its position with respect to the proposed rulemaking and announced that it intends to leave relatively unmodified existing RTO practices, to allow flexibility among regional approaches, to allow phased-in implementation of the final rule, and to provide an increased deference to states' concerns. Concurrently, proposed federal legislation has been introduced that would remand the rulemaking process to FERC, require the issuance of a new notice of proposed rulemaking, and delay the issuance of a final rule until at least January 1, 2007.

        We believe that while the original SMD proposal would have led to uniform rules that would have been largely favorable to Constellation Energy and BGE, the revised regional approach should result in improved market operations across various regions. The proposed federal legislation does not appear to exclude a regional approach to market development. Overall, the trend continues to be toward increased competition in the regions. The region where BGE operates is expected to be relatively unaffected by this proceeding, based on current compliance by the PJM with the SMD proposal.

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        However, there are a number of proceedings at the FERC that may affect the transmission revenues of BGE and other transmission owners in PJM. In addition, there are continued market developments both in PJM and in other regions, such as the Mid-West, New York, and New England that have the potential to impact our financial results. However, at this time, we cannot predict the outcome of these proceedings or the possible effect on our, or BGE's, financial results.

Weather

Merchant Energy Business

Weather conditions in the different regions of North America influence the financial results of our merchant energy business. Weather conditions can affect the supply of and demand for electricity and fuels, and changes in energy supply and demand may impact the price of these energy commodities in both the spot market and the forward market. Typically, demand for electricity and its price are higher in the summer and the winter, when weather is more extreme. Similarly, the demand for and price of natural gas and oil are higher in the winter. However, all regions of North America typically do not experience extreme weather conditions at the same time.

BGE

Weather affects the demand for electricity and gas for our regulated businesses. Very hot summers and very cold winters increase demand. Mild weather reduces demand. Residential sales for our regulated businesses are impacted more by weather than commercial and industrial sales, which are mostly affected by business needs for electricity and gas.

        However, the Maryland PSC allows us to record a monthly adjustment to our regulated gas business revenues to eliminate the effect of abnormal weather patterns. We discuss this further in the Weather Normalization section on page 49.

        BGE measures the weather's effect using "degree-days." The measure of degree-days for a given 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, adjusted for humidity levels. 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.

        We show the number of heating and cooling degree-days in the quarters and six months ended June 30, 2004 and 2003, and the percentage change in the number of degree-days between these periods in the following table:

	Quarter Ended June 30,		Six Months Ended June 30,
	2004	2003	2004	2003
Heating degree days	458	667	3,062	3,425
Percent change from prior period	(31.3)%		(10.6)%
Cooling degree days	291	153	293	153
Percent change from prior period	90.1%		91.5%

Other Factors

A number of other factors significantly influence the level and volatility of prices for energy commodities and related derivative products for our merchant energy business. These factors include:

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seasonal daily and hourly changes in demand,

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number of market participants,

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extreme peak demands,

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available supply resources,

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transportation availability and reliability within and between regions,

•

location of our generating facilities relative to the location of our load-serving obligations,

•

implementation of new market rules governing the operations of regional power pools,

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procedures used to maintain the integrity of the physical electricity system during extreme conditions, and

•

changes in the nature and extent of federal and state regulations.

        Our merchant energy business contracts with rail companies to ensure the delivery of coal to our coal-fired generation facilities. The timely delivery of coal together with the maintenance of appropriate inventory levels is necessary to allow for continued, reliable generation from these facilities. In the second quarter of 2004, we began to experience delays in deliveries from one of the rail companies that supplies coal to our generating facilities. Should we be unable to obtain sufficient coal deliveries to operate our coal-fired plants, we would need to purchase power from an alternative source or procure coal using an alternative delivery method to meet our contractual load obligations, which could have a material impact on our financial results.

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        These other factors can affect energy commodity and derivative prices in different ways and to different degrees. These effects may vary throughout the country as a result of regional differences in:

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weather conditions,

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market liquidity,

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capability and reliability of the physical electricity and gas systems, and

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the nature and extent of electricity deregulation.

        Other factors, aside from weather, also impact the demand for electricity and gas in our regulated businesses. These factors include the number of customers and usage per customer during a given period. We use these terms later in our discussions of regulated electric and gas operations. In those sections, we discuss how these and other factors affected electric and gas sales during the periods presented.

        The number of customers in a given period is affected by new home and apartment construction and by the number of businesses in our service territory.

        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.

Accounting Standards Adopted and Issued

We discuss recently adopted and issued accounting standards in the Notes to Consolidated Financial Statements on page 23.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements that were prepared in accordance with accounting principles generally accepted in the United States of America. Management makes estimates and assumptions when preparing financial statements. These estimates and assumptions affect various matters, including:

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our reported amounts of revenues and expenses in our Consolidated Statements of Income,

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our reported amounts of assets and liabilities in our Consolidated Balance Sheets, and

•

our disclosure of contingent assets and liabilities.

        These estimates involve judgments with respect to, among other things, future economic factors that are difficult to predict and are beyond management's control. As a result, actual amounts could materially differ from these estimates.

        The Securities and Exchange Commission (SEC) issued disclosure guidance for accounting policies that management believes are most "critical." The SEC defines these critical accounting policies as those that are both most important to the portrayal of a company's financial condition and results of operations and require management's most difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

        Management believes the following accounting policies represent critical accounting policies as defined by the SEC. We discuss our significant accounting policies, including those that do not require management to make difficult, subjective, or complex judgments or estimates, in Note 1 of our 2003 Annual Report on Form 10-K.

Revenue Recognition—Mark-to-Market Methodof Accounting

Our merchant energy business enters into contracts for energy, other energy-related commodities, and related derivatives. We record merchant energy business revenues using two methods of accounting: accrual accounting and mark-to-market accounting. We describe our use of accrual accounting (including hedge accounting) in more detail in Note 1 of our 2003 Annual Report on Form 10-K.

        We record revenues using the mark-to-market method of accounting for derivative contracts for which we are not permitted to use accrual accounting or hedge accounting. These mark-to-market activities include derivative contracts for energy and other energy-related commodities. Under the mark-to-market method of accounting, we record the fair value of these derivatives as mark-to-market energy assets and liabilities at the time of contract execution. We record the changes in mark-to-market energy assets and liabilities on a net basis in "Nonregulated revenues" in our Consolidated Statements of Income.

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        Mark-to-market energy assets and liabilities consist of a combination of energy and energy-related derivative contracts. While some of these contracts represent commodities or instruments for which prices are available from external sources, other commodities and certain contracts are not actively traded and are valued using modeling techniques to determine expected future market prices, contract quantities, or both. The market prices and quantities used to determine fair value reflect management's best estimate considering various factors. However, future market prices and actual quantities will vary from those used in recording mark-to-market energy assets and liabilities, and it is possible that such variations could be material.

        We record reserves to reflect uncertainties associated with certain estimates inherent in the determination of the fair value of mark-to-market energy assets and liabilities. The effect of these uncertainties is not incorporated in market price information or other market-based estimates used to determine fair value of our mark-to-market energy contracts. To the extent possible, we utilize market-based data together with quantitative methods for both measuring the uncertainties for which we record reserves and determining the level of such reserves and changes in those levels.

        We describe below the main types of reserves we record and the process for establishing each. Generally, increases in reserves reduce our earnings, and decreases in reserves increase our earnings. However, all or a portion of the effect on earnings of changes in reserves may be offset by changes in the value of the underlying positions.

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Close-out reserve—this reserve represents the estimated cost to close out or sell to a third-party open mark-to-market positions. This reserve has the effect of valuing "long" positions at the bid price and "short" positions at the offer price. We compute this reserve using a market-based estimate of the bid/offer spread for each commodity and option price and the absolute quantity of our net open positions for each year. To the extent that we are not able to obtain market information for similar contracts, the close-out reserve is equivalent to the initial contract margin, thereby resulting in no gain or loss at inception. The level of total close-out reserves increases as we have larger unhedged positions, bid-offer spreads increase, or market information is not available, and it decreases as we reduce our unhedged positions, bid-offer spreads decrease, or market information becomes available.

•

Credit-spread adjustment—for risk management purposes, we compute the value of our mark-to-market energy assets and liabilities using a risk-free discount rate. In order to compute fair value for financial reporting purposes, we adjust the value of our mark-to-market energy assets to reflect the credit-worthiness of each counterparty based upon published credit ratings, where available, or equivalent internal credit ratings and associated default probability percentages. We compute this reserve by applying the appropriate default probability percentage to our outstanding credit exposure, net of collateral, for each counterparty. The level of this reserve increases as our credit exposure to counterparties increases, the maturity terms of our transactions increase, or the credit ratings of our counterparties deteriorate, and it decreases when our credit exposure to counterparties decreases, the maturity terms of our transactions decrease, or the credit ratings of our counterparties improve.

        Market prices for energy and energy-related commodities vary based upon a number of factors, and changes in market prices affect both the recorded fair value of our mark-to-market energy contracts and the level of future revenues and costs associated with accrual-basis activities. Changes in the value of our mark-to-market energy contracts will affect our earnings in the period of the change, while changes in forward market prices related to accrual-basis revenues and costs will affect our earnings in future periods to the extent those prices are realized. We cannot predict whether, or to what extent, the factors affecting market prices may change, but those changes could be material and could affect us either favorably or unfavorably. We discuss our market risk in more detail in the Market Risk section on page 57.

        The impact of derivative contracts on our revenues and costs is affected by many factors, including:

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our ability to designate and qualify derivative contracts for normal purchase and sale accounting or hedge accounting under Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended,

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potential volatility in earnings from derivative contracts that serve as economic hedges but do not meet the accounting requirements to qualify for normal purchase and sale accounting or hedge accounting,

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our ability to enter into new mark-to-market derivative origination transactions, and

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•

sufficient liquidity and transparency in the energy markets to permit us to record gains at inception of new derivative contracts because fair value is evidenced by quoted market prices, current market transactions, or other observable market information.

        We discuss the impact of mark-to-market accounting on our financial results in the Results of Operations—Merchant Energy Business section on page 38.

Evaluation of Assets for Impairment and OtherThan Temporary Decline in Value

Long-Lived Assets

We are required to evaluate certain assets that have long lives (for example, generating property and equipment and real estate) to determine if they are impaired when certain conditions exist. SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, provides the accounting for impairments of long-lived assets. We are required to test our long-lived assets for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Examples of such events or changes are:

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a significant decrease in the market price of a long-lived asset,

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a significant adverse change in the manner an asset is being used or its physical condition,

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an adverse action by a regulator or in the business climate,

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an accumulation of costs significantly in excess of the amount originally expected for the construction or acquisition of an asset,

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a current-period loss combined with a history of losses or the projection of future losses, or

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a change in our intent about an asset from an intent to hold to a greater than 50% likelihood that an asset will be sold or disposed of before the end of its previously estimated useful life.

        For long-lived assets that are expected to be held and used, SFAS No. 144 provides that an impairment loss shall only be recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. The carrying amount of an asset is not recoverable under SFAS No. 144 if the carrying amount exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. Therefore, when we believe an impairment condition may have occurred, we are required to estimate the undiscounted future cash flows associated with a long-lived asset or group of long-lived assets. This necessarily involves judgment surrounding the inherent uncertainty of future cash flows.

        In order to estimate an asset's future cash flows, we consider historical cash flows, as well as reflect our understanding of the extent to which future cash flows will be either similar to or different from past experience based on all available evidence. To the extent applicable, the assumptions we use are consistent with forecasts that we are otherwise required to make (for example, in preparing our other earnings forecasts). If we are considering alternative courses of action to recover the carrying amount of a long-lived asset (such as the potential sale of an asset), we probability-weight the alternative courses of action to estimate the cash flows.

        We use our best estimates in making these evaluations and consider various factors, including forward price curves for energy, fuel costs, and operating costs. However, actual future market prices and project costs could vary from the assumptions used in our estimates, and the impact of such variations could be material.

        For long-lived assets that can be classified as assets held for sale under SFAS No. 144, an impairment loss is recognized to the extent their carrying amount exceeds their fair value less costs to sell.

        If we determine that the undiscounted cash flows from an asset to be held and used are less than the carrying amount of the asset, or if we have classified an asset as held for sale, we must estimate fair value to determine the amount of any impairment loss. The estimation of fair value under SFAS No. 144, whether in conjunction with an asset to be held and used or with an asset held for sale, also involves judgment. We consider quoted market prices in active markets to the extent they are available. In the absence of such information, we may consider prices of similar assets, consult with brokers, or employ other valuation techniques. Often, we will discount the estimated future cash flows associated with the asset using a single interest rate that is commensurate with the risk involved with such an investment or employ an expected present value method that probability-weights a range of possible outcomes. The use of these methods involves the same inherent uncertainty of future cash flows as discussed above with respect to undiscounted cash flows. Actual future market prices and project costs could vary from those used in our estimates, and the impact of such variations could be material.

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        We are also required to evaluate our equity-method and cost-method investments (for example, in partnerships that own power projects) to determine whether or not they are impaired. Accounting Principles Board Opinion (APB) No. 18, The Equity Method of Accounting for Investments in Common Stock, provides the accounting for these investments. The standard for determining whether an impairment must be recorded under APB No. 18 is whether the investment has experienced a loss in value that is considered an "other than a temporary" decline in value.

        The evaluation and measurement of impairments under the APB No. 18 standard involves the same uncertainties as described above for long-lived assets that we own directly and account for in accordance with SFAS No. 144. Similarly, the estimates that we make with respect to our equity and cost-method investments are subject to variation, and the impact of such variations could be material. Additionally, if the projects in which we hold these investments recognize an impairment under the provisions of SFAS No. 144, we would record our proportionate share of that impairment loss and would evaluate our investment for an other than temporary decline in value under APB No. 18.

Goodwill

Goodwill is the excess of the purchase price of an acquired business over the fair value of the net assets acquired. We do not amortize goodwill and certain other intangibles under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires us to evaluate goodwill for impairment at least annually or more frequently if events and circumstances indicate the business might be impaired. Goodwill is impaired if the carrying value of the business exceeds fair value. Annually, we estimate the fair value of the businesses we have acquired using techniques similar to those used to estimate future cash flows for long-lived assets as discussed above, which involves judgment. If the estimated fair value of the business is less than its carrying value, an impairment loss is required to be recognized to the extent that the carrying value of goodwill is greater than its fair value.

Asset Retirement Obligations

We incur legal obligations associated with the retirement of certain long-lived assets. SFAS No. 143, Accounting for Asset Retirement Obligations, provides the accounting for legal obligations associated with the retirement of long-lived assets. We incur such legal obligations as a result of environmental and other government regulations, contractual agreements, and other factors. The application of this standard requires significant judgment due to the large number and diverse nature of the assets in our various businesses and the estimation of future cash flows required to measure legal obligations associated with the retirement of specific assets.

        SFAS No. 143 requires the use of an expected present value methodology in measuring asset retirement obligations that involves judgment surrounding the inherent uncertainty of the probability, amount and timing of payments to settle these obligations, and the appropriate interest rates to discount future cash flows. We use our best estimates in identifying and measuring our asset retirement obligations in accordance with SFAS No. 143.

        Our nuclear decommissioning costs represent our largest asset retirement obligation. This obligation primarily results from the requirement to decommission and decontaminate our nuclear generating facilities in connection with their future retirement. We utilize site-specific decommissioning cost estimates to determine our nuclear asset retirement obligations. However, given the magnitude of the amounts involved, complicated and ever-changing technical and regulatory requirements, and the very long time horizons involved, the actual obligation could vary from the assumptions used in our estimates, and the impact of such variations could be material.

Events of 2004

Loss from Discontinued Operations

In the fourth quarter of 2003, we began to re-evaluate our strategy regarding our geothermal generating facility in Hawaii. The reevaluation of our strategy included soliciting bids to determine the level of interest in the facility. As of December 31, 2003, management determined that disposal of the facility was more likely than not to occur. As a result, we evaluated the facility for impairment as of December 31, 2003, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and determined that the facility was not impaired primarily due to indicative bids from third parties above the carrying value of the assets.

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        In March 2004, after reviewing final binding offers, management committed to a plan to sell the facility that met the "held for sale" criteria under SFAS No. 144. Under SFAS No. 144, we record assets and liabilities held for sale at the lesser of the carrying amount or fair value less cost to sell.

        We estimated that the fair value of the facility as of March 31, 2004, based on the bids under consideration to be below carrying value; therefore, we recorded a $71.6 million pre-tax, or $47.3 million after-tax, impairment charge during the first quarter of 2004. We reported the after-tax impairment charge as a component of "Loss from discontinued operations" in our Consolidated Statements of Income.

        Additionally, we recognized the $1.5 million pre-tax, or $1.0 million after-tax, of earnings from the facility for the quarter ended March 31, 2004 as a component of "Loss from discontinued operations."

        During the second quarter of 2004, we completed the sale of the facility. We recognized an additional loss on sale of $5.9 million pre-tax, or $3.0 million after-tax, based on the final sales price, as a component of "Loss from discontinued operations." We also recognized $0.6 million pre-tax, or $0.3 million after-tax, of earnings from the facility for the quarter ended June 30, 2004 as a component of "Loss from discontinued operations."

        We have not reclassified the prior year results of operations, which were reported under the equity method as "Nonregulated revenues," because we believe that reclassification of immaterial prior period results would be less useful than consistent reporting of prior year amounts. The facility had a $4.7 million net loss, including a $1.1 million cumulative effect of change in accounting principle for the adoption of SFAS No. 143, during the six months ended June 30, 2003.

Acquisition

On June 10, 2004, we completed our purchase of the R.E. Ginna nuclear facility (Ginna), which is located in Ontario, New York from Rochester Gas & Electric (RG&E) Corporation. Ginna consists of a 495 megawatt single-unit pressurized water reactor that entered service in 1970 and is licensed to operate until 2029.

        We purchased 100 percent of Ginna for $454.4 million including direct costs associated with the acquisition, of which $430.0 million was paid in cash at closing. We accrued a liability for the remaining $24.4 million which we expect to pay, subject to any adjustments, in the third quarter of 2004 after the completion of a final valuation of certain assets and liabilities. RG&E also transferred to us $200.5 million in decommissioning funds.

        We will sell 90 percent of Ginna's output back to RG&E at an average price of nearly $44 per megawatt-hour for approximately 10 years under a unit contingent power purchase agreement (if the output is not available because the plant is not operating, there is no requirement to provide output from other sources). We expect the acquisition of Ginna to be immediately accretive to earnings.

        We accounted for this transaction as an asset acquisition. Our preliminary purchase price allocation for the net assets acquired is as follows:

Ginna Net Assets Acquired

At June 10, 2004
	(In millions)
Current assets	$	27.6
Nuclear decommissioning trust fund		200.5
Nuclear fuel		14.3
Net property, plant and equipment		381.2
Intangible assets (details below)		38.4
Other assets		123.9
Total assets acquired		785.9
Current liabilities		20.9
Asset retirement obligations		177.3
Deferred credits and other liabilities		133.3
Net assets acquired	$	454.4

        The intangible assets acquired consist of the following:

Description	Amount		Weighted-Average Useful Life
	(In millions)		(In years)
Operating procedures and manuals	$	25.9	25
Permits and licenses		8.4	25
Software		4.1	5
Total intangible assets	$	38.4

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Synthetic Fuel Tax Credits

We have investments in facilities that manufacture solid synthetic fuel produced from coal as defined under Section 29 of the Internal Revenue Code for which we claim tax credits on our Federal income tax return. We recognize the tax benefit of these credits in our Consolidated Statements of Income when we believe it is highly probable that the credits will be sustained. The synthetic fuel process involves combining coal material with a chemical reagent to create a significant chemical change. A taxpayer may request a private letter ruling from the Internal Revenue Service (IRS) to support its position that the synthetic fuel produced undergoes a significant chemical change and thus qualifies for Section 29 credits.

        As of June 30, 2004, we have recognized cumulative tax benefits associated with Section 29 credits of $158.7 million, of which $58.6 million was recognized during the quarter ended June 30, 2004 and $80.7 million during the six months ended June 30, 2004.

        We own a minority ownership in four synthetic fuel facilities located in Ohio, Virginia, and West Virginia. These facilities have received private letter rulings from the IRS. In January 2004, the IRS concluded its examination of the partnership that owns these facilities for the tax years 1998 through 2001 and the IRS did not disallow any of the previously recognized synthetic fuel credits. During the second quarter of 2004, we received final written notice of the resolution of the examination from the IRS.

        In 2003, we purchased 99% ownership in a South Carolina facility that produces synthetic fuel. We did not recognize in our Consolidated Statements of Income the tax benefit of $35.9 million for credits claimed on our South Carolina facility in 2003 pending receipt of a favorable private letter ruling.

        On April 15, 2004, we received a favorable private letter ruling. We believe receipt of the private letter ruling provides assurance that it is highly probable that the credits will be sustained. Therefore, we recognized the tax benefit of $35.9 million in our Consolidated Statements of Income during the quarter ended June 30, 2004.

        While we believe the production and sale of synthetic fuel from all of our synthetic fuel facilities meet the conditions to qualify for tax credits under Section 29 of the IRS Code, we cannot predict the timing or outcome of any future challenge by the IRS, legislative or regulatory action, or the ultimate impact of such events on the Section 29 credits that we have claimed to date or expect to claim in the future, but the impact could be material to our financial results.

Impairment of Financial Investment

In the second quarter of 2004, our other nonregulated businesses recognized an impairment loss of $2.6 million pre-tax, or $1.6 million after-tax, related to an other than temporary decline in fair value of one of our financial investments.

Gains on Sale of Investments and Other Assets

During the six months ended June 30, 2004, our other nonregulated businesses recognized $5.9 million pre-tax, or $3.7 million after-tax, gains on the sale of non-core assets as follows:

•

a $1.1 million pre-tax gain in the first quarter on an installment sale of real estate,

•

a $0.4 million pre-tax gain in the first quarter on the sale of a financial investment,

•

a $3.3 million pre-tax gain in the second quarter on the sale of a financial investment, and

•

a $1.1 million pre-tax gain in the second quarter on the sale of real estate.

Dividend Increase

In January 2004, we announced an increase in our quarterly dividend to 28.5 cents per share on our common stock. This is equivalent to an annual rate of $1.14 per share. Previously, our quarterly dividend on our common stock was 26 cents per share, equivalent to an annual rate of $1.04 per share.

36

Results of Operations for the Quarter and Six Months Ended June 30, 2004 Compared with the Same Periods of 2003

In this section, we discuss our earnings and the factors affecting them. We begin with a general overview, then separately discuss earnings for our operating segments. Changes in other income, fixed charges, and income taxes are discussed, as necessary, in the aggregate for all segments in the Consolidated Nonoperating Income and Expenses section on page 51.

Overview

Results

		Quarter Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In millions, after-tax)
Merchant energy		$	109.2		$	75.2		$	148.7		$	54.7
Regulated electric			25.2			20.8			70.3			71.0
Regulated gas			(3.3	)		0.9			24.5			29.5
Other nonregulated			(0.2	)		(0.1	)		(0.1	)		8.6
Income from Continuing Operations and Before Cumulative Effects of Changes in Accounting Principles			130.9			96.8			243.4			163.8
Loss from Discontinued Operations (see Notes)			(2.7	)		—			(49.0	)		—
Cumulative Effects of Changes in Accounting Principles			—			—			—			(198.4	)
Net Income (Loss)		$	128.2		$	96.8		$	194.4		$	(34.6	)
Special Items Included in Operations
	Recognition of 2003 synthetic fuel tax credits	$	35.9		$	—		$	35.9		$	—
	Net gains on sale of investments and other assets		2.7			0.3			3.7			8.6
	Impairment losses and other costs		(1.6	)		—			(1.6	)		—
	Workforce reduction costs		—			(0.4	)		—			(0.8	)
Total Special Items		$	37.0		$	(0.1	)	$	38.0		$	7.8

Quarter Ended June 30, 2004

Our total net income for the quarter ended June 30, 2004 increased $31.4 million, or $0.18 per share, compared to the same period of 2003 mostly because of the following:

•

Our merchant energy business had higher earnings of $47.2 million at our South Carolina synfuel facility primarily due to the recognition of tax credits claimed in 2003 and tax credits associated with 2004 production.

•

Our merchant energy business had higher earnings due to the realization of wholesale contracts originated in prior periods, portfolio management, and a bankruptcy settlement from PG&E at NewEnergy.

•

We had higher earnings from our High Desert power project, which was acquired in late April 2003 and earnings from Ginna, which was acquired in early June 2004.

•

We had higher earnings from our regulated electric business due to warmer weather in the second quarter of 2004 compared to the same period of 2003.

        These increases were partially offset by the following:

•

We recognized a gain on the assumption of an agreement from Allegheny Energy Supply Company, LLC (Allegheny) in the second quarter of 2003 that had a positive impact in that period.

•

We had lower earnings from our nuclear generating assets primarily due to our planned refueling outages. Calvert Cliffs' outage days in the second quarter of 2004 exceeded the number of outage days in the second quarter of 2003. Nine Mile Point had lower earnings due to the refueling of the larger unit in 2004 and lower power purchase agreement prices during the second quarter of 2004 compared to the same period in 2003.

•

We had higher Sarbanes-Oxley 404 implementation costs, information technology infrastructure expenditures, and benefit and other inflationary costs.

•

We had lower earnings from our regulated gas business primarily due to higher operating expenses.

37

Six Months Ended June 30, 2004

Our total net income for the six months ended June 30, 2004 increased $229.0 million, or $1.36 per share, compared to the same period of 2003 mostly because of the following:

•

In 2003, we recorded a $266.1 million after-tax, or $1.61 per share, loss for the cumulative effect of adopting Emerging Issues Task Force (EITF) Issue 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities. This was partially offset by a $67.7 million after-tax, or $0.41 per share, gain for the cumulative effect of adopting SFAS No. 143. These items had a combined negative impact during the six months ended June 30, 2003.

•

Our merchant energy business had higher earnings of $54.6 million at our South Carolina synfuel facility primarily due to the recognition of tax credits claimed in 2003 and tax credits associated with 2004 production.

•

We had higher earnings from our nuclear generating assets due to reduced outage days at our Calvert Cliffs nuclear power plant, partially offset by lower earnings at our Nine Mile Point facility primarily associated with our planned outages and lower power prices for our output in 2004 compared to 2003.

•

We had higher earnings from our merchant energy business mostly due to the realization of wholesale contracts originated in prior periods, portfolio management, and a bankruptcy settlement from PG&E at NewEnergy.

•

We had higher earnings due to lower losses associated with economic hedges that did not qualify for cash-flow hedge accounting treatment in 2003.

•

We had higher earnings due to the High Desert Power Project that commenced operations in April 2003.

        These increases were partially offset by the following:

•

We recorded a $49.0 million after-tax, or $0.29 per share, loss from discontinued operations.

•

We had higher Sarbanes-Oxley 404 implementation costs, information technology infrastructure expenditures, and benefit and other inflationary costs.

•

We had lower earnings from our regulated gas business mostly because of higher operating expenses in the first six months of 2004.

•

We recognized a gain of $8.6 million after-tax, or $0.05 per share, related to non-core asset sales in the six months ended June 30, 2003 that had a favorable impact in that period.

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

Merchant Energy Business

Background

Our merchant energy business is a competitive provider of energy solutions for large customers in North America. We discuss the impact of deregulation on our merchant energy business in the Business Environment—Electric Competition section of our 2003 Annual Report on Form 10-K.

        We record merchant energy revenues and expenses in our financial results in different periods depending upon which portion of our business they affect. We discuss our revenue recognition policies in the Critical Accounting Policies section on page 31 and in Note 1 of our 2003 Annual Report on Form 10-K. We summarize our policies as follows:

•

We record revenues as they are earned and fuel and purchased energy costs as they are incurred for contracts and activities subject to accrual accounting, including certain load-serving activities.

•

Prior to the settlement of the forecasted transaction being hedged, we record changes in the fair value of contracts designated as cash-flow hedges in other comprehensive income to the extent that the hedges are effective. We record the effective portion of the changes in fair value of hedges in earnings in the period the settlement of the hedged transaction occurs. We record the ineffective portion of the changes in fair value of hedges, if any, in earnings in the period in which the change occurs.

•

We record changes in the fair value of contracts that are subject to mark-to-market accounting in revenues on a net basis in the period in which the change occurs.

38

        Mark-to-market accounting requires us to make estimates and assumptions using judgment in determining the fair value of our contracts and in recording revenues from those contracts. We discuss the effects of mark-to-market accounting on our revenues in the Competitive Supply—Mark-to-Market Revenues section on page 42. We discuss mark-to-market accounting and the accounting policies for the merchant energy business further in the Critical Accounting Policies section on page 31 and in Note 1 of our 2003 Annual Report on Form 10-K.

Results

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
				(In millions)
Revenues	$	2,367.7		$	1,822.6		$	4,752.5		$	3,495.8
Fuel and purchased energy expenses		(1,833.7	)		(1,312.0	)		(3,781.4	)		(2,698.2	)
Operations and maintenance expenses		(318.8	)		(266.8	)		(591.9	)		(479.5	)
Workforce reduction costs		—			(0.4	)		—			(0.8	)
Depreciation and amortization		(61.4	)		(56.6	)		(117.1	)		(107.5	)
Accretion of asset retirement obligations		(12.4	)		(10.7	)		(23.5	)		(21.3	)
Taxes other than income taxes		(21.2	)		(24.1	)		(43.0	)		(46.4	)
Income from Operations	$	120.2		$	152.0		$	195.6		$	142.1
Income from Continuing Operations and Before Cumulative Effects of Changes in Accounting Principles (after-tax)	$	109.2		$	75.2		$	148.7		$	54.7
Loss from Discontinued Operations (after-tax)		(2.7	)		—			(49.0	)		—
Cumulative Effects of Changes in Accounting Principles (after-tax)		—			—			—			(198.4	)
Net Income (Loss)	$	106.5		$	75.2		$	99.7		$	(143.7	)
Special Items Included in Operations (after-tax)
Recognition of 2003 synthetic fuel tax credits	$	35.9		$	—		$	35.9		$	—
Workforce reduction costs		—			(0.3	)		—			(0.5	)
Total Special Items	$	35.9		$	(0.3	)	$	35.9		$	(0.5	)

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by Operating Segment section within the Notes to Consolidated Financial Statements on page 14 provides a reconciliation of operating results by segment to our Consolidated Financial Statements.

Revenues and Fuel and Purchased Energy Expenses

Our merchant energy business manages our costs of procuring fuel and energy and revenues we realize from the sale of energy to our customers. The difference between revenues and fuel and purchased energy expenses is the primary driver of the profitability of our merchant energy business. Accordingly, we believe it is appropriate to discuss the operating results of our merchant energy business by analyzing the changes in the relationship between revenues and fuel and purchased energy expenses. In managing our portfolio, we occasionally terminate, restructure, or acquire contracts. Such transactions are within the normal course of managing our portfolio and may materially impact the timing of our recognition of revenues and fuel and purchased energy expenses.

        We analyze our merchant energy revenues and fuel and purchased energy expenses in the following categories because of the risk profile of each category, differences in the revenue sources, and the nature of fuel and purchased energy expenses. With the exception of a portion of our competitive supply activities that we are required to account for using the mark-to-market method of accounting, all of these activities are accounted for on an accrual basis.

•

Mid-Atlantic Fleet—our fossil, nuclear, and hydroelectric generating facilities and load-serving activities in the PJM region for which the output is primarily used to serve BGE. This also includes active portfolio management of the generating assets and associated physical and financial arrangements.

•

Plants with Power Purchase Agreements—our generating facilities outside the Mid-Atlantic region with long-term power purchase agreements, including our Nine Mile Point Nuclear Station (Nine Mile Point), Ginna, Oleander, University Park, and High Desert facilities.

•

Competitive Supply—our wholesale marketing and risk management operation that provides energy products and services to distribution utilities and other wholesale customers. This category includes our remaining generating facilities whose output is primarily used in managing our competitive supply activities outside the PJM region. We also provide electric and gas energy services to retail commercial and industrial customers.

•

Other—our investments in qualifying facilities and domestic power projects and our generation and consulting services.

39

        We provide a summary of our revenues and fuel and purchased energy expenses as follows:

		Quarter Ended June 30,										Six Months Ended June 30,
		2004					2003					2004					2003
		(Dollar amounts in millions)
Revenues:
	Mid-Atlantic Fleet	$	425.4				$	465.3				$	856.7				$	841.0
	Plants with Power Purchase Agreements		158.9					156.8					292.7					266.0
	Competitive Supply		1,774.0					1,193.7					3,573.5					2,366.9
	Other		9.4					6.8					29.6					21.9
	Total	$	2,367.7				$	1,822.6				$	4,752.5				$	3,495.8
Fuel and purchased energy expenses:
	Mid-Atlantic Fleet	$	(172.2	)			$	(188.0	)			$	(399.7	)			$	(393.5	)
	Plants with Power Purchase Agreements		(13.5	)				(11.1	)				(24.0	)				(23.8	)
	Competitive Supply		(1,648.0	)				(1,112.9	)				(3,357.7	)				(2,280.9	)
	Other		—					—					—					—
	Total	$	(1,833.7	)			$	(1,312.0	)			$	(3,781.4	)			$	(2,698.2	)
Revenues less fuel and purchased energy expenses:					% of Total					% of Total					% of Total					% of Total
	Mid-Atlantic Fleet	$	253.2		47	%	$	277.3		54	%	$	457.0		47	%	$	447.5		56	%
	Plants with Power Purchase Agreements		145.4		27			145.7		29			268.7		28			242.2		30
	Competitive Supply		126.0		23			80.8		16			215.8		22			86.0		11
	Other		9.4		3			6.8		1			29.6		3			21.9		3
	Total	$	534.0		100	%	$	510.6		100	%	$	971.1		100	%	$	797.6		100	%

Mid-Atlantic Fleet

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Revenues	$	425.4		$	465.3		$	856.7		$	841.0
Fuel and purchased energy expenses		(172.2	)		(188.0	)		(399.7	)		(393.5	)
Revenues less fuel and purchased energy	$	253.2		$	277.3		$	457.0		$	447.5

Revenues

BGE Standard Offer Service

The majority of Mid-Atlantic Fleet revenues arise from supplying BGE's standard offer service requirements. Revenues from supplying BGE's standard offer service requirements, including CTC and decommissioning revenues, increased $19.4 million for the quarter ended June 30, 2004 compared to the same period of 2003 and increased $15.5 million for the six months ended June 30, 2004 compared to the same period of 2003 primarily due to warmer weather during the second quarter of 2004 in the central Maryland region.

        CTC revenues are impacted by the CTC rates our merchant energy business receives from BGE customers, as well as the volumes delivered to BGE customers. The CTC rates decline over the transition period as previously discussed in the Regulated Electric Competition—Maryland section on page 27.

        During 2003, our merchant energy business provided the energy to meet the requirements of large commercial and industrial customers that had left BGE's standard offer service and elected BGE Home as their electric generation supplier. Revenues from BGE Home were $21.6 million in the second quarter of 2003 and $41.1 million for the six months ended June 30, 2003, which had a positive impact in those periods. As these customer contracts expired during 2003, any renewal was with our commercial and industrial retail marketing operation and the results are included in our Competitive Supply category.

40

Other Mid-Atlantic Fleet Revenues

Other merchant energy revenues in the PJM region decreased $38.0 million for the second quarter of 2004 compared to the same period of 2003 mostly because of the following:

•

lower revenue due to a reduction in the amount of excess generation available for sale to the market in the PJM region mostly because of load-serving obligations in New Jersey that began in mid-2003 and increased sales to our commercial and industrial retail marketing operation, and

•

the recognition of a gain on the assumption of an agreement from Allegheny in the second quarter of 2003 that had a positive impact in that period.

        For the six months ended June 30, 2004, other merchant energy revenues in the PJM region increased $41.3 million compared to the same period of 2003 mostly because of revenues of $97.3 million related to load-serving transactions in New Jersey that began in mid-2003. This increase in revenue was offset in part by lower revenues of $56.0 million primarily related to lower revenue due to a reduction in the amount of excess generation available for sale to the market in the PJM region and the recognition of a gain on the assumption of an agreement from Allegheny in the second quarter of 2003 that had a positive impact in that period.

Fuel and Purchased Energy Expenses

Our merchant energy business had lower fuel and purchased energy expenses in the Mid-Atlantic Fleet during the three months ended June 30, 2004 compared to the same period of 2003 primarily due to a reduction in the amount of excess generation available for sale to the market in the PJM region. This decrease was partially offset by an increase related to our load-serving transactions in New Jersey that began in mid-2003.

        Our merchant energy business had higher fuel and purchased energy expenses in the Mid-Atlantic Fleet during the six months ended June 30, 2004 compared to the same period of 2003 primarily because of higher generation at our plants and increased purchased energy and capacity expenses.

Plants with Power Purchase Agreements

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Revenues	$	158.9		$	156.8		$	292.7		$	266.0
Fuel and purchased energy expenses		(13.5	)		(11.1	)		(24.0	)		(23.8	)
Revenues less fuel and purchased energy	$	145.4		$	145.7		$	268.7		$	242.2

The increase in revenues for the six months ended June 30, 2004 compared to the same period of 2003 was primarily due to higher revenues of $45.2 million from the High Desert Power Project which commenced operations in the second quarter of 2003 and revenues of $11.0 million from Ginna which was purchased in June 2004. We discuss the acquisition of Ginna in more detail in the Events of 2004 section on page 35. This increase was offset in part by lower revenues of $23.4 million from our Nine Mile Point facility mostly because of lower generation at the plant during the six months ended June 30, 2004 and lower power prices for our output in 2004 compared to 2003.

Competitive Supply

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Accrual revenues	$	1,760.4		$	1,192.2		$	3,551.7		$	2,372.5
Mark-to-market revenues		13.6			1.5			21.8			(5.6	)
Fuel and purchased energy expenses		(1,648.0	)		(1,112.9	)		(3,357.7	)		(2,280.9	)
Revenues less fuel and purchased energy	$	126.0		$	80.8		$	215.8		$	86.0

We analyze our accrual and mark-to-market competitive supply activities separately on the next page.

41

Accrual Revenues and Fuel and Purchased Energy Expenses

Our accrual revenues and fuel and purchased energy expenses increased during the quarter and six months ended June 30, 2004 compared to the same periods of 2003 mostly because of retail sales to commercial and industrial customers. This increase in retail sales is primarily due to:

•

new customer contracts,

•

customer renewals,

•

portfolio acquisitions during 2003,

•

the acquisitions of Blackhawk and Kaztex in October 2003, and

•

the collection of a receivable that was previously reserved due the the financial condition of our customer, PG&E.

        Additionally, our wholesale marketing and risk management operation had higher sales primarily in the Texas, New England, Mid-West regions, and Canada. The higher sales in the Texas and New England regions are primarily due to our growth in these regions. The increased sales in the Mid-West are primarily due to the portfolio acquisition from CMS Energy Corp., which occurred in the second quarter of 2003.

Mark-to-Market Revenues

Mark-to-market revenues include net gains and losses from origination and risk management activities for which we use the mark-to-market method of accounting. We discuss these activities and the mark-to-market method of accounting in more detail in the Critical Accounting Policies section on page 31.

        As a result of the nature of our operations and the use of mark-to-market accounting for certain activities, mark-to-market revenues and earnings will fluctuate. We cannot predict these fluctuations, but the impact on our revenues and earnings could be material. We discuss our market risk in more detail in the Market Risk section on page 57. The primary factors that cause fluctuations in our mark-to-market revenues and earnings are:

•

the number, size, and profitability of new transactions,

•

the number and size of our open derivative positions, and

•

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

        Mark-to-market revenues were as follows:

			Quarter Ended June 30,						Six Months Ended June 30,
			2004			2003			2004			2003
			(In millions)
Unrealized revenues
	Origination transactions		$	9.6		$	10.9		$	9.6		$	25.1
	Risk management
		Unrealized changes in fair value		4.0			(9.4	)		12.2			(30.7	)
		Changes in valuation techniques		—			—			—			—
		Reclassification of settled contracts to realized		(21.2	)		(79.6	)		(36.2	)		(61.5	)
		Total risk management		(17.2	)		(89.0	)		(24.0	)		(92.2	)
Total unrealized revenues*				(7.6	)		(78.1	)		(14.4	)		(67.1	)
Realized revenues				21.2			79.6			36.2			61.5
Total mark-to-market revenues			$	13.6		$	1.5		$	21.8		$	(5.6	)

* Total unrealized revenues is the sum of origination transactions and total risk management.

        Origination gains arise from contracts that our wholesale marketing and risk management operation structure to meet the risk management needs of our customers. Transactions that result in origination gains may be unique and provide the potential for individually significant revenues and gains from a single transaction.

        Origination gains represent the initial fair value recognized on these structured transactions. The recognition of origination gains is dependent on the existence of observable market data that validates the initial fair value of the contract. For the quarter and six months ended June 30, 2004, we recognized $9.6 million in origination gains from seven transactions.

        As noted above, the recognition of origination gains is dependent on sufficient observable market data. Liquidity and market conditions impact our ability to identify sufficient, objective market-price information to permit recognition of origination gains. As a result, while our strategy and competitive position provide the opportunity to continue to originate such transactions, the level of origination revenue we are able to recognize may vary from year to year as a result of the number, size, and market-price transparency of the individual transactions executed in any period.

42

        Risk management revenues represent both realized and unrealized gains and losses from changes in the value of our entire portfolio, including the recognition of gains associated with decreases in the close-out reserve when we are able to obtain sufficient market price information. We discuss the changes in mark-to-market revenues below. We show the relationship between our revenues and the change in our net mark-to-market energy asset/liability later in this section.

        Our mark-to-market revenues are affected by the portion of our activities that are subject to mark-to-market accounting. Beginning January 1, 2003, under EITF 02-3, we do not record non-derivative contracts at fair value. Further, to the extent that we are not able to observe quoted market prices or other current market transactions for derivative contract values determined using models, we record a reserve to adjust such contracts to result in zero gain or loss at inception. We remove the reserve and record such contracts at fair value when we obtain current market information for contracts with similar terms and counterparties.

        Mark-to-market revenues increased $12.1 million during the second quarter of 2004 compared to the same period of 2003 mostly because of lower net losses from risk management activities compared to the prior year. The increase in risk management revenues is primarily due to lower mark-to-market losses on hedges that did not qualify for hedge accounting treatment in 2004 compared to 2003 as discussed in more detail below, offset in part by higher origination gains in 2003.

        Mark-to-market revenues increased $27.4 million during the six months ended June 30, 2004 compared to the same period of 2003 mostly because of lower net losses from risk management activities compared to the prior year. The increase in risk management revenues is primarily due to lower mark-to-market losses on hedges that did not qualify for hedge accounting treatment in 2004 compared to 2003 as discussed in more detail below, offset in part by higher origination gains in 2003.

        With the implementation of EITF 02-3 in the first quarter of 2003, all of our load-serving contracts were converted to accrual accounting. However, several economically effective hedges on these positions did not qualify for hedge accounting treatment under SFAS No. 133 and remained in the mark-to-market portfolio. As a result, we recorded a lower pre-tax loss of $11.2 million on the mark-to-market hedges during the second quarter of 2004 compared to the same period of 2003 and a lower pre-tax loss of $27.7 million during the six months ended June 30, 2004 compared to the same period of 2003. These mark-to-market losses will be offset as we realize the related accrual load-serving position in cash.

Mark-to-Market Energy Assets and Liabilities

Our mark-to-market energy assets and liabilities are comprised of derivative contracts and consisted of the following:

	June 30, 2004			December 31, 2003
	(In millions)
Current Assets	$	514.1		$	488.3
Noncurrent Assets		368.5			261.9
Total Assets		882.6			750.2
Current Liabilities		539.9			474.6
Noncurrent Liabilities		354.3			258.0
Total Liabilities		894.2			732.6
Net mark-to-market energy (liability) asset	$	(11.6	)	$	17.6

        The following are the primary sources of the change in net mark-to-market energy asset/liability during the first quarter of 2004:

Change in Net Mark-to-Market Asset/Liability

		Quarter Ended June 30, 2004		Six Months Ended June 30, 2004
		(In millions)
Fair value beginning of period		$ 13.6		$ 17.6
Changes in fair value recorded as revenues
	Origination gains	$   9.6		$   9.6
	Unrealized changes in fair value	4.0		12.2
	Changes in valuation techniques	—		—
	Reclassification of settled contracts to realized	(21.2)		(36.2)
Total changes in fair value recorded as revenues		(7.6	)	(14.4	)
Changes in value of exchange-listed futures and options		(25.4	)	(42.0	)
Net change in premiums on options		5.2		15.0
Other changes in fair value		2.6		12.2
Fair value at end of period		$(11.6	)	$(11.6	)

43

        Components of changes in the net mark-to-market energy asset/liability that affected revenues include:

•

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

•

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

•

Changes in valuation techniques representing improvements in estimation techniques, including modeling and other statistical enhancements used to value our portfolio to more accurately reflect the economic value of our contracts.

•

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

        The net mark-to-market energy asset also changed due to the following items recorded in accounts other than revenue:

•

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

•

Net changes in premiums on options reflects the accounting for premiums on options purchased as an increase in the net mark-to-market energy asset and premiums on options sold as a decrease in the net mark-to-market energy asset.

        The settlement terms of the net mark-to-market energy asset and sources of fair value as of June 30, 2004 are as follows:

	Settlement Term
																						Fair Value
	2004			2005			2006			2007			2008			2009			Thereafter
	(In millions)
Prices provided by external sources (1)	$	(24.1	)	$	20.4		$	7.1		$	(0.5	)	$	(1.2	)	$	—		$	—		$	1.7
Prices based on models		0.7			(11.3	)		(3.2	)		8.4			(1.8	)		(2.6	)		(3.5	)		(13.3	)
Total net mark-to-market energy (liability)/asset	$	(23.4	)	$	9.1		$	3.9		$	7.9		$	(3.0	)	$	(2.6	)	$	(3.5	)	$	(11.6	)

(1)

Includes contracts actively quoted and contracts valued from other external sources.

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

        Consistent with our risk management practices, we have presented the information in the table above based upon the ability to obtain reliable prices for components of the risks in our contracts from external sources rather than on a contract-by-contract basis. Thus, the portion of long-term contracts that is valued using external price sources is presented under the caption "prices provided by external sources." This is consistent with how we manage our risk, and we believe it provides the best indication of the basis for the valuation of our portfolio. Since we manage our risk on a portfolio basis rather than contract-by-contract, it is not practicable to determine separately the portion of long-term contracts that is included in each valuation category. We describe the commodities, products, and delivery periods included in each valuation category in detail on the next page.

44

        The amounts for which fair value is determined using prices provided by external sources represent the portion of forward, swap, and option contracts for which price quotations are available through brokers or over-the-counter transactions. The term for which such price information is available varies by commodity, region, and product. The fair values included in this category are the following portions of our contracts:

•

forward purchases and sales of electricity during peak and off-peak hours for delivery terms primarily through 2006, but up to 2008, depending upon the region,

•

options for the purchase and sale of electricity during peak hours for delivery terms through 2005, depending upon the region,

•

forward purchases and sales of electric capacity for delivery terms through 2006,

•

forward purchases and sales of natural gas, coal, and oil for delivery terms through 2006, and

•

options for the purchase and sale of natural gas, coal, and oil for delivery terms through 2006.

        The remainder of the net mark-to-market energy asset/liability is valued using models. The portion of contracts for which such techniques are used includes standard products for which external prices are not available and customized products that are valued using modeling techniques to determine expected future market prices, contract quantities, or both.

        Modeling techniques include estimating the present value of cash flows based upon underlying contractual terms and incorporate, where appropriate, option pricing models and statistical and simulation procedures. Inputs to the models include:

•

observable market prices,

•

estimated market prices in the absence of quoted market prices,

•

the risk-free market discount rate,

•

volatility factors,

•

estimated correlation of energy commodity prices, and

•

expected generation profiles of specific regions.

        Additionally, we incorporate counterparty-specific credit quality and factors for market price and volatility uncertainty and other risks in our valuation. The inputs and factors used to determine fair value reflect management's best estimates.

        The electricity, fuel, and other energy contracts we hold have varying terms to maturity, ranging from contracts for delivery the next hour to contracts with terms of ten years or more. Because an active, liquid electricity futures market comparable to that for other commodities has not developed, the majority of contracts used in our wholesale marketing and risk management operation are direct contracts between market participants and are not exchange-traded or financially settling contracts that can be readily liquidated in their entirety through an exchange or other market mechanism. Consequently, we and other market participants generally realize the value of these contracts as cash flows become due or payable under the terms of the contracts rather than through selling or liquidating the contracts themselves.

        Consistent with our risk management practices, the amounts shown in the table on the previous page as being valued using prices from external sources include the portion of long-term contracts for which we can obtain reliable prices from external sources. The remaining portions of these long-term contracts are shown in the table as being valued using models. In order to realize the entire value of a long-term contract in a single transaction, we would need to sell or assign the entire contract. If we were to sell or assign any of our long-term contracts in their entirety, we may not realize the entire value reflected in the table. However, based upon the nature of our wholesale marketing and risk management operation, we expect to realize the value of these contracts, as well as any contracts we may enter into in the future to manage our risk, over time as the contracts and related hedges settle in accordance with their terms. We do not expect to realize the value of these contracts and related hedges by selling or assigning the contracts themselves in total.

        The fair values in the table represent expected future cash flows based on the level of forward prices and volatility factors as of June 30, 2004 and could change significantly as a result of future changes in these factors. Additionally, because the depth and liquidity of the power markets varies substantially between regions and time periods, the prices used to determine fair value could be affected significantly by the volume of transactions executed.

45

        Management uses its best estimates to determine the fair value of commodity and derivative contracts it holds and sells. These estimates consider various factors including closing exchange and over-the-counter price quotations, time value, volatility factors, and credit exposure. However, future market prices and actual quantities will vary from those used in recording mark-to-market energy assets and liabilities, and it is possible that such variations could be material.

Other

	Quarter Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
	(In millions)
Revenues	$	9.4	$	6.8	$	29.6	$	21.9

Our merchant energy business holds up to a 50% ownership interest in 25 operating domestic energy projects that consist of electric generation, fuel processing, or fuel handling facilities. Of these 25 projects, 18 are "qualifying facilities" that receive certain exemptions and pricing under the Public Utility Regulatory Policy Act of 1978 based on the facilities' energy source or the use of a cogeneration process. In June 2004, we sold our geothermal generating facility in Hawaii. We discuss the sale of our geothermal facility in more detail in the Events of 2004 section on page 34.

        We believe the current market conditions for our equity-method investments that own geothermal, coal, hydroelectric, and fuel processing projects provide sufficient positive cash flows to recover our investments. We continuously monitor issues that potentially could impact future profitability of these investments, including environmental and legislative initiatives. We discuss certain risks and uncertainties in more detail in our Forward Looking Statements section on page 63. However, should future events cause these investments to become uneconomic, our investments in these projects could become impaired under the provisions of APB No. 18.

        The ability to recover our costs in our equity-method investments that own biomass and solar projects is partially dependent upon subsidies from the State of California. Under the California Public Utility Act, subsidies currently exist in that the California Public Utilities Commission (CPUC) requires electric corporations to identify a separate rate component to fund the development of renewable resources technologies, including solar, biomass, and wind facilities. In addition, legislation in California requires that each electric corporation increase its total procurement of eligible renewable energy resources by at least one percent per year so that 20% of its retail sales are procured from eligible renewable energy resources by 2017. The legislation also requires the California Energy Commission to award supplemental energy payments to electric corporations to cover above market costs of renewable energy.

        Given the need for electric power and the desire for renewable resource technologies, we believe California will continue to subsidize the use of renewable energy to make these projects economical to operate. However, should the California legislation fail to adequately support the renewable energy initiatives, our equity-method investments in these types of projects could become impaired under the provisions of APB No. 18, and any losses recognized could be material.

        If our strategy were to change from an intent to hold to an intent to sell for any of our equity-method investments in qualifying facilities or power projects, we would need to adjust their book value to fair value, and that adjustment could be material. If we were to sell these investments in the current market, we may have losses that could be material.

46

Operations and Maintenance Expenses

Our merchant energy business operations and maintenance expenses increased $52.0 million in the second quarter of 2004 compared to the same period of 2003 mostly due to the following:

•

an increase of $25.1 million at our nuclear generating facilities, including the cost related to the refueling outage for Unit 1 at Calvert Cliffs and the costs associated with Ginna, which was purchased in June 2004,

•

an increase at our wholesale marketing and risk management operation and our retail commercial and industrial operation of $18.1 million due to the growth of these activities, and

•

an increase of $2.9 million due to the operations of the High Desert Power Project that commenced operations in the second quarter of 2003.

        Our merchant energy business operations and maintenance expenses increased $112.4 million for the six months ended June 30, 2004 compared to the same period in 2003 mostly due to the following:

•

an increase of $53.5 million at our nuclear generating facilities, including higher costs for outages that occurred during the first half of 2004 and the costs associated with Ginna,

•

an increase at our wholesale marketing and risk management operation and our retail commercial and industrial operation of $39.9 million due to the growth of these activities, and

•

an increase of $7.7 million due to the operations of the High Desert Power Project.

Depreciation and Amortization Expense

Merchant energy depreciation and amortization expense increased $4.8 million in the second quarter of 2004 compared to the same period of 2003 mostly because of higher depreciation associated with our synthetic fuel processing facility in South Carolina which was acquired in May 2003 and Ginna.

        Merchant energy depreciation and amortization expense increased $9.6 million for the six months ended June 30, 2004 compared to the same period of 2003 mostly because of the High Desert Power Project, which was placed into service during the second quarter of 2003, and depreciation associated with our synthetic fuel processing facility in South Carolina and Ginna.

Regulated Electric Business

As discussed in the Regulated Electric Competition—Maryland section on page 27, our regulated electric business was significantly impacted by the July 1, 2000 implementation of customer choice.

        Effective July 1, 2000, BGE unbundled its rates to show separate components for delivery service, transition charges, standard offer service (generation), transmission, universal service, and taxes. BGE's rates also were frozen in total except for the implementation of a residential base rate reduction totaling approximately $54 million annually. In addition, 90% of the CTC revenues BGE collects and the portion of its revenues providing for decommissioning costs are included in revenues of the merchant energy business.

        As part of the deregulation of electric generation, while total rates are frozen over the transition period, the increasing rates received from customers under standard offer service are offset by declining CTC rates.

Results

		Quarter Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In millions)
Revenues		$	477.2		$	437.0		$	961.6		$	923.3
Electricity purchased for resale expenses			(254.3	)		(237.2	)		(494.7	)		(480.8	)
Operations and maintenance expenses			(78.5	)		(63.5	)		(145.4	)		(119.4	)
Workforce reduction costs			—			(0.2	)		—			(0.5	)
Depreciation and amortization			(48.5	)		(44.5	)		(96.3	)		(88.7	)
Taxes other than income taxes			(32.9	)		(31.9	)		(66.4	)		(65.2	)
Income from Operations		$	63.0		$	59.7		$	158.8		$	168.7
Net Income		$	25.2		$	20.8		$	70.3		$	71.0
Special Items Included in Operations (after-tax)
	Workforce reduction costs	$	—		$	(0.1	)	$	—		$	(0.3	)

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by Operating Segment section within the Notes to Consolidated Financial Statements on page 14 provides a reconciliation of operating results by segment to our Consolidated Financial Statements.

Net income from the regulated electric business increased during the quarter ended June 30, 2004 compared to the same period of 2003 mostly because of the following:

•

warmer weather and increased usage per customer in the second quarter of 2004 compared to the same period of 2003, and

•

lower interest expense.

47

        These favorable results were partially offset by the following:

•

increased operations and maintenance expenses primarily due to higher benefit and other inflationary costs, higher uncollectible expenses, and increased spending on electric system reliability, and

•

increased depreciation and amortization expense.

Electric Revenues

The changes in electric revenues in 2004 compared to 2003 were caused by:

	Quarter Ended June 30, 2004 vs. 2003		Six Months Ended June 30, 2004 vs. 2003
	(In millions)
Distribution sales volumes	$	16.0	$	16.3
Standard offer service		22.5		22.6
Total change in electric revenues from electric system sales		38.5		38.9
Other		1.7		(0.6	)
Total change in electric revenues	$	40.2	$	38.3

Distribution Sales Volumes

Distribution sales volumes are sales to customers in BGE's service territory at rates set by the Maryland PSC.

        The percentage changes in our distribution sales volumes, by type of customer, in 2004 compared to 2003 were:

	Quarter Ended June 30, 2004 vs. 2003		Six Months Ended June 30, 2004 vs. 2003
Residential	13.6	%	5.4	%
Commercial	7.0		2.6
Industrial	1.0		0.1

        During the second quarter of 2004, we distributed more electricity to residential customers compared to the same period of 2003 mostly due to warmer weather. We distributed more electricity to commercial and industrial customers mostly due to warmer weather and increased usage per customer.

        During the six months ended June 30, 2004, we distributed more electricity to residential customers compared to the same period of 2003 due to increased usage per customer, warmer weather, and an increased number of customers. We distributed more electricity to commercial customers mostly due to warmer weather and increased usage per customer.

Standard Offer Service

BGE provides standard offer service for customers that do not select an alternative generation supplier as discussed in the Regulated Electric Competition—Maryland section on page 27.

        Standard offer service revenues increased during the quarter and six months ended June 30, 2004 compared to the same periods of 2003 mostly due to warmer weather in the second quarter of 2004.

Electricity Purchased for Resale Expenses

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

        During the quarter and six months ended June 30, 2004, our electricity purchased for resale expenses increased compared to the same periods of 2003 mostly due to warmer weather in the second quarter of 2004.

Electric Operations and Maintenance Expenses

Regulated electric operations and maintenance expenses increased $15.0 million for the quarter and $26.0 million for the six months ended June 30, 2004 compared to the same periods of 2003 mostly due to higher benefit and other inflationary costs, higher uncollectible expenses, and increased spending on electric system reliability.

Electric Depreciation and Amortization Expenses

Regulated electric depreciation and amortization expenses increased $4.0 million for the quarter and $7.6 million for the six months ended June 30, 2004 compared to the same periods of 2003 mostly because of increased depreciation expense associated with more property being placed in service and accelerated amortization expense associated with the planned replacement of information technology assets.

48

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, or BGE's, financial results.

Results

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions)
Gas revenues	$	112.6		$	140.0		$	432.1		$	443.6
Gas purchased for resale expenses		(59.5	)		(86.3	)		(275.5	)		(289.4	)
Operations and maintenance expenses		(30.7	)		(25.2	)		(59.0	)		(49.3	)
Depreciation and amortization		(12.2	)		(11.5	)		(24.3	)		(23.2	)
Taxes other than income taxes		(7.6	)		(7.5	)		(16.7	)		(16.6	)
Income from operations	$	2.6		$	9.5		$	56.6		$	65.1
Net (Loss) Income	$	(3.3	)	$	0.9		$	24.5		$	29.5

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by Operating Segment section within the Notes to Consolidated Financial Statements on page 14 provides a reconciliation of operating results by segment to our Consolidated Financial Statements.

Net income from the regulated gas business for the quarter and six months ended June 30, 2004 decreased compared to the same periods of 2003 mostly because of increased operations and maintenance expenses primarily due to higher uncollectible expenses and higher benefit and other inflationary costs.

Gas Revenues

The changes in gas revenues in 2004 compared to 2003 were caused by:

	Quarter Ended June 30, 2004 vs. 2003			Six Months Ended June 30, 2004 vs. 2003
	(In millions)
Distribution sales volumes	$	(4.4	)	$	(3.3	)
Base rates		—			(0.1	)
Weather normalization		3.9			4.8
Gas cost adjustments		(19.8	)		11.2
Total change in gas revenues from gas system sales		(20.3	)		12.6
Off-system sales		(7.0	)		(24.1	)
Other		(0.1	)		—
Total change in gas revenues	$	(27.4	)	$	(11.5	)

Distribution Sales Volumes

The percentage changes in our distribution sales volumes, by type of customer, in 2004 compared to 2003 were:

	Quarter Ended June 30, 2004 vs. 2003		Six Months Ended June 30, 2004 vs. 2003
Residential	(21.3	)%	(4.8	)%
Commercial	8.7		9.6
Industrial	(26.8	)	(21.3	)

        During the quarter and six months ended June 30, 2004, we distributed less gas to residential customers compared to the same periods in 2003 mostly due to milder weather. We distributed more gas to commercial customers mostly due to increased usage per customer partially offset by milder weather. We distributed less gas to industrial customers mostly due to decreased usage per customer.

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 distribution sales volumes. This means our monthly gas base rate revenues are based on weather that is considered "normal" for the month and, therefore, are not affected by actual weather conditions.

Gas Cost Adjustments

We charge our gas customers for the natural gas they purchase from us using gas cost adjustment clauses set by the Maryland PSC as described in Note 1 of our 2003 Annual Report on Form 10-K. However, under market-based rates, our actual cost of gas is compared to a market index (a measure of the market price of gas in a given period). The difference between our actual cost and the market index is shared equally between shareholders and customers.

        Delivery service only customers 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 distributed and are included in gas distribution sales volumes.

        During the quarter ended June 30, 2004, gas cost adjustment revenues decreased compared to the same period of 2003 mostly because we sold less gas.

        During the six months ended June 30, 2004, gas cost adjustment revenues increased compared to the same period of 2003 because we sold gas at a higher price partially offset by less gas sold.

49

Off-System Gas 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, 2004, revenues from off-system gas sales decreased compared to the same periods of 2003 mostly because we sold less gas.

Gas Purchased For Resale Expenses

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

        During the quarter and six months ended June 30, 2004, gas costs decreased compared to the same periods of 2003 mostly because we purchased less gas, primarily due to milder weather, partially offset by higher gas prices.

Gas Operations and Maintenance Expenses

Regulated gas operations and maintenance expenses increased $5.5 million for the quarter and $9.7 million for the six months ended June 30, 2004 compared to the same periods of 2003 mostly due to higher benefit and other inflationary costs and higher uncollectible expenses.

Other Nonregulated Businesses

Results

		Quarter Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In millions)
Revenues		$	98.9		$	143.1		$	202.6		$	298.7
Operating expenses			(81.9	)		(130.5	)		(168.7	)		(273.7	)
Impairment losses and other costs			(2.6	)		—			(2.6	)		—
Workforce reduction costs			—			(0.1	)		—			(0.1	)
Depreciation and amortization			(8.1	)		(4.3	)		(15.5	)		(8.5	)
Taxes other than income taxes			(0.7	)		(0.8	)		(1.2	)		(1.8	)
Net gain on sale of investments and other assets			4.4			0.5			5.9			14.2
Income from Operations		$	10.0		$	7.9		$	20.5		$	28.8
Net (Loss) Income		$	(0.2	)	$	(0.1	)	$	(0.1	)	$	8.6
Special Items Included in Operations (after-tax)
	Net gain on sale of investments and other assets	$	2.7		$	0.3		$	3.7		$	8.6
	Impairment losses and other costs		(1.6	)		—			(1.6	)		—
Total Special Items		$	1.1		$	0.3		$	2.1		$	8.6

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by Operating Segment section within the Notes to Consolidated Financial Statements on page 14 provides a reconciliation of operating results by segment to our Consolidated Financial Statements.

During the six months ended June 30, 2004, net income from our other nonregulated businesses decreased compared to the same period of 2003 mostly because we recognized $14.2 million pre-tax, or $8.6 million after-tax, gains on the sale of non-core assets in 2003 that had a positive impact in that period as follows:

•

a $7.2 million pre-tax gain on the sale of an oil tanker to the U.S. Navy,

•

a $5.3 million pre-tax gain on the favorable settlement of a contingent obligation we had previously reserved relating to the sale of our Guatemalan power plant operation in the fourth quarter of 2001,

•

a $1.2 million pre-tax gain in the first quarter on an installment sale of a parcel of real estate, and

•

a $0.5 million pre-tax gain in the second quarter on the sale of financial investments.

50

        As previously discussed in our 2003 Annual Report on Form 10-K, we decided to sell certain non-core assets and accelerate the exit strategies on other assets that we will continue to hold and own over the next several years. While our intent is to dispose of these assets, market conditions and other events beyond our control may affect the actual sale of these assets. In addition, a future decline in the fair value of these assets could result in additional losses.

Consolidated Nonoperating Income and Expenses

Fixed Charges

During the quarter and six months ended June 30, 2004, total fixed charges at BGE decreased compared to the same period of 2003 mostly because of a lower level of debt outstanding.

Income Taxes

		Quarter Ended June 30,						Six Months Ended June 30,
		2004			2003			2004			2003
		(In millions)
Income before income taxes (excluding BGE preference stock dividends)		$	121.1		$	154.4		$	279.3		$	261.0
Statutory federal income tax rate			35	%		35	%		35	%		35	%
Income taxes computed at statutory federal rate			42.4			54.0			97.8			91.4
(Decreases) increases in income taxes due to:
	Synthetic fuel tax credits (2004)		(22.7	)		(9.5	)		(44.8	)		(17.9	)
	Synthetic fuel tax credits (2003)*		(35.9	)		—			(35.9	)		—
	State income taxes, net of federal tax benefit		2.2			9.3			9.5			15.7
	Other		0.9			0.5			2.7			1.4
Total income taxes		$	(13.1	)	$	54.3		$	29.3		$	90.6
Effective tax rate			(10.8	)%		35.2	%		10.5	%		34.7	%

*  Credits associated with 2003 production at our South Carolina facility.

During the quarter ended June 30, 2004, our income taxes decreased $67.4 million compared to the same period of 2003 mostly because of the recognition of synthetic fuel tax credits claimed in 2003 related to our investment in a South Carolina synthetic fuel facility, which reduced our effective tax rate and because of lower taxable income.

        During the six months ended June 30, 2004, our income taxes decreased $61.3 million compared to the same period of 2003 mostly because of the recognition of synthetic fuel tax credits claimed in 2003 and 2004 related to our investment in a South Carolina synthetic fuel facility, which reduced our effective tax rate. We discuss our synthetic fuel tax credits in more detail in the Events of 2004 section on page 36.

        During the six months ended June 30, 2004, income taxes at BGE decreased compared to the same period of 2003 mostly because of lower taxable income.

51

Financial Condition

Cash Flows

The following table summarizes our 2004 cash flows by business segment, as well as our consolidated cash flows for 2004 and 2003. This table excludes the impact of the refinancing of the High Desert Power Project in 2003 and the impact of changes in intercompany balances. We exclude the impact of the High Desert refinancing in 2003 due to the fact that there was no net impact on cash. The financing source of cash we received from the issuance of debt was offset by the investing use of cash we incurred from terminating the lease. We discuss the refinancing of High Desert in more detail in Note 15 of our 2003 Annual Report on Form 10-K.

		2004 Segment Cash Flows									Consolidated Cash Flows
		Six Months Ended June 30, 2004									Six Months Ended June 30,
		Merchant			Regulated			Other			2004			2003
		(In millions)
Operating Activities
	Net income (loss)	$	99.7		$	94.8		$	(0.1	)	$	194.4		$	(34.6	)
	Non-cash adjustments to net income		314.0			142.3			13.9			470.2			546.3
	Changes in working capital		43.6			(27.1	)		23.3			39.8			7.4
	Pension and postemployment benefits*		—			—			—			(22.4	)		(86.7	)
	Other		(31.2	)		(3.6	)		14.1			(20.7	)		(48.1	)
Net cash provided by operating activities			426.1			206.4			51.2			661.3			384.3
Investing Activities (excluding $514.1 million related to the refinancing of the High Desert lease in 2003)
	Acquisitions, net of cash acquired (excluding High Desert)		(430.0	)		—			—			(430.0	)		(3.2	)
	Investments in property, plant and equipment		(182.8	)		(120.4	)		(18.8	)		(322.0	)		(321.1	)
	Contributions to nuclear decommissioning trust funds		(13.2	)		—			—			(13.2	)		(8.8	)
	Proceeds from sale of discontinued operations		72.7			—			—			72.7			—
	Sale of investments and other assets		—			4.9			9.2			14.1			102.8
	Other investments		(6.9	)		—			(3.2	)		(10.1	)		(60.2	)
Net cash used in investing activities (excluding High Desert)			(560.2	)		(115.5	)		(12.8	)		(688.5	)		(290.5	)
Cash flows from operating activities less cash flows from investing activities (excluding High Desert)		$	(134.1	)	$	90.9		$	38.4			(27.2	)		93.8
Financing Activities (excluding $514.1 million related to the refinancing of the High Desert lease in 2003)
	Net (repayment) issuance of debt (excluding High Desert) *											(177.5	)		76.9
	Proceeds from issuance of common stock*											30.5			49.6
	Common stock dividends paid*											(91.4	)		(82.4	)
	Other*											1.3			(1.9	)
Net cash (used in) provided by financing activities (excluding High Desert) *												(237.1	)		42.2
Net (Decrease) Increase in Cash and Cash Equivalents*											$	(264.3	)	$	136.0

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

52

Overview—2004 Compared to 2003

Cash flows from operating activities less cash flows from investing activities were a use of cash of $27.2 million in 2004 compared to cash provided of $93.8 million in 2003. The $121.0 million decrease in cash flows in 2004 compared to 2003 is primarily due to an increase in cash paid for acquisitions due to the acquisition of Ginna for $430.0 million in 2004, lower non-cash adjustments to net income of $76.1, and a $16.0 million decrease in cash provided from the sale of discontinued operations, investments, and other assets. These decreases were partially offset by higher net income of $229.0 million, a source of cash from working capital and other of $59.8 million, a decrease in the pension contribution of approximately $60 million, and a $50.1 million decrease in other investing activities.

Cash Flows from Operating Activities

Cash provided by operating activities was $661.3 million in 2004 compared to $384.3 million in 2003. Net income was $229.0 million higher in 2004 compared to 2003. This was partially offset by a decrease in non-cash adjustments to net income of $76.1 million in 2004 compared to 2003. The net decrease in non-cash adjustments to net income was primarily due to cumulative effects of changes in accounting principles of $198.4 million as a result of the adoption of SFAS No. 143 and EITF 02-3 in 2003, which had the effect of reducing net income but were non-cash transactions. This decrease in non-cash adjustments to net income was partially offset by the following increases:

•

a loss from discontinued operations of $49.0 million in 2004;

•

an increase in depreciation and amortization of $26.1 million in 2004 compared to 2003;

•

an increase in deferred income taxes of $22.4 million in 2004 compared to 2003; and

•

an increase in deferred fuel costs of $14.9 million in 2004 compared to 2003.

        Changes in working capital had a positive impact of $39.8 million on cash flow from operations in 2004 compared to $7.4 million in 2003, a net increase of $32.4 million. Pension and postemployment benefits were a use of cash of $22.4 million in 2004 compared to a use of $86.7 million in 2003. This primarily reflects a $60 million lower contribution to the pension plan in 2004 compared to 2003.

Cash Flows from Investing Activities

Cash used in investing activities was $688.5 million in 2004 compared to $290.5 million in 2003 excluding High Desert. The increase in cash used was primarily due to a $426.8 million increase in cash paid for acquisitions in 2004 compared to 2003 primarily due to the acquisition of Ginna in 2004 for $430.0 million.

Cash Flows from Financing Activities

Cash used in financing activities was $237.1 million in 2004 compared to cash provided by financing activities of $42.2 million in 2003 excluding High Desert. The $279.3 million decrease in cash was primarily due to net debt issuances of $76.9 million in 2003 as compared to a $177.5 million net repayment of debt in 2004.

Security Ratings

Independent credit-rating agencies rate Constellation Energy's 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.

        The factors that credit rating agencies consider in establishing Constellation Energy's and BGE's credit ratings include, but are not limited to, cash flows, liquidity, and the amount of debt as a component of total capitalization. In March 2004, Standard & Poors rating group reduced Constellation Energy's and BGE's corporate credit rating from A- to BBB+ and reduced certain other ratings as noted in the table below. All Constellation Energy and BGE credit ratings have stable outlooks. At the date of this report, our credit ratings were as follows:

		Standard & Poors Rating Group	Moody's Investors Service	Fitch- Ratings
Constellation Energy
	Commercial Paper	A-2	P-2	F-2
	Senior Unsecured Debt*	BBB	Baa1	A-
BGE
	Commercial Paper	A-2	P-1	F-1
	Mortgage Bonds	A	A1	A+
	Senior Unsecured Debt	BBB+	A2	A
	Trust Preferred Securities*	BBB-	A3	A-
	Preference Stock*	BBB-	Baa1	A-

* In March 2004, Standard & Poors rating group reduced the rating one level to this current rating.

53

Available Sources of Funding

We continuously monitor our liquidity requirements and believe that our facilities and access to the capital markets provide sufficient liquidity to meet our business requirements. We discuss our available sources of funding in more detail below.

Constellation Energy

In addition to our cash balance, we have a commercial paper program under which we can issue short-term notes to fund our subsidiaries. At June 30, 2004, we had approximately $2.2 billion of credit under several facilities.

        In June 2004, Constellation Energy arranged an $800.0 million three-year revolving credit facility and a $300.0 million five-year revolving credit facility replacing a $447.5 million 364-day revolving credit facility. The facility that was replaced expired in the second quarter of 2004. Constellation Energy also has an existing $640.0 million revolving credit facility expiring in June 2005 and a $447.5 million facility expiring in June 2006.

        We use these facilities to ensure adequate liquidity to support our operations. We can borrow directly from the banks or use the facilities to allow the issuance of commercial paper. Additionally, we use the multi-year facilities to support letters of credit primarily for our merchant energy business.

        These revolving credit facilities allow the issuance of letters of credit up to approximately $2.2 billion. In addition, BGE maintains $200.0 million in credit facilities as discussed below. At June 30, 2004, letters of credit that totaled $860.8 million were issued under our facilities.

BGE

During the second quarter of 2004, certain credit facilities expired and BGE renewed these facilities. BGE continues to maintain $200.0 million in annual committed credit facilities, expiring August 2004 through June 2005, to ensure adequate liquidity to support its operations. We can borrow directly from the banks or use the facilities to allow commercial paper to be issued. As of June 30, 2004, BGE had no outstanding commercial paper, which results in $200.0 million in unused credit facilities.

Other Nonregulated Businesses

BGE Home Products & Services' program to sell up to $50 million of receivables was not extended beyond its March 2004 expiration date. We expect to fully liquidate this receivables program by the end of 2004.

        If we can get a reasonable value for our remaining real estate projects 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.

Capital Resources

Our estimated annual amounts of capital requirements for the years 2004 and 2005 are shown in the table below.

        We will continue to have cash requirements for:

•

working capital needs,

•

payments of interest, distributions, and dividends,

•

capital expenditures, and

•

the retirement of debt and redemption of preference stock.

        Capital requirements for 2004 and 2005 include estimates of spending for existing and anticipated projects. We continuously review and modify those estimates. Actual requirements may vary from the estimates included in the table below because of a number of factors including:

•

regulation, legislation, and competition,

•

BGE load requirements,

•

environmental protection standards,

•

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

•

the effect of market conditions on those projects,

•

the cost and availability of capital,

•

the availability of cash from operations and

•

business decisions to invest in capital projects.

        Our estimates are also subject to additional factors. Please see the Forward Looking Statements section on page 63.

Calendar Year Estimates			2004		2005
			(In millions)
Nonregulated Capital Requirements:
	Merchant energy
		Generation plants	$	180	$	170
		Nuclear fuel		125		85
		Portfolio acquisitions		55		60
		Technology/other		115		85
	Total merchant energy capital requirements			475		400
	Other nonregulated capital requirements			45		50
	Total nonregulated capital requirements			520		450
Regulated Capital Requirements:
	Regulated electric			215		250
	Regulated gas			60		55
	Total regulated capital requirements			275		305
Total capital requirements			$	795	$	755

Above amounts include capital requirements for Ginna. We discuss the acquisition of Ginna in more detail in the Events of 2004 section on page 35.

54

Capital Requirements

Merchant Energy Business

Our merchant energy business' capital requirements consist of its continuing requirements, including construction expenditures for improvements to generating plants, nuclear fuel costs, costs of complying with the Environmental Protection Agency (EPA), Maryland, and Pennsylvania nitrogen oxides (NOx) emissions regulations, and enhancements to our information technology infrastructure. We discuss the NOx regulations and timing of expenditures in Note 12 of our 2003 Annual Report on Form 10-K.

Regulated Electric and Gas

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

Funding for Capital Requirements

Merchant Energy Business

Funding for the expansion of our merchant energy business is expected from internally generated funds. We also have available sources from commercial paper issuances, issuances of long-term debt and equity, leases, and other financing activities.

        The projects that our merchant energy business develops typically require substantial capital investment. Most of the projects recently constructed were funded through corporate borrowings by Constellation Energy. Many of the qualifying facilities and independent power projects that we have an interest in are financed primarily with non-recourse debt that is repaid from the project's cash flows. This debt is collateralized by interests in the physical assets, major project contracts and agreements, cash accounts and, in some cases, the ownership interest in that project.

        We expect to fund acquisitions with an overall goal of maintaining a strong investment grade credit profile. We funded our June 2004 acquisition of Ginna with a mix of cash and equity. On July 1, 2004, we issued 6.0 million shares of common stock for net proceeds of $226.9 million to fund a portion of the acquisition of Ginna. We discuss our acquisition of Ginna in more detail in the Events of 2004 section on page 35.

Regulated Electric and Gas

Funding for our regulated electric and gas capital expenditures is expected from internally generated funds. During 2004, we expect our regulated businesses to generate sufficient cash flows from operations to meet BGE's operating requirements. If necessary, additional funding may be obtained from 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. BGE also participates in a cash pool administered by Constellation Energy as discussed in the Notes to Consolidated Financial Statements section on page 24.

Other Nonregulated Businesses

Funding for our other nonregulated businesses is expected from internally generated funds, commercial paper issuances, issuances of long-term debt of Constellation Energy, sales of securities and assets, and/or from time to time, equity contributions from Constellation Energy.

        Our ability to sell or liquidate securities and non-core assets will depend on market conditions, and we cannot give assurances that these sales or liquidations could be made.

55

Contractual Payment Obligations and
Committed Amounts

Our total contractual payment obligations as of June 30, 2004 are shown in the following table:

			Payments
			2004		2005- 2006		2007- 2008		Thereafter		Total
			(In millions)
Contractual Payment Obligations
Long-term debt:1
	Nonregulated
		Principal	$	8.0	$	343.8	$	636.4	$	2,745.0	$	3,733.2
		Interest		117.4		430.9		363.8		1,741.7		2,653.8
	Total			125.4		774.7		1,000.2		4,486.7		6,387.0
	BGE
		Principal		26.6		482.7		418.4		600.7		1,528.4
		Interest		44.2		169.8		96.7		824.0		1,134.7
	Total			70.8		652.5		515.1		1,424.7		2,663.1
BGE preference stock				—		—		—		190.0		190.0
Operating leases				14.9		47.4		30.1		124.5		216.9
Purchase obligations:2
	Purchased capacity and energy3			702.1		1,231.1		420.8		219.0		2,573.0
	Fuel and transportation4			426.5		680.5		152.6		67.3		1,326.9
	Other			36.8		78.9		33.7		289.4		438.8
Other noncurrent liabilities:
	Postretirement and postemployment benefits5			17.5		74.6		77.3		203.2		372.6
	Other			1.9		4.2		1.2		—		7.3
Total contractual payment obligations			$	1,395.9	$	3,543.9	$	2,231.0	$	7,004.8	$	14,175.6

1 Amounts in long-term debt reflect the original maturity date. Investors may require us to repay $327.0 million early through put options and remarketing features.

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

3 Our contractual obligations for purchased capacity and energy are shown on a gross basis for certain transactions, including both the fixed payment portions of tolling contracts and estimated variable payments under unit-contingent power purchase agreements. We have recorded $24.7 million of liabilities related to purchased capacity and energy obligations at June 30, 2004 in our Consolidated Balance Sheets.

4 We have recorded liabilities of $47.4 million related to fuel and transportation obligations at June 30, 2004 in our Consolidated Balance Sheets.

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

        The table below presents our contingent obligations. Our contingent obligations increased $1.9 billion during the first six months of 2004, primarily due to the issuance of additional guarantees and letters of credit by the parent company for subsidiary obligations to third parties in support of the growth of our merchant energy business. These amounts do not represent incremental consolidated Constellation Energy obligations; rather they primarily represent parent company guarantees of certain subsidiary obligations to third parties. Our calculation of the fair value of subsidiary obligations covered by the $5,018.9 million of parent company guarantees was $1,180.7 million at June 30, 2004. Accordingly, if the parent company was required to fund defaulted subsidiary obligations, the total amount at current market prices is $1,180.7 million.

	Expiration
	2004		2005- 2006		2007- 2008		Thereafter		Total
	(In millions)
Contingent Obligations
Letters of credit	$	749.9	$	110.9	$	—	$	—	$	860.8
Guarantees—competitive supply1		3,121.1		1,090.5		307.0		500.3		5,018.9
Other guarantees, net2		10.4		4.6		—		1,019.6		1,034.6
Total contingent obligations	$	3,881.4	$	1,206.0	$	307.0	$	1,519.9	$	6,914.3

1 While the face amount of these guarantees is $5,018.9 million, the parent company would only fund the fair value of any defaulted subsidiary obligations. Our calculation of the fair value of obligations covered by these guarantees was $1,180.7 million at June 30, 2004.

2 Other guarantees in the above table are shown net of liabilities of $25.0 million recorded at June 30, 2004 in our Consolidated Balance Sheets.

Liquidity Provisions

We have certain agreements that contain provisions that require additional collateral upon significant credit rating decreases in the senior unsecured debt of Constellation Energy. Decreases in Constellation Energy's credit ratings would not trigger an early payment on any of our credit facilities.

        Under certain counterparty contracts related to our wholesale marketing and risk management operation, we are obligated to post collateral if Constellation Energy's senior, unsecured credit ratings decline below established contractual levels. As a result of the ratings action taken by Standard & Poors rating agency in March 2004, we posted approximately $40 million in additional collateral during the first quarter of 2004 to support our wholesale marketing and risk management operational requirements. We discuss the Standard & Poors ratings action in more detail in the Financial Condition section on page 53.

56

        Based on contractual provisions, we estimate that we would have additional collateral obligations based on downgrades to the following credit ratings for our senior unsecured debt:

Credit Ratings Downgraded	Level Below Current Rating	Incremental Obligations		Cumulative Obligations
		(In millions)
BBB-/Baa3	1	$	134	$	134
Below investment grade	2		652		786

        At June 30, 2004 we had approximately $1.5 billion of unused credit facilities and $457.0 million of cash available to meet these potential requirements. However, based on market conditions and contractual obligations at the time of such a downgrade, we could be required to post collateral in an amount that could exceed the amounts specified above, and which could be material.

        We consistently review our liquidity needs to ensure that we have adequate facilities available to meet these requirements. This includes having liquidity available to meet margin requirements for our wholesale marketing and risk management operation and our retail competitive supply activities.

        In many cases, customers of our wholesale marketing and risk management operation rely on the creditworthiness of Constellation Energy. A decline below investment grade of Constellation Energy would negatively impact the business prospects of that operation. The credit facilities of Constellation Energy and BGE have limited material adverse change clauses that only consider a material change in financial condition and are not directly affected by decreases in credit ratings. If these clauses are violated, the lending institutions can decline making new advances or issuing new letters of credit, but cannot accelerate existing amounts outstanding. The long-term debt indentures of Constellation Energy and BGE do not contain material adverse change clauses or financial covenants.

        Certain credit facilities of Constellation Energy contain a provision requiring Constellation Energy to maintain a ratio of debt to capitalization equal to or less than 65%. At June 30, 2004, the debt to capitalization ratios as defined in the credit agreements were no greater than 53%. Certain credit facilities of BGE contain provisions requiring BGE to maintain a ratio of debt to capitalization equal to or less than 65%. At June 30, 2004, the debt to capitalization ratio for BGE as defined in these credit agreements was 48%. At June 30, 2004, no amount is outstanding under these facilities.

        Failure by Constellation Energy, or BGE, to comply with these covenants could result in the maturity of the debt outstanding under these facilities being accelerated. The credit facilities of Constellation Energy contain usual and customary cross-default provisions that apply to defaults on debt by Constellation Energy and certain subsidiaries over a specified threshold. Certain BGE credit facilities also contain usual and customary cross-default provisions that apply to defaults on debt by BGE over a specified threshold. The indentures pursuant to which BGE has issued and outstanding mortgage bonds and subordinated debentures provide that a default under any debt instrument issued under the relevant indenture may cause a default of all debt outstanding under such indenture.

        Constellation Energy also provides credit support to Calvert Cliffs, Nine Mile Point, and Ginna to ensure these plants have funds to meet expenses and obligations to safely operate and maintain the plants.

Market Risk

Commodity Risk

During the first six months of 2004, the energy markets continued to be highly volatile with significant changes in fuel prices, primarily natural gas and coal, and power prices, as well as periods of reduced liquidity in the marketplace.

        We measure the sensitivity of our wholesale marketing and risk management mark-to-market energy contracts to potential changes in market prices using value at risk. Value at risk represents the potential pre-tax loss in the fair value of our wholesale marketing and risk management mark-to-market energy assets and liabilities over one and ten-day holding periods. We discuss value at risk in more detail in the Market Risk section of our 2003 Annual Report on Form 10-K. The table below is the value at risk associated with our wholesale marketing and risk management operation's mark-to-market energy assets and liabilities, including both trading and non-trading activities.

57

		Six Months Ended June 30, 2004
		(In millions)
99% Confidence Level, One-Day Holding Period
	Average	$	4.4
	High		7.8
95% Confidence Level, One-Day Holding Period
	Average		3.4
	High		5.9
95% Confidence Level, Ten-Day Holding Period
	Average		10.6
	High		18.7

        The following table details our value at risk for the trading portion of our wholesale marketing and risk management mark-to-market energy assets and liabilities over a one-day holding period at a 99% confidence level for the first six months of 2004:

	Six Months Ended June 30, 2004
	(In millions)
Average	$	3.2
High		14.8

        Due to the inherent limitations of statistical measures such as value at risk and the seasonality of changes in market prices, the value at risk calculation may not reflect the full extent of our commodity price risk exposure. Additionally, actual changes in the value of options may differ from the value at risk calculated using a linear approximation inherent in our calculation method.

        As a result, actual changes in the fair value of mark-to-market energy assets and liabilities could differ from the calculated value at risk, and such changes could have a material impact on our financial results.

Wholesale Credit Risk

We continue to actively manage the credit portfolio of our wholesale marketing and risk management operation to attempt to reduce the impact of the general decline in the overall credit quality of the energy industry and the impact of a potential counterparty default. As of June 30, 2004 and December 31, 2003, the credit portfolio of our wholesale marketing and risk management operation had the following public credit ratings:

		June 30, 2004		December 31, 2003
Rating
	Investment Grade1	67	%	75	%
	Non-Investment Grade	8		4
	Not Rated	25		21

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

        In addition to the credit ratings provided by the major credit rating agencies, we utilize internal credit ratings to evaluate the creditworthiness of our wholesale customers, including those companies that do not have public credit ratings. The "Not Rated" category in the table above includes counterparties that do not have public credit ratings and includes governmental entities, municipalities, cooperatives, power pools, and other load-serving entities, and marketers for which we determine creditworthiness based on internal credit ratings.

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

	June 30, 2004		December 31, 2003
Investment Grade Equivalent	79	%	91	%
Non-Investment Grade	21		9

        Compared to December 31, 2003, we have experienced deterioration in the credit quality of our wholesale marketing and risk management portfolio measured using both public credit ratings and our internal credit ratings. The decline in investment grade equivalent counterparties is primarily due to increased exposure to lower credit quality fuel and power supply counterparties, most notably coal suppliers who tend to be smaller and of lower credit quality. A portion of our wholesale credit risk is related to transactions that are recorded in our Consolidated Balance Sheets. These transactions primarily consist of open positions from our wholesale marketing and risk management operation that are accounted for using mark-to-market accounting, as well as amounts owed by wholesale counterparties for transactions that settled but have not yet been paid. The following table highlights the credit quality and exposures related to these activities at June 30, 2004:

58

Rating	Total Exposure Before Credit Collateral		Credit Collateral		Net Exposure		Number of Counterparties Greater than 10% of Net Exposure	Net Exposure of Counterparties Greater than 10% of Net Exposure
	(Dollars in millions)
Investment grade	$	761	$	69	$	692	1	$	153
Split rating		4		—		4	—		—
Non-investment grade		228		171		57	—		—
Internally rated—investment grade		165		9		156	—		—
Internally rated—non- investment grade		36		11		25	—		—
Total	$	1,194	$	260	$	934	1	$	153

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

        Additionally, if a counterparty were to default and we were to liquidate all contracts with that entity, our credit loss would include the loss in value of mark-to-market contracts, the amount owed for settled transactions, and additional payments, if any, we would have to make to settle unrealized losses on accrual contracts.

        We continue to examine plans to achieve our strategies and to further strengthen our balance sheet and enhance our liquidity. We discuss our liquidity in the Financial Condition section on page 56.

Interest Rate Risk

In July 2004, to optimize the mix of fixed and floating rate debt, we entered into interest rate swaps relating to $450 million of our long-term debt. These fair value hedges will convert our current fixed rate debt to a floating rate instrument tied to the three month London Inter-Bank Offered Rate. Including the $450 million in interest rate swaps, approximately 15% of our long-term debt is floating rate.

Retail Credit Risk and Equity Price Risk

We discuss our exposure to retail credit risk and equity price risk in the Market Risk section of our 2003 Annual Report on Form 10-K.

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 18 and in our 2003 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 Adopted and Issued

We discuss recently adopted and issued accounting standards in the Accounting Standards Issued and Accounting Standards Adopted sections of the Notes to Consolidated Financial Statements beginning on page 23.

59

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We discuss the following information related to our market risk:

•

financing activities and SFAS No. 133 hedging activities section in the Notes to Consolidated Financial Statements beginning on page 15,

•

activities of our wholesale marketing and risk management operation in the Merchant Energy Business section of Management's Discussion and Analysis beginning on page 38,

•

evaluation of commodity and wholesale credit risk in the Market Risk section of Management's Discussion and Analysis beginning on page 57, and

•

changes to our business environment in the Business Environment section of Management's Discussion and Analysis beginning on page 27.

Item 4. Controls and Procedures

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Constellation Energy or BGE have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people.

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

        The principal executive officers and principal financial officer of both Constellation Energy and BGE have evaluated the effectiveness of the disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the fiscal quarter covered by this quarterly report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, Constellation Energy's and BGE's disclosure controls and procedures are effective, in that they provide reasonable assurance that such officers are alerted on a timely basis to material information relating to Constellation Energy and BGE that is required to be included in Constellation Energy's and BGE's periodic filings under the Exchange Act. During the fiscal quarter covered by this quarterly report, there has been no change in either Constellation Energy's or BGE's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, either Constellation Energy's or BGE's internal control over financial reporting.

60

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Western Power Markets

Baldwin Associates, Inc. v. Gray Davis, Governor of California and 22 other defendants (including Constellation Power Development, Inc., a subsidiary of Constellation Power, Inc.)—This class action lawsuit was filed on October 5, 2001 in the Superior Court, County of San Francisco. The action seeks damages of $43 billion, recession and reformation of approximately 38 long-term power purchase contracts, and an injunction against improper spending by the state of California.

        Constellation Power Development, Inc. is named as a defendant but has never been served with process in this case and does not have a power purchase agreement with the State of California. However, our High Desert Power Project does have a power purchase agreement with the California Department of Water Resources. The court issued an order to the plaintiff asking that he show cause why he had not yet served any of the defendants with process. A hearing is scheduled on August 23, 2004 on the court's show cause order.

James M. Millar v. Allegheny Energy Supply, Constellation Power Source, Inc., High Desert Power Project, LLC, et al.,—On December 19, 2003, plaintiffs filed an amended complaint in Superior Court of California, County of San Francisco, naming for the first time, Constellation Power Source, Inc. (CPS) and High Desert Power Project, LLC (High Desert), two of our subsidiaries, as additional defendants. The complaint is a putative class action on behalf of California electricity consumers and alleges that the defendant power suppliers, including CPS and High Desert, violated California's Unfair Competition Law in connection with certain long-term power contracts that the defendants negotiated with the California Department of Water Resources in 2001 and 2002. Notwithstanding the amended long-term power contracts and the releases and settlement agreements negotiated at the time of such amendments, the plaintiff seeks to have the Court certify the case as a class action and to order the repayment of any monies that were acquired by the defendants under the long-term contracts or the amended long-term contracts by means of unfair competition in violation of California law. The amended complaint was removed to federal court by one of the defendants and a motion to remand the case back to the state court is pending before the federal court. We believe that we have meritorious defenses to this action and intend to defend against it vigorously. However, we cannot predict the timing, or outcome, of this case, or its possible effect on our results.

City of Tacoma v. AEP, et al.,—The City of Tacoma, on June 7, 2004, in the U.S. District Court, Western District of Washington, filed a complaint against over 60 companies, including CPS. The complaint alleges that the defendants engaged in manipulation of electricity markets resulting in prices for power in the western power markets that were substantially above what market prices would have been in the absence of the alleged unlawful contracts, combinations and conspiracy in violation of Section 1 of the Sherman Act. The complaint further alleges that the total amount of damages is unknown, but is estimated to exceed $175 million. We believe that we have meritorious defenses to this action and intend to defend against it vigorously. However, we cannot predict the timing, or outcome, of this case, or its possible effect on our results.

NewEnergy

Constellation NewEnergy, Inc. v. PowerWeb Technology, Inc. —Prior to our acquisition, NewEnergy filed a complaint on May 9, 2002 in the U.S. District Court of Eastern Pennsylvania seeking approximately $100,000 in direct damages relating to a contract previously entered into with PowerWeb. PowerWeb Technology has counter-claimed seeking $100 million in damages against NewEnergy alleging a breach of a non-disclosure agreement by misappropriation of trade secrets and tortious interference claims. Discovery is ongoing in the matter. We cannot predict the timing, or outcome, of the action or its possible effect on our financial results. However, based on the information available to Constellation Energy at this time, we believe NewEnergy has meritorious defenses to the PowerWeb Technology counterclaim.

Mercury Poisoning

Beginning in September 2002, BGE, Constellation Energy, and several other defendants have been involved in numerous actions filed in the Circuit Court for Baltimore City, Maryland alleging mercury poisoning from several sources, including coal plants formerly owned by BGE. The plants are now owned by a subsidiary of Constellation Energy. In addition to BGE and Constellation Energy, approximately 11 other defendants, consisting of pharmaceutical companies, manufacturers of vaccines and manufacturers of Thimerosal have been sued. Approximately 50 cases have been filed to date, with each case seeking $90 million in damages from the group of defendants.

        In a ruling applicable to all but several of the cases, the Circuit Court for Baltimore City dismissed with prejudice all claims against BGE and Constellation Energy and entered into a stay of the proceedings as they relate to other defendants. The several cases that were not dismissed were filed subsequent to the ruling by the Circuit Court. Plaintiffs may attempt to pursue appeals of the rulings in favor of BGE and Constellation Energy

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once the cases are finally concluded as to all defendants. We believe that we have meritorious defenses and intend to defend the actions vigorously. However, we cannot predict the timing, or outcome, of these cases, or their possible effect on our, or BGE's, financial results.

Employment Discrimination

Miller, et. al., v. Baltimore Gas and Electric Company, et al.,—This action was filed on September 20, 2000 in the U.S. District Court for the District of Maryland. Besides BGE, Constellation Energy Group, Constellation Nuclear, and Calvert Cliffs Nuclear Power Plant are also named defendants. The action seeks class certification for approximately 150 past and present employees and alleges racial discrimination at Calvert Cliffs Nuclear Power Plant. The amount of damages is unspecified, however the plaintiffs seek back and front pay, along with compensatory and punitive damages. The Court scheduled a briefing process for the motion to certify the case as a class action suit. The briefing process concluded and oral argument on the class certification motion was held on April 16, 2004, and the parties are awaiting the court's decision. We do not believe class certification is appropriate and we further believe that we have meritorious defenses to the underlying claims and intend to defend the action vigorously. However, we cannot predict the timing, or outcome, of the action or its possible effect on our, or BGE's, financial results.

Asbestos

Since 1993, BGE has been involved in several actions concerning asbestos. The actions are based upon the theory of "premises liability," alleging that BGE 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. BGE is involved in these claims with approximately 70 other defendants. Approximately 545 individuals that were never employees of BGE each claim $6 million in damages ($2 million compensatory and $4 million punitive). These claims are currently pending in state courts in Maryland and Pennsylvania. BGE does not know the specific facts necessary to estimate its potential liability for these claims. The specific facts BGE does not know include:

•

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

•

the names of the plaintiff's employers,

•

the date on which the exposure allegedly occurred, and

•

the facts and circumstances relating to the alleged exposure.

        To date, 299 asbestos cases were dismissed or resolved for amounts that were not significant. Approximately 30 cases are currently scheduled for trial through the end of 2006.

        The second type is claims by one manufacturer—Pittsburgh Corning Corp. (PCC)—against BGE and approximately eight others, as third-party defendants. On April 17, 2000, PCC declared bankruptcy.

        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 375 cases have been resolved, all without any payment by BGE. BGE does not know the specific facts necessary to estimate its potential liability for these claims. The specific facts we do not know include:

•

the identity of BGE facilities containing asbestos manufactured by the manufacturer,

•

the relationship (if any) of each of the individual plaintiffs to BGE,

•

the settlement amounts for any individual plaintiffs who are shown to have had a relationship to BGE,

•

the dates on which/places at which the exposure allegedly occurred, and

•

the facts and circumstances relating to the alleged exposure.

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

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Item 4. Submission of Matters to a Vote of Security Holders

On May 21, 2004, we held our annual meeting of shareholders. At that meeting, the following matters were voted upon:

1.

All of the Directors nominated by Constellation Energy Group were elected as follows:

	COMMON SHARES CAST:
	For	Against	Abstain
James T. Brady	139,953,759	2,147,332	13
James R. Curtiss	140,002,065	2,099,028	11
Edward J. Kelly, III	139,959,883	2,141,209	12
Robert J. Lawless	139,993,805	2,107,287	12

All other directors whose term of office continued after the date of this meeting are:

Douglas L. Becker
Frank P. Bramble
Edward C. Crooke
Yves C. de Balmann
Roger W. Gale Freeman A. Hrabowski, III
Nancy Lampton
Lynn M. Martin
Mayo A. Shattuck III
Michael D. Sullivan

2.

The ratification of PricewaterhouseCoopers LLP as independent auditors was approved. With respect to holders of common stock, the number of affirmative votes cast was 136,601,423, the number of votes cast against was 4,270,924, and the number of abstentions was 1,228,740.

Item 5. Other Information

Forward Looking Statements

We make statements in this report that are considered forward looking statements within the meaning of the Securities Exchange Act of 1934. Sometimes these statements will contain words such as "believes," "anticipates," "expects," "intends," "plans," and other similar words. We also disclose non-historical information that represents management's expectations, which are based on numerous assumptions. These statements and projections are not guarantees of our future performance and are subject to risks, uncertainties, and other important factors that could cause our actual performance or achievements to be materially different from those we project. These risks, uncertainties, and factors include, but are not limited to:

•

the timing and extent of changes in commodity prices and volatilities for energy and energy related products including coal, natural gas, oil, electricity, and emission allowances,

•

the timing and extent of deregulation of, and competition in, the energy markets in North America, and the rules and regulations adopted on a transitional basis in those markets,

•

the conditions of the capital markets, interest rates, availability of credit, liquidity, and general economic conditions, as well as Constellation Energy Group's (Constellation Energy) and Baltimore Gas and Electric Company's (BGE) ability to maintain their current credit ratings,

•

the effectiveness of Constellation Energy's and BGE's risk management policies and procedures and the ability and willingness of our counterparties to satisfy their financial and performance commitments,

•

the liquidity and competitiveness of wholesale markets for energy commodities,

•

operational factors affecting commercial operations of our generating facilities (including nuclear facilities) and BGE's transmission and distribution facilities, including catastrophic weather related damages, unscheduled outages or repairs, unanticipated changes in fuel costs or availability, unavailability of gas transportation or electric transmission services, workforce issues, terrorism, liabilities associated with catastrophic events, and other events beyond our control,

•

the inability of BGE to recover all its costs associated with providing electric retail customers service during the electric rate freeze period,

•

the effect of weather and general economic and business conditions on energy supply, demand, and prices,

•

regulatory or legislative developments that affect deregulation, transmission or distribution rates and revenues, demand for energy, or increases in

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costs, including costs related to nuclear power plants, safety, or environmental compliance,

•

the actual outcome of uncertainties associated with assumptions and estimates using judgment when applying critical accounting policies and preparing financial statements, including factors that are estimated in determining the fair value of energy contracts, such as the ability to obtain market prices and in the absence of verifiable market prices the appropriateness of models and model inputs (including, but not limited to, estimated contractual load obligations, unit availability, forward commodity prices, interest rates, correlation and volatility factors),

•

changes in accounting principles or practices,

•

the ability to attract and retain customers in our competitive supply activities and to adequately forecast their energy usage,

•

losses on the sale or write down of assets due to impairment events or changes in management intent with regard to either holding or selling certain assets, and

•

cost and other effects of legal and administrative proceedings that may not be covered by insurance, including environmental liabilities.

        Given these uncertainties, you should not place undue reliance on these forward looking statements. Please see the other sections of this report and our other periodic reports filed with the Securities and Exchange Commission (SEC) for more information on these factors. These forward looking statements represent our estimates and assumptions only as of the date of this report.

        Changes may occur after that date, and neither Constellation Energy nor BGE assume responsibility to update these forward looking statements.

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Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibit No. 10(a)	Grantor Trust Agreement Dated as of February 27, 2004 between Constellation Energy Group, Inc. and Citibank, N.A.
	Exhibit No. 10(b)	Grantor Trust Agreement Dated as of February 27, 2004 between Constellation Energy Group, Inc. and T. Rowe Price Trust Company.
	Exhibit No. 10(c)	Compensation Agreements between Constellation Energy Group, Inc. and E. Follin Smith (Attachment 1—Employment Agreement; Attachment 2—Severance Agreement).
	Exhibit No. 12(a)	Constellation Energy Group, Inc. Computation of Ratio of Earnings to Fixed Charges.
	Exhibit No. 12(b)	Baltimore Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements.
	Exhibit No. 31(a)	Certification of Chairman of the Board, President and Chief Executive Officer of Constellation Energy Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit No. 31(b)	Certification of Executive Vice President and Chief Financial Officer of Constellation Energy Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit No. 31(c)	Certification of President and Chief Executive Officer of Baltimore Gas and Electric Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit No. 31(d)	Certification of Senior Vice President and Chief Financial Officer of Baltimore Gas and Electric Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit No. 32(a)	Certification of Chairman of the Board, President and Chief Executive Officer of Constellation Energy Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	Exhibit No. 32(b)	Certification of Executive Vice President and Chief Financial Officer of Constellation Energy Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	Exhibit No. 32(c)	Certification of President and Chief Executive Officer of Baltimore Gas and Electric Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	Exhibit No. 32(d)	Certification of Senior Vice President and Chief Financial Officer of Baltimore Gas and Electric Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

         (b) Reports on Form 8-K for the quarter ended June 30, 2004:

Date	Item Reported
April 28, 2004	Item 7. Financial Statements and Exhibits
	Item 12. Results of Operations and Financial Condition

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CONSTELLATION ENERGY GROUP, INC.(Registrant)
	BALTIMORE GAS AND ELECTRIC COMPANY(Registrant)
Date: August 6, 2004	/s/  E. FOLLIN SMITHE. Follin Smith, Executive Vice President of Constellation Energy Group,  Inc. and Senior Vice President of Baltimore Gas and Electric Company, and as Principal Financial Officer of each Registrant

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EX-10.(A)

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Exhibit 10(a)

GRANTOR TRUST AGREEMENT

Dated as of February 27, 2004

between

CONSTELLATION ENERGY GROUP, INC.

and

CITIBANK, N.A.

GRANTOR TRUST AGREEMENT

CONTENTS

Section 1.		Establishment of Trust.	1
	1.1	Trust is established with Trustee.
	1.2	Trust is irrevocable.
	1.3	Trust is a grantor trust.
	1.4	Assets subject to claims of creditors.
	1.5	Due date of Trust contributions.
	1.6	Discretionary contributions.
	1.7	Eligibility for Trust benefits.
	1.8	Definition of "Required Contribution."
	1.9	Responsibility for Required Contribution calculation.
	1.10	Notification upon failure to made Required Contribution.
Section 2.		Payments to Plan Participants and Their Surviving Spouses.	3
	2.1	Constellation Energy required to provide Payment Schedule to Trustee.
	2.2	Failure by Constellation Energy to provide Payment Schedule.
	2.3	Tax withholding.
	2.4	Determination entitlement to benefits.
	2.5	Payment of benefits directly by Constellation Energy.
	2.6	Authorization for Trustee to defer payments.
	2.7	Determination of insufficient assets.
	2.8	Notification of insufficiency.
	2.9	Restoration of discontinued or reduced payments.
	2.10	Determination of immediate taxation.
	2.11	Reduction of future benefits following immediate taxation.
Section 3.		Trustee Responsibility Regarding Payments to Trust Beneficiary When Constellation Energy Is Insolvent.	5
	3.1	Payments cease when Constellation Energy is Insolvent.
	3.2	Assets subject to claims of creditors.
	3.2(a)	Duty to inform Trustee of Constellation Energy's Insolvency.
	3.2(b)	Trustee's responsibility to cease payments.
	3.2(c)	Trustee reliance on Insolvency evidence.
	3.2(d)	Trustee holds assets for general creditors.
	3.2(e)	Authority to resume payments.
	3.3	Restoration of discontinued payments.
Section 4.		Payments to Constellation Energy.	6
	4.1	Return or diversion of Trust assets.
	4.2	Distribution of excess Trust assets to Constellation Energy.
	4.3	Distribution of excess Trust assets following a Change of Control.
Section 5.		Investment Authority.	6
	5.1	No investment in Constellation Energy stock.
	5.2	Acknowledgement of investment guidelines.
	5.3	Constellation Energy may appoint investment advisor.
	5.4	Constellation Energy may transfer life insurance to Trust.
Section 6.		Disposition of Income.	7

i

Section 7.		Accounting by Trustee.	7
	7.1	Trustee provides monthly accounting to Constellation Energy.
	7.2	Deemed approval of accounting by Constellation Energy.
	7.3	Tax returns.
	7.4	Right of Trustee to judicial settlement of accounts.
Section 8.		Responsibility of Trustee.	8
	8.1	Prudency standard for Trustee.
	8.2	Indemnification of Trustee.
	8.3	Powers of Trustee.
	8.4	Additional powers of Trustee.
	8.5	Trustee prohibited from carrying on business through Trust.
Section 9.		Compensation and Expenses of Trustee.	9
	9.1	Trustee's fees.
	9.2	Taxes on Trust income.
Section 10.		Resignation and Removal of Trustee.	9
	10.1	Resignation of Trustee.
	10.2	Removal of Trustee.
	10.3	Removal of Trustee after Change of Control.
	10.4	Resignation of Trustee after Change of Control.
	10.5	Transfer of assets after resignation or removal of Trustee.
	10.6	Appointment of successor Trustee.
Section 11.		Appointment of Successor.	10
	11.1	Appointment of successor after removal or resignation of Trustee.
	11.2	Appointment of successor Trustee following Change of Control.
	11.3	Responsibility of successor Trustee.
	11.4	Trustee provides written account after removal or resignation.
Section 12.		Amendment or Termination.	10
	12.1	Amendments to Trust.
	12.2	Termination date of Trust.
	12.3	Trust termination after participant approval.
	12.4	Amendment following Change of Control.
Section 13.		Miscellaneous.	11
	13.1	Provisions prohibited by law.
	13.2	Alienation clause.
	13.3	Trust under New York law.
	13.4	Definitions and plurals.
	13.5	Definition of Change of Control.
	13.6	Certification of authority to act.
	13.7	Indemnification of Trustee.
	13.8	Authority of Trust Agreement.
	13.9	Addresses for Trustee and Constellation Energy.
Section 14.		Effective Date.	13

ii

GRANTOR TRUST AGREEMENT
Dated as of February 27, 2004
between
Constellation Energy Group, Inc.
and
Citibank, N.A.

        THIS AGREEMENT dated as of February 27, 2004, by and between Constellation Energy Group, Inc., a Maryland corporation, or its successor ("Constellation Energy") and Citibank, N. A., a national banking association as trustee for the trust created hereby ("Trustee").

WITNESSETH THAT:

        WHEREAS, Constellation Energy has adopted and amended the Constellation Energy Group, Inc. Senior Executive Supplemental Plan and the Constellation Energy Group, Inc. Supplemental Pension Plan (formerly the Constellation Energy Group, Inc. Executive Benefits Plan) ("Plans"); and

        WHEREAS, Constellation Energy has incurred or expects to incur liability under the terms of such Plans for nonqualified supplemental pension retirement benefits with respect to the individuals participating in such Plans; and

        WHEREAS, Baltimore Gas and Electric Company adopted the trust ("Trust") effective July 31, 1994 for the purpose of contributing to the Trust assets to be held therein, subject to the claims of the company's creditors in the event of the company's Insolvency, as defined in Section 3.1 hereof, until paid to Plan participants and their surviving spouses, as defined in Section 6 of the Plans, in such manner and at such times as specified in the Plans; and

        WHEREAS, the Trust has been subsequently amended as follows: (i) effective April 30, 1999 to reflect the transfer of Baltimore Gas and Electric Company's rights and obligations under the Grantor Trust Agreement Dated as of July 31, 1994 between Baltimore Gas and Electric Company and Citibank, N.A. to Constellation Energy; (ii) effective January 1, 2001 to reflect the change in designation of Constellation Energy Group, Inc. from "CEG" to "Constellation Energy", to change the required contribution date from April 20^th to May 31^st, and to conform the names of the nonqualified plans funded under the Trust; and (iii) effective April 23, 2003 and February 27, 2004 to conform the definition of Change in Control under the Trust to the definition under the Plans.

        WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing nonqualified supplemental pension retirement benefits for a select group of management or highly compensated employees, for purposes of Title I of the Employee Retirement Income Security Act of 1974; and

        WHEREAS, it is the intention of Constellation Energy to make contributions to the Trust to provide a source of funds to assist in meeting Constellation Energy's liabilities under the Plans;

        NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

Section 1.    Establishment of Trust.

        1.1    Constellation Energy hereby adopts and establishes with Trustee the Trust consisting of such sums of cash and other property, including collateral assignments of interests in certain split dollar life insurance policies, (the "principal"), that currently constitute the Trust and as from time to time shall be paid or delivered to Trustee to be held, administered, and disposed of by Trustee as provided in this Trust Agreement. The principal of the Trust and any earnings thereon (the "Trust assets") shall be held by Trustee and shall be dealt with in accordance with the provisions of this Trust Agreement until all payments required by this Trust Agreement have been made.

        1.2    The Trust hereby established shall be irrevocable.

        1.3    The Trust is intended to be a grantor trust, of which Constellation Energy is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.

        1.4    The Trust assets shall be held separate and apart from other funds of Constellation Energy and shall be used exclusively for the uses and purposes of Plan participants, their surviving spouses, and Constellation Energy's general creditors as herein set forth. Plan participants and their surviving spouses shall have no preferred claim on, or any beneficial ownership interest in, any Trust assets. Any rights created under the Plans and this Trust Agreement shall be mere

unsecured contractual rights of Plan participants and their surviving spouses against Constellation Energy. Any Trust assets will be subject to the claims of Constellation Energy's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 hereof.

        1.5    By August 31, 1994, for the Plan year 1993, BGE was required to irrevocably contribute cash or other property to the Trust in an amount equal to 50% of the Required Contribution, as defined in Section 1.9 hereof. By April 30 of the year following each of the Plan years 1994-1999, BGE was required to irrevocably contribute additional cash or other property to the Trust in an amount equal to 100% of the Required Contribution. By May 31st of the year following each of the Plan years 2000-2002, Constellation Energy shall be required to irrevocably contribute cash or other property to the Trust in an amount equal to 100% of the Required Contribution.

        1.6    Constellation Energy, in its sole discretion, may at any time, or from time to time, make additional contributions of cash or other property to the Trust to augment the Trust assets to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or surviving spouse shall have any right to compel such additional contributions.

        1.7    Plan participants or their surviving spouses shall be eligible to receive benefits under this Trust Agreement only if the Plan participant was an employee of Constellation Energy or a subsidiary in Constellation Energy's controlled group ("Employee") as well as a Plan participant as of the end of any Plan year for which a contribution was required pursuant to Section 1.5 hereof, or as of the end of any Plan year for which a contribution was made pursuant to Section 1.6, except that for the Plan year 1993, Plan participants or their surviving spouses shall be eligible to receive benefits under this Trust Agreement only if the Plan participant was an Employee as well as a Plan participant as of the first day of 1993.

        1.8    "Required Contribution," for purposes of the contribution requirements as set forth in Section 1.5 hereof, means the sum of (1), (2), (3), (4) and (5) below computed as indicated herein, less the fair market value of the Trust assets at the end of the Plan year for which the contribution is required.

        (1)   For Plan participants eligible to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof, who were also Employees as of the end of the Plan year for which the contribution is required (except Employees entitled to lump sum payments as indicated under Section 1.8(4) hereof) and who were not eligible for early retirement under the Plans at the end of the Plan year for which the contribution is required, an amount equal to the present value of an annuity including the estimated present value of post retirement supplemental survivor annuity benefits under the Plans commencing effective with the month in which the participant becomes age 65 using (i) the net accrued benefit as computed under the Plans (without regard to age and Credited Service eligibility requirements), expressed as a monthly amount, (ii) an interest rate equal to the lesser of 8% or 95% of the Interest Rate under the Plans, and (iii) the Mortality Table.

        (2)   For Plan participants eligible to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof, who were also Employees as of the end of the Plan year for which the contribution is required (except Constellation Energy Employees entitled to lump sum payments as indicated under Section 1.8(4) hereof) and who were eligible for early retirement under the Plans as of the end of the Plan year for which the contribution is required, an amount equal to the present value of an annuity including the present value of post retirement supplemental survivor annuity benefits under the Plans commencing effective with the first month following the Plan year for which the contribution is required using (i) the net accrued benefit as computed under the Plans, expressed as a monthly amount, (ii) an interest rate equal to the lesser of 8% or 95% of the Interest Rate under the Plans, and (iii) the Mortality Table.

        (3)   For Plan participants or their surviving spouses who are eligible to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof who were also receiving a retirement benefit under the Plans in the form of a monthly payment as of the end of the Plan year for which the contribution is required, an amount equal to the present value of an annuity as computed under (2)(i), (ii), and (iii) above except that the interest rate used to compute the present value under (ii) shall be 8%.

        (4)   For all Plan participants eligible to receive benefits under this Trust Agreement pursuant to Section 1.7 hereof who are also entitled under Section 5 of the Plans to receive a lump sum payment at the later of age 55 or upon separation from service as of the end of the Plan year for which the contribution is required, an amount equal to the present value of an annuity as computed under (1) above.

        (5)   In the event there has been a reduction or discontinuance of payments pursuant to Sections 2.6, 2.7, or Section 3 hereof, an amount equal to the total amount of any previously reduced or discontinued payments to Plan

2

participants and their surviving spouses, less the aggregate amount of any payments made to Plan participants and their surviving spouses by Constellation Energy or BGE in lieu of such payments, plus interest computed pursuant to Section 2.9 hereof on the net aggregate amount.

        1.9    Constellation Energy shall have sole responsibility for providing to Trustee the determination and calculation of the Required Contribution which shall be determined and calculated by the actuary of the Pension Plan of Constellation Energy Group, Inc. Trustee shall have no responsibility with respect to such determination and calculation including the responsibility to verify (i) the accuracy of such calculation or (ii) compliance by Constellation Energy with the terms of Section 1 hereof, except as provided in Section 1.11 hereof. Trustee shall have no duty, obligation or responsibility to bring any action or proceeding to enforce the collection of the Required Contribution from Constellation Energy.

        1.10    In the event Constellation Energy fails to make the Required Contribution to the Trust by the dates specified in Section 1.5 hereof, Trustee shall notify Constellation Energy of such failure by the 15th day of the month following the month in which the contribution was required. Such notification shall stipulate that Constellation Energy may correct the failure to contribute by the last day of the month following the month in which the contribution was required (the "Required Contribution correction date"). Trustee shall notify the Plan participants or their surviving spouses shown on the most recent Payment Schedule, as defined in Section 2.1 hereof, provided by Constellation Energy to Trustee, in the event Constellation Energy fails to make the Required Contribution by the Required Contribution correction date. Trustee shall make such notification no later than 15 days following the Required Contribution correction date.

Section 2. Payments to Plan Participants and Their Surviving Spouses.

        2.1    By May 31 of the year following each Plan year until termination of the Trust under the provisions of Section 12 hereof, and at other times as reasonably requested by Trustee including such times as Trustee is notified in writing of the death of a Plan participant or surviving spouse eligible to receive benefits under this Trust Agreement, Constellation Energy shall deliver to Trustee a schedule, substantially in the format of Exhibit A hereof, and any other necessary documentation (such schedule and other documentation being referred to for this purpose as the "Payment Schedule") that indicates the Plan benefit amounts currently payable in respect of each Plan participant (and his or her surviving spouse), the form in which such amount is to be paid (as provided for or available under the Plans), the time of commencement for payment of such amounts, whether the Plan participant is receiving such payment as a result of an entitlement event (as defined in Section 5(c) of the Plans), the present value of the future benefits payable to Plan participants and their surviving spouses under the terms of this Trust Agreement computed as under Section 1.8 (1), (2), (3), and (4) hereof, and the Required Contribution computed pursuant to Section 1.8 hereof.

        Plan participants or their surviving spouses shall be included on the Payment Schedule and shall be eligible for benefits under this Trust Agreement pursuant to Section 1.7 hereof only to the extent contributions to the Trust were required under Section 1.5 hereof, or for which a contribution was made by Constellation Energy to the Trust pursuant to Section 1.6 hereof. A modified Payment Schedule shall be delivered by Constellation Energy to Trustee upon the occurrence of any event, such as early retirement of a Plan participant or an entitlement event, as defined in Section 5(c) of the Plans, requiring a modification of the Payment Schedule or a modified Payment Schedule.

        Constellation Energy shall cause the Payment Schedule which Constellation Energy shall provide to Trustee to be prepared by the actuary for the Pension Plan of Constellation Energy Group, Inc.

        Except as otherwise provided in Sections 2.5 through 2.11 hereof, Trustee shall make payments to Plan participants and their surviving spouses in accordance with such Payment Schedule, and shall act only upon such written direction and shall have no duty to determine the rights of any person under this Trust Agreement or under the Plans or to inquire into the right or power of Constellation Energy to direct or not direct any such payment and shall be authorized to rely on the Payment Schedule most recently provided to Trustee by Constellation Energy.

        2.2    In the event Constellation Energy fails to deliver the Payment Schedule to Trustee by the date specified in Section 2.1 hereof, Trustee shall notify Constellation Energy of such failure by the 15th day of the month following the month in which the Payment Schedule was required to be delivered to Trustee. Such notification shall stipulate that Constellation Energy may correct the failure by the last day of the month following the month in which the Payment Schedule was required to be delivered to Trustee (the "Payment Schedule correction date"). Trustee shall notify the Plan participants or their surviving spouses shown on the most recent Payment Schedule provided by Constellation Energy to Trustee in the event Constellation Energy fails to deliver the Payment Schedule to Trustee by the Payment Schedule correction date. Trustee shall make such notification no later than 15 days following the Payment Schedule correction date.

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If Constellation Energy fails to deliver the Payment Schedule to Trustee by the date specified in Section 2.1 hereof, Trustee shall make payments to Plan participants and their surviving spouses, except as otherwise provided in Sections 2.5 through 2.11 hereof, in accordance with the Payment Schedule most recently provided to Trustee by Constellation Energy (or prior to May 31, 2000, by BGE). Within a reasonable period of time after Constellation Energy delivers the updated Payment Schedule to Trustee, Trustee shall pay all amounts due to the Plan participants and their surviving spouses for the period during which Trustee relied on the previous Payment Schedule to the extent such amounts have not been paid by Trustee under the previous Payment Schedule or by Constellation Energy pursuant to Sections 2.5 through 2.11 hereof. Such amounts paid by Trustee shall include interest computed at an 8% per annum rate from the date the payments were due under the Plans to the first day of the month in which such amount was paid.

        2.3    Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits from the Trust and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Constellation Energy, provided, however, that Constellation Energy shall be required to provide Trustee with all information reasonably necessary for Trustee to perform such withholding.

        2.4    The entitlement of Plan participants and their surviving spouses to benefits under the Plans shall be determined by Constellation Energy or such party as it shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. Except as provided in Section 2.7 hereof, Trustee shall have no responsibility to determine such entitlements or to verify the accuracy of their determination or to review or supervise the review of claims for benefits.

        2.5    Constellation Energy may make payment of benefits directly to Plan participants and their surviving spouses as they become due in accordance with the most recent Payment Schedule provided by Constellation Energy to Trustee. Constellation Energy shall notify Trustee of its decision to make payment of benefits prior to the time amounts are payable to Plan participants and their surviving spouses by indicating such intent on the Payment Schedule provided by Constellation Energy to Trustee pursuant to Section 2.1 or by separate written notification. Constellation Energy shall provide Trustee with documentation substantiating that such payments were made no later than the last day of the month in which such payments were due in accordance with the most recent Payment Schedule provided by Constellation Energy to Trustee. If such documentation is not provided, Trustee is authorized to make such payments directly to Plan participants and their surviving spouses. In addition, if the Trust assets are insufficient to make payments of benefits in accordance with the most recent Payment Schedule provided by Constellation Energy to Trustee, or are not available to make such payments because all or part of the Trust assets are invested in collateral assignments of certain split dollar life insurance policies, Constellation Energy shall pay the balance of each such payment to the Plan participant or their surviving spouse as it falls due. Trustee shall notify Constellation Energy of such insufficiency or unavailability as specified in Sections 2.6 and 2.8 hereof.

        2.6    Where Trustee is required to make payments from the Trust according to the most recent Payment Schedule and Constellation Energy does not make payments in lieu of such payments as provided under Section 2.5 hereof, and Trustee is unable to make the required payments because all or part of the Trust assets are invested in the collateral assignment portion of certain split dollar life insurance policies, Trustee is authorized to defer the required payments until cash is available to make the required payments under the terms of this Trust Agreement.

        2.7    A determination of insufficiency of Trust assets shall be made with respect to the end of each Plan year after receipt by the Trustee of the Payment Schedule prepared with respect to such Plan year or the most recent Payment Schedule in the event Constellation Energy fails to deliver the Payment Schedule to Trustee by the date specified in Section 2.1 hereof. The Trust assets will be deemed to be insufficient to make payments of benefits in accordance with the terms of such Payment Schedule if the market value of the Trust assets at the end of the Plan year for which the determination is being made plus the Required Contribution actually made with respect to such Plan year is less than the present value of the future benefits as shown on the most recent Payment Schedule. In determining the market value of collateral assignments of interests in split dollar life insurance policies held by the Trust, Trustee may rely on the valuation provided by the insurance carrier who issued such policies, or the broker administering such policies.

        In the event of such insufficiency and to the extent Constellation Energy does not make payments directly to Plan participants or their surviving spouses as provided under Section 2.5 hereof, any payment made from the Trust will be reduced by multiplying such payment by a fraction, the numerator of which shall be the value of all cash and other

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property held by the Trust and the denominator of which shall be the aggregate present value of all benefits under the Plans as shown on the most recent Payment Schedule.

        2.8    If the Trust assets are insufficient to make payments of benefits in accordance with the most recent Payment Schedule, Trustee shall notify Constellation Energy of such insufficiency by May 15 of the year following the Plan year with respect to which the insufficiency has been determined. Such notification shall stipulate that Constellation Energy may correct the insufficiency by May 31 of the year following the Plan year with respect to which the insufficiency has been determined (the "insufficiency correction date"). Trustee shall notify the participants or their surviving spouses shown on the most recent Payment Schedule provided by Constellation Energy to Trustee in the event Constellation Energy fails to correct the insufficiency by the insufficiency correction date. Trustee shall make such notification no later than 15 days following the insufficiency correction date and shall proceed to reduce any payment made from the Trust in the manner specified in Section 2.7 hereof as soon as practicable.

        2.9    If Trustee reduces or discontinues the payment of benefits from the Trust pursuant to Section 2.6 and 2.7 hereof and the Trust assets subsequently become sufficient to pay all or part of the previously reduced or discontinued benefits, the first payment following thereafter shall include the aggregate of all payments due to Plan participants and their surviving spouses under the terms of this Trust Agreement for the period of such reduction or discontinuance to the extent Trust assets are available, less the aggregate amount of any payments made to Plan participants and their surviving spouses by Constellation Energy in lieu of the payments provided for hereunder during any such period of reduction or discontinuance. In such event where Trust assets are sufficient to pay only a part of the previously reduced or discontinued benefits, amounts relating to the earliest payments reduced or discontinued shall be paid before all other amounts due under this Trust Agreement. Such payments shall also include interest computed at an 8% per annum rate on the net aggregate amount of all payment reductions from the date the payments were due under the Plans to the first day of the month in which such net aggregate amount was paid.

        2.10    In the event there is a final judicial determination or a final determination by the Internal Revenue Service that the Plan participants and their surviving spouses are subject to any tax with respect to any amounts held under the terms of the Trust, then Trustee shall make payments from the Trust to such Plan participants and their surviving spouses in such amounts as set forth in such final determination for the purpose of paying federal taxes and interest and any penalties thereon which such Plan participants and their surviving spouses incur arising out of such determination. Trustee's decision as to whether a final determination has occurred shall be binding and conclusive on all Plan participants and their surviving spouses.

        2.11    Any payment from the Trust, as provided in Section 2.10 hereof, excluding interest and penalties paid with respect to federal taxes, shall reduce the benefits payable under the Plans of those participants and their surviving spouses on whose behalf such payments are made. It shall be the responsibility of Constellation Energy to determine or cause to be determined by the actuary for the Pension Plan of Constellation Energy Group, Inc. the amount of such reduction and to provide Trustee with an updated Payment Schedule to reflect any such reduction made hereunder. Trustee shall have no duty to verify any calculations provided by Constellation Energy under this Section 2.11.

Section 3.    Trustee Responsibility Regarding Payments to Trust Beneficiary When Constellation Energy Is Insolvent.

        3.1    Trustee shall cease payment of benefits to Plan participants and their surviving spouses if Constellation Energy is Insolvent. Constellation Energy shall be considered Insolvent for purposes of this Trust Agreement if (i) Constellation Energy makes a voluntary filing under the United States Bankruptcy Code, or (ii) Constellation Energy is subject to a pending involuntary proceeding as a debtor under the United States Bankruptcy Code.

        3.2    At all times during the continuance of this Trust, as provided in Section 1.4 hereof, the Trust assets shall be subject to claims of general creditors of Constellation Energy under federal and state law as set forth below.

        3.2(a)    The Board of Directors of Constellation Energy and the Chief Executive Officer of Constellation Energy shall have the duty to inform Trustee in writing of Constellation Energy's Insolvency. If a person claiming to be a creditor of Constellation Energy alleges in writing to Trustee that Constellation Energy has become Insolvent, Trustee shall determine whether Constellation Energy is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants and their surviving spouses.

        3.2(b)    Until receipt of a notice of Insolvency as set forth above, Trustee shall be under no obligation and shall have no responsibility to suspend payments hereunder and hold the Trust assets for the benefit of Constellation Energy's general

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creditors. Trustee shall not be deemed to have notice or knowledge of facts or events in public records or received by departments or divisions of Trustee bank other than the Investor Services division of Trustee bank. Trustee shall not have any liability to any party for making any payments or withholding any payments pursuant to court order or request from trustee in bankruptcy or receivership pursuant to notice of Insolvency as provided above.

        3.2(c)    Unless Trustee has actual knowledge of Constellation Energy's Insolvency, or has received notice from Constellation Energy or a person claiming to be a creditor alleging that Constellation Energy is Insolvent, Trustee shall have no duty to inquire whether Constellation Energy is Insolvent. Trustee may in all events rely on such evidence concerning Constellation Energy's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Constellation Energy's solvency.

        3.2(d)    If at any time Trustee has determined that Constellation Energy is Insolvent, Trustee shall discontinue payments to Plan participants and their surviving spouses and shall hold the Trust assets for the benefit of Constellation Energy's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants and their surviving spouses to pursue their rights as general creditors of Constellation Energy with respect to benefits due under the Plans or otherwise.

        3.2(e)    Trustee shall resume the payment of benefits to Plan participants and their surviving spouses in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Constellation Energy is not Insolvent (or is no longer Insolvent). Where Constellation Energy is subject to a pending proceeding as a debtor under the United States Bankruptcy Code, Trustee shall resume payment when such proceeding is dismissed. In all other cases, Trustee shall have no obligation to so resume payment until it shall have received an unqualified opinion of a certified public accountant that Constellation Energy is no longer Insolvent and an opinion of counsel that there is no legal prohibition to resuming payment hereunder.

        3.3    If Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.2 hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants and their surviving spouses under the terms of this Trust Agreement for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants and their surviving spouses by Constellation Energy or BGE in lieu of the payments provided for hereunder during any such period of discontinuance plus interest computed as under Section 2.9 hereof on the net aggregate amount of all payments from the date the payments were due under the Plans to the first day of the month in which such net aggregate amount was paid. Constellation Energy shall cause to be determined and calculated by the actuary of the Pension Plan of Constellation Energy Group, Inc. such net aggregate amount, which determination shall be conclusive for Constellation Energy, Trustee, and all Plan participants and their surviving spouses.

Section 4. Payments to Constellation Energy.

        4.1    Except as provided in Sections 3.2 and 4.2 hereof, Constellation Energy shall have no right or power to direct Trustee to return to Constellation Energy or to divert to others any of the Trust assets before all payments of benefits have been made to Plan participants and their surviving spouses in accordance with the most recent Payment Schedule provided by Constellation Energy to Trustee and the terms of this Trust Agreement.

        4.2    In the event the market value of Trust assets as of the end of a Plan year exceeds 120 percent of the present value of future benefits as shown on the Payment Schedule for such Plan year, plus the amount of any payments as computed under Section 1.9(5) hereof as of the end of such Plan year, then Constellation Energy may, in its sole discretion, direct Trustee in writing to distribute such excess Trust assets, in whole or in part, to Constellation Energy provided such distribution does not contravene any provision of law. Trustee shall have no responsibility to determine the propriety of any such direction.

        4.3    Notwithstanding Section 4.2 hereof, Constellation Energy may not direct Trustee to distribute such excess Trust assets for 2 years from the date a Change of Control is deemed to occur under Section 13.5 hereof.

Section 5. Investment Authority.

        5.1    In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by Constellation Energy or BGE, other than a de minimis amount held in common investment vehicles in which Trustee invests. All rights associated with the Trust assets shall be exercised by Trustee, and shall in no event be exercisable by or

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rest with Plan participants and their surviving spouses; provided that Constellation Energy may at any time, upon delivery of written notice to Trustee, terminate Trustee's authority over the Trust assets.

        5.2    Constellation Energy shall submit to Trustee investment guidelines which shall be acknowledged by Trustee in writing. The Trust assets shall be held, invested and reinvested by Trustee upon written direction of Constellation Energy and only in accordance with the investment guidelines most recently acknowledged by Trustee. Constellation Energy shall direct Trustee to invest or reinvest from time to time the Trust assets (taking into account, among other things, anticipated cash requirements for benefits under the Plans); provided, however, that pending receipt of investment directions or guidelines from Constellation Energy or pending the acknowledgement by Trustee of such investment guidelines, the Trust assets may be held in interest bearing cash accounts maintained by Trustee; and provided, however, that Trustee shall not be liable for any failure to maximize the income earned on the Trust assets, or for any loss suffered by the Trust, as a result of its investment or reinvestment of the Trust assets in accordance with 1) directions received by Trustee from Constellation Energy, or 2) the investment guidelines as acknowledged by Trustee.

        5.3    Constellation Energy may, in its sole discretion, appoint an investment manager or managers to manage (including the power to acquire and dispose of) any Trust assets. Trustee may rely on direction of such investment manager upon receipt of written direction from Constellation Energy and shall be entitled to rely on such direction until revoked in writing by Constellation Energy. Trustee shall not be liable for the acts or omissions of such investment manager or managers, unless Trustee participates knowingly in, or knowingly undertakes to conceal, an act or omission of such investment manager, knowing that such act or omission is a breach of its or the investment manager's fiduciary duty. Trustee is under no obligation to review, inquire into or examine the acts or omissions of any such investment manager. Trustee shall have the duty to inform Constellation Energy in the event Trustee becomes aware of any such acts or omissions. Trustee shall not be under an obligation to invest or otherwise manage Trust assets which are subject to the management of the investment manager.

        5.4    Constellation Energy reserves the right to transfer to the Trust in satisfaction of the contribution requirements as set forth in Section 1.5 hereof, life insurance, annuity policies or contracts on or for the life of any Plan participant, or to direct Trustee to purchase any such policies or contracts on or for the life of any such Plan participant out of the Trust assets. Any such policy or contract shall be a Trust asset subject to the claims of Constellation Energy's creditors in the event of Insolvency, as defined in Section 3.1 hereof. The proceeds, dividends, or distributions of cash value paid with respect to any life insurance policy or contract held in the Trust shall be paid to the Trust. Trustee shall be under no duty to question any direction of Constellation Energy or to review the form of any policies or contracts or the selection of the issuer thereof, or to make suggestions to Constellation Energy with respect to the form of such policies or contracts or to the issuer thereof.

Section 6. Disposition of Income.

        During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested, until otherwise required for disbursement under the terms of this Trust Agreement.

Section 7. Accounting by Trustee.

        7.1    Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Constellation Energy and Trustee. Within 15 days following the close of each calendar month and within 90 days after the removal or resignation of Trustee, Trustee shall deliver to Constellation Energy a written account of its administration of the Trust pursuant to terms of this Trust Agreement during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, and the cost and market value of all securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.

        In the event the insurance carrier who issued the insurance policies which are held by or collaterally assigned to the Trust or the broker who administers such policies does not timely provide Trustee with the market value of such insurance policies or collateral assignments, Trustee shall provide to Constellation Energy written accounts under this Section 7.1 containing all valuations except such insurance valuations. As soon as practicable following the receipt of the market

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valuations from the carrier or the broker, Trustee shall provide Constellation Energy with written accounts containing such insurance valuations.

        7.2    Unless Constellation Energy shall have filed with Trustee written exceptions to any such statement or account delivered by Trustee pursuant to Section 7.1 hereof within 90 days after receipt of such statement or account, Constellation Energy shall be deemed to have approved such statement or account, and in such case or upon the written approval by Constellation Energy of any such statement or account, Trustee shall be forever released and discharged with respect to all matters and things embraced in such statement or account as though it had been settled by a decree of a court of competent jurisdiction in an action or proceeding to which Constellation Energy or persons having any beneficial interest in the Trust were parties.

        7.3    Constellation Energy shall prepare and file such tax returns and other reports as may be required for the Trust, with any taxing authority or any other government authority and shall provide Trustee with copies of such returns and reports as soon as practicable following the date of filing. Trustee shall provide to Constellation Energy such information, to the extent not already provided through written accounts delivered to Constellation Energy pursuant to Section 7.1, as is necessary for Constellation Energy to prepare and file such tax returns and other reports.

        7.4    Nothing contained in this Trust Agreement or in the Plans shall deprive Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlement of the accounts of Trustee or for instruction in connection with the Trust assets, the only necessary party thereto in addition to Trustee shall be Constellation Energy. If Trustee so elects, it may bring in as a party any other person or persons. No person interested in the Trust assets, other than Constellation Energy, shall have a right to compel an accounting, judicial or otherwise, by Trustee and each such person shall be bound by all accountings as herein provided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party.

Section 8. Responsibility of Trustee.

        8.1    Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Constellation Energy (or investment manager designated pursuant to terms hereof) which is contemplated by, and in conformity with, the terms of this Trust Agreement and is given in writing by Constellation Energy.

        8.2    Trustee need not engage in any litigation, arbitration or administrative proceeding related to this Trust Agreement unless first indemnified to its reasonable satisfaction by Constellation Energy unless such litigation, arbitration or administrative proceeding is prompted by an allegation that Trustee has breached its duties undertaken pursuant to this Trust Agreement. If Trustee proceeds to engage in any such litigation, arbitration or administrative proceeding and is not so indemnified, all reasonable costs of Trustee including reasonable attorney's fees incurred pursuant to such action shall be charged against and paid from the Trust assets, except when the claim relates to an allegation that Trustee has breached its duties in which case Trustee shall be responsible for such costs.

        Trustee may consult with any legal counsel, including, without limitation, counsel to Constellation Energy or Trustee's own independent counsel, to assist Trustee in the management and administration of the Trust or with respect to (a) the meaning or construction of the terms of this Trust Agreement, (b) its obligations or duties hereunder, (c) any act which Trustee should take or omit hereunder, (d) any action or proceeding, or (e) any question of law. In any action taken or omitted by Trustee in good faith pursuant to the advice of such counsel, Constellation Energy shall indemnify and hold Trustee harmless against reasonable litigation expenses and attorney's fees occasioned by such action; except when Trustee acted or omitted to act upon the advice of counsel other than counsel to Constellation Energy.

        8.3    Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. Trustee, as assignee under split dollar life insurance policies, may exercise the right to obtain policy loans in accordance with the terms of the collateral assignment document.

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        8.4    In executing its duties, obligations and responsibilities as herein provided, and in addition to those powers given by law, Trustee shall have the power, in its sole discretion:

        (a)    to collect and receive any and all money and other property due to the Trust and to give full discharge therefor;

        (b)   to settle, compromise or submit to arbitration any claims, debts or damages due to or owing to or from the Trust; to commence or defend suits or legal proceedings to protect any interest of the Trust; and to represent the Trust in all suits or legal proceedings in any court or before any other body or tribunal;

        (c)    if specifically instructed by Constellation Energy, to provide benefits through the purchase of individual or group annuity or life insurance contracts issued by insurance companies licensed to do business in the State of New York;

        (d)   if specifically instructed by Constellation Energy, to act as agent for Constellation Energy to perform multiple services for the Plans, its participants and beneficiaries and to receive and withdraw from the Trust assets reasonable compensation therefor;

        (e)    to engage accountants or other advisors as Trustee may deem necessary to control and manage the Trust assets and to carry out the purposes of this Trust Agreement;

        (f)    subject to Section 5 hereof, to invest and reinvest the Trust assets without distinction between principal and income in any form of property not prohibited by law including, without limitation on the amount which may be invested therein, any common or group trust fund operated by Trustee or in demand deposits of Trustee;

        (g)    to hold cash uninvested in an amount considered necessary and practical for proper administration of the Trust and/or to deposit the same with any banking, savings or similar financial institution supervised by the United States or any State, including Trustee's own banking department; and

        (h)   to perform all such acts and exercise all such rights and privileges consistent with applicable law and the terms of this Trust Agreement, although not specifically mentioned herein, as Trustee may deem desirable or necessary to control and manage the Trust assets and to carry out the purposes of this Trust Agreement.

        Except as provided under Section 13.2, if all or any part of the Trust assets are at any time attached, garnished, or levied upon by any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by a court affecting such property or any part thereof, then and in any of such events Trustee is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree, and it shall not be liable to Constellation Energy (or any of its subsidiaries) or any participant by reason of such compliance even though such order, writ, judgment or decree subsequently may be reversed, modified, annulled, set aside or vacated.

        8.5    Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.

Section 9. Compensation and Expenses of Trustee.

        9.1    Constellation Energy shall pay all administrative and Trustee's fees and expenses (including, without limitation, reasonable fees of agents and counsel). If not so paid, the fees and expenses shall be paid from the Trust; provided, however, that Constellation Energy may approve in writing the automatic payment of fees, compensation and expenses from the Trust. Trustee shall have a lien on the Trust in the amount of such fees, expenses and compensation until the same have been paid.

        9.2    Constellation Energy shall pay any federal, state, local or other taxes imposed or levied with respect to the Trust assets under the existing or future laws.

Section 10. Resignation and Removal of Trustee.

        10.1    Trustee may resign at any time by written notice to Constellation Energy, which shall be effective 30 days after receipt of such notice unless Constellation Energy and Trustee agree otherwise in writing.

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        10.2    Accept as provided in Section 10.3, Trustee may be removed by Constellation Energy on 30 days written notice or upon shorter notice accepted by Trustee.

        10.3    Upon a Change of Control, as defined in Section 13.5 hereof, Trustee may not be removed by Constellation Energy for 2 years from the date a Change of Control is deemed to occur under Section 13.5 hereof.

        10.4    If Trustee resigns within 2 years of a Change of Control, Trustee shall select a successor Trustee in accordance with the provisions of Section 11.2 hereof prior to the effective date of Trustee's resignation.

        10.5    Upon resignation or removal of Trustee and appointment of a successor Trustee, all Trust assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed at the later of (i) 90 days after receipt of notice of resignation or removal of Trustee, or (ii) appointment of successor Trustee, unless Constellation Energy extends the time limit in writing.

        10.6    If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under Sections 10.1 or 10.2 hereof. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.

Section 11. Appointment of Successor.

        11.1    If Trustee resigns or is removed in accordance with Sections 10.1 or 10.2 hereof, Constellation Energy may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the successor Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Constellation Energy or the successor Trustee (in which case Trustee shall have received a copy of successor Trustee's acceptance) to evidence the transfer of the Trust assets.

        11.2    If Trustee resigns pursuant to the provisions of Section 10.4 hereof, Trustee may appoint any third party such as a bank trust department or other party that may be granted corporate trustee powers under state law. The appointment of a successor Trustee shall be effective when accepted in writing by the successor Trustee. The successor Trustee shall have all the rights and powers of the former Trustee, including ownership rights in Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer of the Trust assets.

        11.3    The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and Constellation Energy shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

        11.4    In the event of such removal or resignation, Trustee shall duly file with Constellation Energy a written account as provided in Section 7.1 hereof.

Section 12. Amendment or Termination.

        12.1    Except as provided in Section 12.4, this Trust Agreement may be amended by a written instrument executed by Trustee and Constellation Energy. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable.

        12.2    The Trust shall not terminate until the earlier of the date on which Plan participants and their surviving spouses are no longer entitled to benefits pursuant to the terms of the Plan or have received payment of all benefits to which they are entitled under this Trust Agreement. Upon termination of the Trust any assets remaining in the Trust shall be returned to Constellation Energy.

        12.3    Upon written approval of all Plan participants and surviving spouses entitled to payment of benefits pursuant to the terms of the Plans and this Trust Agreement, Constellation Energy may terminate this Trust prior to the time all benefit payments under the Plans and this Trust Agreement have been made. All Trust assets at termination shall be returned to Constellation Energy.

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        12.4    This Trust Agreement may not be amended by Constellation Energy for 2 years following a Change of Control, unless such amendment is by written agreement between Constellation Energy and Trustee and such amendment does not adversely affect the rights of the Plan participants and their surviving spouses entitled to payment of benefits pursuant to terms of the Plans on the date a Change of Control is deemed to occur.

Section 13. Miscellaneous.

        13.1    Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

        13.2    Benefits payable to Plan participants and their surviving spouses under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levies, execution or other legal or equitable process, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void. The Trust shall be in no manner liable for or subject to the debts or liabilities of any participant.

        13.3    This Trust Agreement shall be governed by and construed in accordance with the laws of the State of New York and Trustee shall be liable to account only in the courts of that state.

        13.4    All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Plans. All singular terms defined in this Trust will include the plural and vice versa.

        13.5    For purposes of this Trust Agreement, Change of Control shall mean the occurrence of any one of the following events:

        (i)    individuals who, on January 24, 2003, constitute the Board of Directors of Constellation Energy (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board of Directors of Constellation Energy (the "Board"), provided that any person becoming a director subsequent to January 24, 2003, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of Constellation Energy (the "Company") in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;

        (ii)   any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any corporation with respect to which the Company owns a majority of the outstanding shares of common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors (a "Subsidiary Company"), (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary Company,(C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), or (E) pursuant to any acquisition by Plan participant or any group of persons including Plan participant (or any entity controlled by Plan participant or any group of persons including Plan participant);

        (iii)  there is consummated a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiary Companies (a "Business Combination"), unless immediately following such Business Combination: (A) more than 60% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of at least 95% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting

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power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B), and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or

        (iv)   the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or the consummation of a sale of all or substantially all of the Company's assets.

        Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.

        13.6    Constellation Energy shall certify to Trustee the name or names of any person or persons authorized to act for Constellation Energy under this Trust Agreement. Such certification shall be signed by a Vice President of Constellation Energy. Until Constellation Energy notifies Trustee, in a similarly signed notice or certification, that any such person is no longer authorized to act for Constellation Energy, Trustee may continue to rely upon the authority of such person.

        Trustee may rely upon any certificate, schedule, notice or direction of Constellation Energy which Trustee in good faith believes to be genuine, executed and delivered by a duly authorized officer or agent of Constellation Energy. Trustee shall have no duty to verify any calculations provided by Constellation Energy in connection with such certificate, schedule, notice or direction.

        Communications to Trustee shall be sent in writing to Trustee at the address specified in Section 13.9 hereof or to such other address as the Trustee may specify in writing. No communication shall be binding upon the Trust or Trustee until it is received by Trustee and unless it is in writing and signed by an authorized person.

        Communications to Constellation Energy shall be sent in writing to Constellation Energy's principal offices at the address specified in Section 13.9 hereof or to such other address as Constellation Energy may specify in writing. No communication shall be binding upon Constellation Energy until it is received by Constellation Energy and unless it is in writing and signed by Trustee.

        13.7    Constellation Energy shall pay and shall protect, indemnify and save harmless Trustee and its officers, employees and agents from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, costs and expenses of any nature arising from or relating to any action by or any failure to act by Trustee (and its officers, employees and agents) in accordance with the terms of this Trust Agreement, or the transactions contemplated by this Trust Agreement (including any action by Trustee on the direction or instruction of Constellation Energy or any failure to act on the part of Trustee in the absence of directions or instructions by Constellation Energy), except to the extent that any such loss, liability, action, suit, judgment, demand, damage or expense has been determined by final judgement of a court of competent jurisdiction to be the result of the negligence or willful misconduct of Trustee, its officers, employees or agents. To the extent that Constellation Energy has not fulfilled its obligations under the foregoing provisions of this Section 13.7, Trustee shall be reimbursed out of the Trust assets or may set up reasonable reserves for the payment of such obligations. To the maximum extent permitted by applicable law, no personal liability whatsoever shall attach to or be incurred by any employee, officer or director of Constellation Energy, as such, under or by reason of the terms or conditions contained in or implied from this Trust Agreement.

        Trustee assumes no obligation or responsibility with respect to any action required by this Trust Agreement on the part of Constellation Energy and shall have those responsibilities only as expressly set forth herein.

        13.8    This Trust Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements and understandings relating thereto.

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        13.9    Any notice, report, demand, waiver or communication required or permitted hereunder shall be in writing and shall be given personally or by prepaid registered or certified mail, return receipt requested, addressed as follows:

If to Constellation Energy Group, Inc.:

Constellation Energy Group, Inc.
750 East Pratt Street, 5^th Floor
Baltimore, MD 21202
Attention: Director—Compensation

If to Trustee:

Citibank, N. A.
Client Services Division
111 Wall Street, 24th Floor
New York, NY 10005
Attention: Ed Flannery

If to a participant or to a participant's surviving spouse:

To the address shown on the most recent Payment Schedule provided by Constellation Energy to Trustee.

Section 14. Effective Date.

        The date of this Trust Agreement shall be July 31, 1994.

        IN WITNESS WHEREOF, and intending to be legally bound hereby, Constellation Energy Group, Inc. and Trustee sign and seal this Trust Agreement the day and year first above written.

WITNESS:	CITIBANK, N. A.:
	By:		Seal)
		Name:
		Title:
WITNESS:	CONSTELLATION ENERGY GROUP, INC.:
	By:		(Seal)
		Name:  Marc L. Ugol
		Title:    Senior Vice President Human Resources

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Exhibit 10(a)

GRANTOR TRUST AGREEMENT CONTENTS

EX-10.(B)

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Exhibit 10(b)

Grantor Trust Agreement
Dated as of February 27, 2004
between
Constellation Energy Group, Inc.
and
T. Rowe Price Trust Company

        This Agreement made the 27^th day of February, 2004, by and between Constellation Energy Group, Inc., a Maryland Corporation, or its successor ("CEG") and T. Rowe Price Trust Company ("Trustee");

WITNESSETH THAT:

        WHEREAS, effective with the April 30, 1999 share exchange between CEG and the common stockholders of Baltimore Gas and Electric Company ("BGE"), BGE transferred to CEG the former BGE Nonqualified Deferred Compensation Plan and BGE's rights and obligations under the Grantor Trust Agreement dated as of June 1, 1996, between BGE and T. Rowe Price Trust Company.

        WHEREAS, this Agreement has been amended effective April 25, 2003 and February 27, 2004, to conform the definition of Change in Control under this Agreement to the definition under CEG's management benefit plans.

        WHEREAS, CEG has adopted the Constellation Energy Group, Inc. Nonqualified Deferred Compensation Plan (formerly the Baltimore Gas and Electric Company Nonqualified Deferred Compensation Plan) ("Plan");

        WHEREAS, CEG has incurred or expects to incur liability under the terms of such Plan with respect to the individuals participating in such Plan;

        WHEREAS, CEG wishes to establish a trust ("Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of CEG's creditors in the event of CEG's Insolvency, as defined in Section 3(a) hereof, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan;

        WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974;

        WHEREAS, it is the intention of CEG to make contributions to the Trust to provide a source of funds to assist it in the meeting of its liabilities under the Plan; and

        NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

        Section 1.    Establishment of Trust.

        (a)    CEG hereby adopts and establishes with Trustee the Trust consisting of such sums of cash (the "principal") that currently constitute the Trust and as from time to time shall be paid to Trustee to be held, administered, and disposed of by Trustee as provided in this Trust Agreement. The principal of the Trust and any earnings thereon (the "Trust Assets") shall be held by Trustee and shall be dealt with in accordance with the provisions of this Trust Agreement until all payments required by this Trust Agreement have been made.

        (b)   The Trust hereby established shall be irrevocable.

        (c)    The Trust is intended to be a grantor trust, of which CEG is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.

        (d)   The Trust Assets shall be held separate and apart from other funds of CEG and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any Trust Assets. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and

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their beneficiaries against CEG. Any Trust Assets will be subject to the claims of CEG's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein.

        (e)    As soon as practicable, but no later than the last business day, which for purposes of this Trust Agreement shall be defined as any day the New York Stock Exchange is open for business ("Business Day"), of the month following the month in which a payment of compensation subject to a deferral election under the Plan would otherwise have been paid, CEG shall be required to irrevocably contribute cash to the Trust in an amount equal to such Deferred Compensation, plus any Matching Contributions related thereto, to the extent the Plan requires such funding. Trustee shall have no obligation to compute or compel such contribution(s).

        (f)    The Board of Directors of CEG may at any time by resolution amend the contribution requirements of Section 1(e) hereof such that CEG will not be required to make additional contributions of cash to the Trust or will be required to make only a stated percentage of the contributions otherwise required under Section 1(e) hereof. If Section 1(e) is so amended, contributions of cash to the Trust over and above the amounts required under Section 1(e) if amended, will be in the sole discretion of CEG pursuant to Section 1(g) hereof. Trustee shall have no obligation to compute or compel such contribution(s).

        (g)    CEG, in its sole discretion, may at any time or from time to time, make additional deposits of cash in trust with Trustee to augment the Trust Assets to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall have any right or obligation to compel such additional deposits.

        Section 2.    Payments to Plan Participants and Their Beneficiaries.

        (a)    CEG shall deliver or cause to be delivered to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (or his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. If so instructed by CEG, the Trustee shall withhold federal and state taxes from each payment under this agreement at the rate(s) designated by CEG and shall report and pay such amounts to the appropriate federal and state taxing authorities.

        (b)   The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by CEG or such party as it shall designate under the Plan and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. Trustee shall have no right or duty to inquire into CEG's decisions with respect to entitlement to benefits.

        (c)    CEG may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. CEG shall notify Trustee in writing of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. CEG shall provide to the Trustee documentation substantiating that such payments were made under the terms of the Plan. If such documentation is not provided, Trustee shall make such payments in accordance with the Payment Schedule directly to Plan participants and their beneficiaries. In addition, if the Trust Assets are not sufficient to make such payments of benefits in accordance with the terms of the Plan, CEG shall make the balance of each such payment as it falls due. Trustee shall notify CEG where Trust Assets are not sufficient to make benefit payments, however, Trustee shall have no duty to require any contributions to be made, or to determine that any of the contributions received comply with the conditions and limitations of the Plan.

        (d)   In the event there is a final judicial determination or a final determination by the Internal Revenue Service that the Plan participants or their beneficiaries are subject to any tax with respect to any amounts held under the terms of the Trust, then Trustee solely at the direction of CEG shall make payments from the Trust to such Plan participants or their beneficiaries in such amounts as set forth in such final determination for the purpose of paying all applicable taxes and interest and any penalties thereon which such Plan participants or their beneficiaries incur arising out of such determination. CEG's decision as to whether a final determination has occurred shall be binding and conclusive on all Plan participants and their beneficiaries.

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        Section 3.    Trustee Responsibility Regarding Payments to Trust Beneficiary When CEG is Insolvent.

        (a)    Upon receipt of notification issued in accordance with Section 3(b)(1) hereof, Trustee shall cease payment of benefits to Plan participants and their beneficiaries if CEG is Insolvent. CEG shall be considered "Insolvent" for purposes of this Trust Agreement if (1) CEG makes a voluntary filing under the United States Bankruptcy Code, or (2) CEG is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

        (b)   At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the Trust Assets shall be subject to claims of general creditors of CEG under federal and state law as set forth below.

        (1)   The Board of Directors of CEG and the Chief Executive Officer of CEG shall have the duty to inform Trustee in writing of CEG's Insolvency. When so informed or when the Trustee is in receipt of a copy of a bankruptcy petition relating to CEG or a court order determining CEG to be Insolvent, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries.

        (2)   Unless Trustee has received written notification in accordance with Section 3(b)(1) of this Trust Agreement, Trustee may in all events rely on such evidence concerning CEG's solvency as may be furnished by CEG to Trustee.

        (3)   If at any time Trustee has received written notification in accordance with Section 3(b)(1), Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the Trust Assets for the benefit of CEG's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of CEG with respect to benefits due under the Plan or otherwise.

        (4)   Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has received a copy of a court order determining CEG to be no longer Insolvent or evidencing that such bankruptcy proceeding is dismissed in connection with any notification made in accordance with Section 3(b)(1)

        (c)    Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by CEG in lieu of the payments provided for hereunder during any period of discontinuance.

        Section 4.    Payments to CEG.

        (a)    Except as provided in Section 3 and Section 4(b) hereof, CEG shall have no right or power to direct Trustee to return to CEG or to divert to others any of the Trust Assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan and of this Trust Agreement.

        (b)   In the event (1) CEG makes payment of benefits directly to Plan participants or their beneficiaries in accordance with Section 2(c) hereof, or (2) if for any other reason Trust Assets exceed the market value of the aggregate balances of Plan participant accounts, then CEG may in its sole discretion, direct Trustee in writing to distribute the amount of such payment or excess, in whole or in part, to CEG provided such distribution does not contravene any provision of law.

        (c)    Notwithstanding Section 4(b)(2) hereof, CEG may not direct Trustee to distribute such excess Trust Assets for 2 years from the date a Change of Control is deemed to occur under Section 13(e) hereof except to reimburse CEG for any payment it makes directly to participants in accordance with Section 2(c) hereof.

        Section 5.    Investment Authority.

        (a)    In no event may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by CEG, other than a de minimis amount held in common investment vehicles in which Trustee invests. All rights associated with assets of the Trust shall be exercised, solely upon the direction of CEG, by Trustee or the person designated by Trustee and shall in no event be exercisable by or rest with Plan participants and their beneficiaries.

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        (b)   Trustee shall invest and reinvest the Trust Assets and keep the Trust invested, without distinction between principal and income, in such investments as directed in writing by CEG or its designee, which instruction may be modified from time to time by CEG or its designee. Trustee shall have no duty to question any action or direction of CEG or its designee or any failure to give directions, or to make any suggestion to CEG as to the investment, reinvestment, disposition or distribution of, such assets.

        (c)    CEG shall have the right, at anytime, and from time to time in its sole discretion, and with Trustee's approval, to substitute assets of equal fair market value for any asset held by the Trust.

        Section 6.    Disposition of Income.

        During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested, until otherwise required for disbursement under the terms of this Trust Agreement.

        Section 7.    Accounting by Trustee.

        (a)    Trustee shall keep accurate, and detailed records of all investments, receipts, disbursements and all other transactions required to be made, including such specific records as shall be agreed upon in writing between CEG and Trustee. Within 60 days following the close of each calendar year and within 60 days after the removal or resignation of Trustee, Trustee shall deliver to CEG a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivables being shown separately), and showing all cash, cost and market value of all securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.

        (b)   CEG shall prepare and file such tax returns and other reports as may be required for the Trust, with any taxing authority or any other government authority except for IRS Form 1041 which shall be prepared and filed by the Trustee.

        Section 8.    Responsibility of Trustee.

        (a)    Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability, costs or expense to any person, for any action taken pursuant to a direction, request or approval given by CEG which is contemplated by, and in conformity with, the terms of this Trust Agreement and is given in writing by CEG. Trustee shall also be reimbursed by CEG for reasonable expenses or fees incurred in connection with governmental or regulatory inquiries related to this Trust.

        (b)   If Trustee undertakes or defends any litigation arising in connection with this Trust, unless such litigation results in a determination that Trustee breached its duties undertaken pursuant to this Trust Agreement, CEG agrees to indemnify Trustee against Trustee's reasonable costs, expenses and liabilities (including, without limitation, reasonable attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If CEG does not pay such costs, expenses and liabilities in a reasonably timely manner, Trustee may obtain payment from the Trust.

        (c)    Trustee may consult with legal counsel (who may also be counsel for CEG generally) with respect to any of its duties or obligations hereunder. In the event that Trustee anticipates charging legal fees to the Trust, Trustee must obtain CEG's prior written consent for such legal counsel, which consent will not be unreasonably withheld.

        (d)   Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. In the event that Trustee anticipates charging fees for such services to the Trust, Trustee must obtain CEG's prior written consent for such legal counsel, which consent will not be unreasonably withheld.

        (e)    Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.

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        Section 9.    Compensation and Expenses of Trustee.

        CEG shall pay all reasonable administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust.

        Section 10.    Resignation and Removal of Trustee.

        (a)    Trustee may resign at any time by written notice to CEG, which shall be effective 30 days after receipt of such notice unless CEG and Trustee agree otherwise.

        (b)   Except as provided in Section 10(c), Trustee may be removed by CEG on 30 days written notice unless CEG and Trustee agree otherwise.

        (c)    Upon written notification by CEG that a Change of Control, as defined in Section 13(e) hereof has occurred, Trustee may not be removed by CEG for 2 years from the date a Change of Control is deemed to occur under Section 13(e) hereof.

        (d)   If Trustee resigns within 2 years after a Change of Control, as defined herein, CEG shall apply to a court of competent jurisdiction for the appointment of successor Trustee or for instructions.

        (e)    Upon resignation or removal of Trustee and appointment of a successor Trustee, all Trust Assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed at the later of (1) 30 days after receipt of notice of resignation or removal of Trustee or (2) appointment of successor Trustee.

        (f)    If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraphs (a) or (b) of this section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All reasonable expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.

        Section 11.    Appointment of Successor.

        (a)    If Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, CEG may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the successor Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust Assets. The former Trustee shall execute any instrument necessary or reasonably requested by CEG or the successor Trustee (in which case former Trustee shall have received a copy of successor Trustee's acceptance) to evidence the transfer of the Trust Assets.

        (b)   If Trustee resigns pursuant to the provisions of Section 10(d) hereof, the appointment of a successor Trustee shall be effective when accepted in writing by the successor Trustee. The successor Trustee shall have all the rights and powers of the former Trustee, including ownership rights in Trust Assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer of the Trust Assets.

        (c)    The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust Assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and CEG shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

        (d)   In the event of such removal or resignation, Trustee shall duly file with CEG a written account as provided in Section 7(a) hereof.

        Section 12.    Amendment or Termination.

        (a)    Except as provided in Section 12(d), this Trust Agreement may be amended by a written instrument executed by Trustee and CEG. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable.

        (b)   The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan or have received payment of all benefits to which they are

5

entitled under the terms of this Trust Agreement. Upon termination of the Trust any assets remaining in the Trust shall be returned to CEG.

        (c)    Upon written approval of all Plan participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan and this Trust Agreement, CEG may terminate this Trust prior to the time all benefit payments under the Plan and this Trust Agreement have been made. All Trust Assets at termination shall be returned to CEG.

        (d)   This Trust Agreement may not be amended by CEG for 2 years following a Change of Control, unless CEG determines that such amendment does not adversely affect the rights of the Plan participants and their beneficiaries entitled to payment of benefits pursuant to terms of the Plan on the date a Change of Control is deemed to occur.

        Section 13.    Miscellaneous.

        (a)    Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

        (b)   Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void. The Trust shall be in no manner liable for or subject to the debts or liabilities of any participant.

        (c)    This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Maryland and applicable federal law.

        (d)   All words beginning with an initial capital letter and not otherwise defined herein shall have the meaning set forth in the Plan. All singular terms defined in this Trust will include the plural and vice versa.

        (e)    For a Change of Control to be effective with respect to this Trust Agreement, CEG must issue written notification of Change of Control to Trustee. Trustee has no obligation to make any independent determination or verification that a Change of Control has occurred. For purposes of this Trust Agreement, Change of Control shall mean the occurrence of any one of the following events:

        (i)    individuals who, on January 24, 2003, constitute the Board of Directors of CEG (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board of Directors of CEG (the "Board"), provided that any person becoming a director subsequent to January 24, 2003, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of CEG in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of CEG as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;

        (ii)   any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of CEG representing 20% or more of the combined voting power of CEG's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by CEG or any corporation with respect to which CEG owns a majority of the outstanding shares of common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors (a "Subsidiary Company"), (B) by any employee benefit plan (or related trust) sponsored or maintained by CEG or any Subsidiary Company, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), or (E) pursuant to any acquisition by Plan participant or any group of persons including Plan participant (or any entity controlled by Plan participant or any group of persons including Plan participant);

        (iii)  there is consummated a merger, consolidation, statutory share exchange or similar form of corporate transaction involving CEG or any of its Subsidiary Companies (a "Business Combination"), unless immediately following such Business Combination: (A) more than 60% of the total voting power of (x) the corporation

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resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of at least 95% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B), and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or

        (iv)   the stockholders of CEG approve a plan of complete liquidation or dissolution of CEG, or the consummation of a sale of all or substantially all of CEG's assets.

        Notwithstanding the foregoing, a Change in Control of CEG shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by CEG which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by CEG such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of CEG shall then occur.

        (f)    CEG shall certify to Trustee the name or names of any person or persons authorized to act for CEG under this Trust Agreement. Such certification shall be signed by a Vice President of CEG. Until CEG notifies Trustee, in a similarly signed notice or certification, that any such person is no longer authorized to act for CEG, Trustee may continue to rely upon the authority of such person.

        Trustee may rely upon any certificate, schedule, notice or direction of CEG which Trustee in good faith believes to be genuine, executed and delivered by a duly authorized officer or agent of CEG.

        Communications to Trustee shall be sent in writing to Trustee at the address specified in Section 13(h) hereof or to such other address as the Trustee may specify in writing. No communication shall be binding upon the Trust or Trustee until it is received by Trustee and unless it is in writing and signed by an authorized person.

        Communications to CEG shall be sent in writing to CEG's principal offices at the address specified in Section 13(h) hereof or to such other address as CEG may specify in writing. No communication shall be binding upon CEG until it is received by CEG and unless it is in writing and signed by Trustee.

        (g)    In the event of any conflict between the provisions of the Plan document and this Trust Agreement, the provisions of this Trust Agreement shall prevail. This Trust Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements and understandings relating thereto.

        (h)   Any notice, report, demand, waiver or communication required or permitted hereunder shall be in writing and shall be given personally or by prepaid registered or certified mail, return receipt requested, addressed as follows:

If to CEG:

Constellation Energy Group, Inc.
750 East Pratt Street, 5^th Floor
Baltimore, MD 21202

Attention:
Director—Compensation

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If to Trustee:

T. Rowe Price Trust Company
4555 Painters Mill Road
Owings Mills, MD 21117
Attention: CEG Client Manager

If to a participant or beneficiary:

To the address shown on the most recent Payment Schedule provided by CEG to Trustee.

        (i)    In the event of insufficiency of Trust assets and to the extent CEG does not make payments directly to Plan participants or their beneficiaries, as provided in Section 2(c) hereof, or if CEG as provided in Section 1(f) hereof fails to contribute cash to the Trust to restore such insufficiency, such insufficiency shall be allocated by the record keeper among all Plan Accounts subject to funding on a proportionate basis according to the market value of the Plan Account subject to funding. Trustee shall have no obligation to determine or calculate such insufficiency, the amount of timing of any additional funding or the allocation of any insufficiency among Plan Accounts.

        Section 14.    Effective Date.

        The effective date of this Trust Agreement shall be February 27, 2004.

        IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be executed by their respective officers thereunto duly authorized as of the Effective Date indicated above.

WITNESS:	T. ROWE PRICE TRUST COMPANY
	By:		(Seal)
		Name:
		Title:
WITNESS:	CONSTELLATION ENERGY GROUP, INC.
	By:		(Seal)
		Name:  Marc L. Ugol
		Title:    Senior Vice President, Human Resources

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Exhibit 10(b)

EX-10.(C)

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Exhibit 10(c)
Attachment 1

EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT, dated July 1, 2004, is by and between Constellation Energy Group, Inc., a Maryland corporation ("Constellation" or "Company"), and E. Follin Smith ("Executive").

WITNESSETH THAT

        WHEREAS, the Executive is currently serving as Executive Vice President, Chief Financial Officer and Chief Administrative Officer of the Company, and Constellation desires to secure the continued employment by the Company of the Executive in accordance with this Agreement; and

        WHEREAS, the Executive wishes to continue to remain in the employ of the Company and its affiliated entities on the terms and conditions set forth in this Agreement.

        NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:

        1.    Employment Period.

        (a)    The Company shall continue to employ the Executive, and the Executive shall remain in the employ of the Company, in accordance with the terms and conditions set forth in this Agreement, commencing on July 1, 2004 (the "Effective Date") and continuing until the third anniversary of the Effective Date or such later date as provided in Section 1(b) herein (the "Employment Period"). This Agreement shall become effective on the Effective Date.

        (b)   Commencing on the date one year after the Effective Date, and on each anniversary of such date (such date and each such anniversary thereof hereinafter referred to as the "Renewal Date"), the Employment Period shall be extended automatically so as to terminate on the third anniversary of such Renewal Date, unless at least 60 days prior to the Renewal Date either party gives the other party written notice not to so extend the Employment Period.

        2.    Position and Duties.

        (a)    During the Employment Period, the Executive shall serve as Executive Vice President, Chief Financial Officer and Chief Administrative Officer of the Company. The Executive's responsibilities as Executive Vice President, Chief Financial Officer and Chief Administrative Officer shall include all aspects of the Company's and its subsidiaries' businesses. For purposes of the foregoing sentence, the term "subsidiary" means any entity directly or indirectly controlled by the Company or any successor company. The Executive shall serve as an employee of the Company and with such duties and responsibilities as are currently assigned to her, and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to her by the Chief Executive Officer of the Company. As Executive Vice President, Chief Financial Officer and Chief Administrative Officer, the Executive shall report solely to the Chief Executive Officer of the Company. In addition, and without further compensation, upon reasonable request, the Executive shall serve as a director and/or officer of one or more of the Company's affiliates if so elected or appointed from time to time. For purposes of this Agreement, the term "affiliate" means any entity directly or indirectly controlling, controlled by or under common control with the Company or any successor company. Notwithstanding the foregoing, the Executive's sole remedy with respect to a loss of her title as Chief Administrative Officer is to terminate her employment for Good Reason (as defined below).

        (b)   During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote substantially all of her attention and time during normal business hours and, as reasonably required, outside of normal business hours, to the business and affairs of the Company and its affiliates, as directed by the Chief Executive Officer, and, to the extent necessary to discharge the responsibilities assigned to the Executive under this Agreement, use the Executive's best reasonable efforts to carry out such responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to serve on corporate, industry, civic, higher education or charitable boards or committees, so long as such activities do not conflict or materially interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement, violate the terms of this Agreement, or violate policies of the Company as in effect from time to time and applicable to the Executive, including without limitation the Principles of Business Integrity.

        3.    Compensation.    Except as otherwise expressly provided below (or as provided otherwise under the terms of a plan, policy or other compensation or benefits arrangement in which the Executive participates), the Executive's compensation during the Employment Period shall be determined by the Compensation Committee of the Board of Directors of Constellation ("Board") or any successor thereto.

        (a)    Annual Base Salary.    During the Employment Period, the Executive shall receive an annual base salary of no less than $500,000 (such annual base salary, in effect from time to time, "Annual Base Salary"). The Annual Base Salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time.

        (b)    Incentive Compensation.    During the Employment Period, the Executive shall participate in such short-term and long-term incentive compensation plans, policies or arrangements of the Company at the following minimum levels: (1) annual incentive opportunity target of 100% of Annual Base Salary, with a minimum annual opportunity of 0% of Annual Base Salary and a maximum annual opportunity of 300% of Annual Base Salary, based on Company and individual performance and which, if earned, shall be payable when similar annual incentive targets are paid to other senior executives of the Company; (2) annual grant of long-term incentive opportunity with a value at grant of $1,000,000 in such forms and subject to such terms as may be determined by the Compensation Committee of the Board, subject to and in accordance with the terms of any applicable plans pursuant to which any such grant is made, which annual grants shall be made at the same time that similar grants are made to other senior executives of the Company but, in any event, prior to the applicable annual anniversary date of the Effective Date; and (3) annual grant of service-based restricted stock with a value of $500,000 with three-year ratable vesting, which annual grants shall be made at the same time that long-term incentive grants are made to other senior executives of the Company but, in any event, prior to the applicable annual anniversary date of the Effective Date.

        (c)    Fringe Benefits and Perquisites.    During the Employment Period, the Executive shall be entitled to receive fringe benefits and perquisites which are commensurate with her position and at least comparable to those received by other senior executives of the Company.

        (d)    Other Benefits.    In addition, and without limiting the generality of the foregoing, during the Employment Period, and subject to any applicable eligibility requirements, (i) the Executive shall be entitled to participate in all applicable incentive, savings and retirement plans (qualified and non-qualified), practices, policies and programs provided by the Company to the same extent as other senior executives of the Company; and (ii) the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in, and shall receive benefits under, applicable welfare benefit plans, practices, policies and programs provided by the Company, including, without limitation, medical, prescription, dental, disability, sick leave, life insurance, accidental death and travel accident insurance plans and programs, to the same extent as other senior executives of the Company. Without limiting the foregoing, the Executive shall have the right to participate in any supplemental executive retirement plan that may be implemented by the Company, and to receive benefits thereunder at least as favorable as any other executive vice president of the Company.

        4.    Termination of Employment.

        (a)    Death or Disability.    The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. For purposes of this Agreement, "Disability" shall mean the Executive's inability, with or without reasonable accommodation and due to physical or mental incapacity, to substantially perform her duties and responsibilities hereunder for a period of 180 consecutive days, or for an aggregate of 270 days in any 365-day period. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice and shall be effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date.

        (b)    By the Company.

          (i)  The Board may terminate the Executive's employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, "Cause" means:

        A.     the Executive is convicted of a felony involving moral turpitude;

        B.     the Executive persistently and unjustifiably fails or refuses to comply with any written directive of the Chief Executive Officer of the Company other than a directive constituting an assignment described in Section 4(c)(i)A;

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        C.    the Executive engages in conduct or activities that constitutes disloyalty to the Company or an affiliate thereof, and such conduct or activities are materially damaging to the property, business or reputation of the Company or an affiliate thereof; or

        D.    the Executive embezzles or knowingly, and with intent, misappropriates property of the Company or an affiliate thereof, or unlawfully appropriates any corporate opportunity of the Company or an affiliate thereof.

         (ii)  A termination of the Executive's employment for Cause shall be effected only in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies, and stating the date, time and place of the Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of the Board at which the Executive's termination for Cause will be considered, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination for Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Board Meeting for Cause. The Executive's termination for Cause shall be effective when and if a resolution is duly adopted at the Board Meeting for Cause by a two-thirds vote of the entire membership of the Board, excluding employee directors, stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause, and that such conduct constitutes Cause under this Agreement. The failure to set forth any fact or circumstance in a Notice of Termination for Cause shall not constitute a waiver of the right to assert, and shall not preclude the Company from asserting such fact or circumstance in an attempt to enforce any right under or provision of this Agreement. A determination by the Board that Cause exists shall be subject to de novo review in accordance with Section 20.

        (iii)  The Board may terminate the Executive's employment without Cause at any time upon 30 days prior written notice to the Executive.

        (c)    Good Reason.

          (i)  The Executive may terminate employment for Good Reason or without Good Reason. For purposes of this Agreement, "Good Reason" means (without the Executive's express written consent):

        A.     (1) the assignment to the Executive of duties materially inconsistent with her authorities, duties, responsibilities and status (including offices, title, and reporting relationships) as Chief Administrative Officer of the Company or Chief Financial Officer of the Company, (2) any material reduction or alteration in the nature or status of the Executive's authorities, duties, or responsibilities or (3) the elimination by the Company of the Executive's Chief Administrative Officer of the Company or Chief Financial Officer of the Company title, unless such act is remedied by the Company within 10 business days after receipt of written notice thereof given by the Executive; provided, however, that the none of the following shall constitute Good Reason: (1) elimination of the Executive's title as Chief Administrative Officer or the Executive's responsibilities with respect to the Company's human resources, legal and/or risk management groups following a Change in Control (as defined in the Change in Control Severance Agreement made July 1, 2004 between the Company and Executive (the "Change in Control Severance Agreement")); (2) elimination of the Executive's responsibilities with respect to the Company's audit and/or risk management groups following a determination by the Company's Audit Committee that the assignment of such responsibilities to another officer who is not the Chief Financial Officer of the Company is in the best interests of the Company; or (3) a determination by the Company to have its General Counsel report to the Company's Chief Executive Officer rather than the Executive;

        B.     a reduction by the Company of the Executive's Annual Base Salary as in effect immediately prior to the date of such reduction, unless such reduction is less than ten percent (10%) and it is either (i) replaced by an incentive opportunity equal in value; or is (ii) consistent and proportional with an overall reduction in management compensation due to extraordinary business conditions, including but not limited to reduced profitability and other financial stress (i.e., the base salary of the Executive will not be singled out for reduction in a manner inconsistent with a reduction imposed on other executives of the Company);

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        C.    the relocation of the Executive's office more than 50 miles from the Executive's office immediately prior to the Effective Date;

        D.    failure of the Company to provide (i) the Executive the opportunity to participate in all applicable incentive, savings and retirement plans, practices, policies and programs of the Company to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company, and (ii) the Executive and/or the Executive's family, as the case may be, the opportunity to participate in, and receive all benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company, including, without limitation, medical, prescription, dental, disability, sick benefits, employee life insurance, accidental death and travel insurance plans and programs, to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company;

        E.     failure of the Company to provide the Executive such perquisites as the Company may establish from time to time which are commensurate with the Executive's position and at least comparable to those received by other senior executives at the Company;

        F.     the failure by the Company to comply with paragraph (c) of Section 12 of this Agreement; or

        G.    any other substantial breach of this Agreement by the Company that either is not taken in good faith or is not remedied by the Company promptly after receipt of notice thereof from the Executive.

         (ii)  The Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein; provided, however, that if Executive desires to terminate her employment for "Good Reason," she must provide the Company with written notice ("Notice of Good Reason") of the existence of an event constituting Good Reason within six (6) months of the occurrence thereof or, if such event is not immediately recognizable by the Executive, within six (6) months of the date the Executive became or reasonably should have become aware of such event, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A termination of employment by the Executive for Good Reason shall be effective on the latest of (x) 20 days after giving notice of intent to terminate employment for Good Reason, (y) 10 days after the expiration of the Company's right to cure the event constituting Good Reason set forth below; and (z) the date specified in the Notice of Good Reason (which date shall not be less than 30 days nor more than 4 months after the date of the Notice of Good Reason); provided, however, that no event described hereunder shall constitute Good Reason if such event is remedied by the Company within ten (10) days after receipt of the Notice of Good Reason by the Company from the Executive. If the Company disputes the existence of Good Reason, the Company shall provide to the Executive written notification of such dispute within ten (10) days after the receipt of the Notice of Good Reason by the Company from the Executive.

        (d)    Date of Termination.    For purposes of this Agreement, the "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason or without Good Reason is effective, as the case may be, all in accordance with the terms of this Section 4.

        5.    Obligations of the Company upon Termination.

        (a)    By the Company other than for Cause, Death or Disability, or by the Executive for Good Reason.    If, during the Employment Period, either (1) the Company terminates the Executive's employment, other than for Cause, death, or Disability, or (2) the Executive terminates her employment for Good Reason,

          (i)  the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination (or such later date which is no more than 7 days after the expiration of the revocation period for the release set forth in Section 5(d) below), the sum of the following amounts: (i) any portion of the Executive's Annual Base Salary through the Date of Termination that has been earned but not yet paid; and (ii) an amount representing the annual incentive target (which for this purpose shall be 100% of the Annual Base Salary) for the period that includes the Date of Termination, multiplied by a fraction, the numerator of which is the number of days in such period through the Date of Termination, and the denominator of which is the total number of days in the relevant period;

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         (ii)  the Company shall make a lump sum payment to the Executive within 30 days after the Date of Termination (or such later date which is no more than 7 days after the expiration of the revocation period for the release set forth in Section 5(d) below) equal to $4,500,000;

        (iii)  the Company shall provide the Executive with benefits under the Company's employee health and dental benefit plans, as if she had remained employed by the Company pursuant to this Agreement through the end of the Employment Period (or, if later, the date that is the second anniversary of the Date of Termination); provided, that to the extent any benefits under the Company's health and dental benefit plans cannot be provided pursuant to a plan or program maintained by the Company for its employees, the Company shall provide the substantially equivalent value of such benefits outside such plan or program at no additional cost (including, but not by way of limitation, tax cost) to the Executive; and provided, further, that during any period when the Executive is eligible to receive at least equivalent health and dental benefits under another employer-provided plan, the health and dental benefits provided by the Company under this Section 5(a)(ii) shall cease;

         (iv)  (A) any non-performance-based equity or other non-performance-based grant, including, without limitation, options, made prior to the Effective Date under a Company long-term incentive plan that is outstanding on the Date of Termination shall, immediately prior to the effectiveness of termination of the Executive's employment, be fully vested and any restrictions shall lapse; (B) any non-performance-based equity or other non-performance-based grant, including, without limitation, options, made on or after the Effective Date under a Company long-term incentive plan that is outstanding on the Date of Termination shall, immediately prior to the effectiveness of termination of the Executive's employment, vest and any restrictions shall lapse with respect to the number of shares or units outstanding multiplied by a fraction, the numerator of which is the number of days in the service or other restriction period through the Date of Termination and the denominator of which is the total number of days in the service or other restriction period; (C) any performance-based equity or other grant made prior to the Effective Date under a Company long-term incentive plan that is outstanding on the Date of Termination that is earned by the Executive based on the Company's results achieved during the applicable performance periods as determined by the Compensation Committee of the Board shall be paid out to the Executive in full when such performance period awards are payable to other Company long-term incentive plan participants; (D) any performance-based equity or other grant made on or after the Effective Date under a Company long-term incentive plan that is outstanding on the Date of Termination that is earned by the Executive based on the Company's results achieved during the applicable performance periods as determined by the Compensation Committee of the Board shall be paid out to the Executive when such performance period awards are payable to other Company long-term incentive plan participants, with respect to the number of shares or units awarded multiplied by a fraction, the numerator of which is the number of days in the performance period through the Date of Termination and the denominator of which is the total number of days in the performance period; and (E) vested options outstanding on the Date of Termination and unvested options outstanding on the Date of Termination that vest in accordance with this Section 5(a)(iv) shall be exercisable and shall remain in effect and exercisable through the end of their respective terms, without regard to the termination of the Executive's employment; and

          (v)  For a 60-day period commencing on the Date of Termination, the Executive is entitled to receive outplacement services from one or more organizations that are offered by the Company from time to time, with such services capped at a Company cost of $50,000.

Certain of the payments and benefits provided pursuant to this Section 5(a) are intended as liquidated damages for a termination of the Executive's employment by the Company other than for Cause, death, or Disability, or for the actions of the Company leading to a termination of the Executive's employment by the Executive for Good Reason, and, except as otherwise expressly provided for in Section 6 below, shall be the sole and exclusive remedy therefor. As a condition to receipt of such payments and benefits, the Executive must sign and not subsequently revoke a general release in favor of the Company and its affiliates, as set forth in Section 5(e) below. Upon compliance with the provisions of this Section 5(a), the Company shall have no further obligations under this Agreement, except as specified in Section 6 or 7 below.

Any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) that has not been paid as of the Date of Termination, will be paid in accordance with the terms and conditions of the plan, policy or arrangement pursuant to which the amounts were deferred.

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        (b)    Death or Disability.    If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period, the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's estate or legal representative) in a lump sum in cash (except amounts payable pursuant to the terms of a plan in equity shall be paid in equity) within 30 days after the Date of Termination (or such later date which is no more than 7 days after the expiration of the revocation period for the release set forth in Section 5(d) below), the sum of the following amounts: (i) any portion of the Executive's Annual Base Salary through the Date of Termination that has been earned but not yet paid; and (ii) an amount representing the annual and long-term incentive compensation for the period that includes the Date of Termination, computed by assuming that the amount of all such incentive compensation would be equal to the target amount (expressed in shares or share equivalents if applicable) of such incentive compensation that the Executive would have been eligible to earn for such period, and multiplying that amount by a fraction, the numerator of which is the number of days elapsed in such period through the Date of Termination, and the denominator of which is the total number of days in the relevant period; provided, however that with respect to options outstanding on the Date of Termination, unvested options will lapse on such date, and vested options shall remain in effect and exercisable through the earlier of 60 months after the Date of Termination and the end of their respective terms. Any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) that has not been paid as of the Date of Termination, will be paid in accordance with the terms and conditions of the plan, policy or arrangement pursuant to which the amounts were deferred. As a condition to receipt of such payments and benefits, the Executive or, in the case of the Executive's death, the Executive's designated beneficiaries (or, if there is no such beneficiary, the Executive's estate or legal representative) must sign and not subsequently revoke a general release in favor of the Company and its affiliates as set forth in Section 5(e) below. Upon compliance with the provisions of this Section 5(b), the Company shall have no further obligations under this Agreement, except as specified in Section 6 or 7 below.

        (c)    By the Company for Cause or by the Executive other than for Good Reason.    If, during the Employment Period, the Executive's employment is terminated by the Company for Cause or by the Executive other than for Good Reason, the Company shall pay the Executive any portion of the Annual Base Salary through the Date of Termination that has been earned but not yet paid. Any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) that has not been paid as of the Date of Termination, will be paid in accordance with the terms and conditions of the plan, policy or arrangement pursuant to which the amounts were deferred. Upon compliance with the provisions of this Section 5(c), the Company shall have no further obligations under this Agreement, except as specified in Section 6 or 7 below.

        (d)    Expiration of Term.    If the Employment Period is not renewed from time to time in accordance with Section 1(b) hereof, then, upon expiration of the Employment Period, the Company shall pay to the Executive in a lump sum in cash (except amounts payable pursuant to the terms of a plan in equity shall be paid in equity), the sum of the following amounts: (i) any portion of the Executive's Annual Base Salary through the last day of the Employment Period that has been earned but not yet paid; and (ii) the annual and long-term incentive compensation for the period that includes the last day of the Employment Period, computed by assuming that the amount of all such incentive compensation would be equal to the target amount (expressed in shares or share equivalents if applicable) of such incentive compensation that the Executive would have been eligible to earn for such period, and multiplying that amount by a fraction, the numerator of which is the number of days elapsed in such period through the last day of the Employment Period, and the denominator of which is the total number of days in the relevant period. Further, in the event of any non-renewal of the Employment Period, unvested options will lapse on the last day of the Employment Period, and vested options shall remain in effect and exercisable through the earlier of 60 months after the last day of the Employment Period and the end of their respective terms. Any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) that has not been paid as of the Date of Termination, will be paid in accordance with the terms and conditions of the plan, policy or arrangement pursuant to which the amounts were deferred. As a condition to receipt of such payments and benefits, the Executive must sign and not subsequently revoke a general release in favor of the Company and its affiliates as set forth in Section 5(e) below. Upon compliance with the provisions of this Section 5(d), the Company shall have no further obligations under this Agreement, except as specified in Section 6 or 7 below.

        (e)    Release.    The benefits described in Sections 5(a), 5(b) and 5(d) are payable by the Company to the Executive, the Executive's designated beneficiaries, estate or legal representative (whichever is applicable) only if after the Date of Termination, the Executive, the Executive's designated beneficiaries, estate or legal representative

6

(whichever is applicable) executes (and does not subsequently revoke) in writing and submits to the Company, in the form, manner, and subject to the timing reasonably established by the Company, a general release of all legal claims, including those against the Company and affiliates thereof (and including the Company's and such affiliates' respective officers, directors, shareholders, employees, agents and representatives) substantially in the form of Exhibit A hereto. Such agreement shall be furnished by the Company to the Executive, the Executive's designated beneficiaries, estate or legal representative (whichever is applicable) as soon as possible, but no later than ten (10) business days, after the Date of Termination.

        6.    Non-Exclusivity of Rights.    Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company, for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliates, except as otherwise specified in this Section 6 or in the terms of any such other plan, program, policy or practice. However, if the Executive receives severance benefits under Section 5 of this Agreement, the Executive shall not also be entitled to any benefit under any other severance plan, program, arrangement or agreement maintained by the Company or any of its affiliates except under the Change in Control Severance Agreement; provided, however, that with respect to this Agreement and the Change in Control Severance Agreement, to avoid duplication of payments or benefits, only such payments and benefits that would be most beneficial to the Executive, as determined by the Executive, shall be provided. Vested payments or benefits the Executive is otherwise entitled to receive under any plan, policy, practice, or program of, or any contract or agreement with, the Company or any of its affiliates on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract, or agreement, as the case may be, except to the extent receipt of such payments or benefits under the other plan, policy, practice, or program would result in an unintended duplication of payments or benefits, in which case the payments and benefits that would be most beneficial to the Executive, as determined by the Executive, shall be provided.

        7.    Full Settlement.    Except as expressly provided in Section 6 above, the Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others; provided, that the Company shall be entitled to withhold any amounts it is required to withhold, as contemplated by Section 16. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and (except as expressly provided in Section 5(a)(ii)) the amount of any payment or benefit provided for in this Agreement shall not be reduced regardless of whether the Executive obtains other employment.

        8.    Confidential Information.

        The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, data, information concerning any inventions, discoveries, improvements, processes, methods, trade secrets or research (including, without limitation, computer programs and software development) relating to the Company or any of its affiliates and their respective businesses that the Executive obtains or learns of during the Executive's employment by the Company or any of its affiliates and that is not public knowledge (other than as a result of the Executive's violation of this Section 8) ("Confidential Information"). The Executive shall not communicate, divulge, disseminate or use for the benefit of herself or any other Person (as defined below), Confidential Information at any time during or after the Executive's employment with the Company, except (i) with the prior written consent of the Company, (ii) to the Company and its affiliates, or to any authorized (or apparently authorized) agent or representative of any of them, (iii) in connection with performing her duties hereunder, (iv) when required to do so by law or by a court, governmental agency, legislative body, arbitrator or other Person with apparent jurisdiction to order her to divulge, disclose or make accessible such information, (v) in the course of any proceeding under Section 20 or (vi) in confidence to an attorney or other professional advisor for the purpose of securing professional advice. As used herein, the term "Person" shall mean any individual, corporation, partnership, limited liability company, joint venture, trust, estate, board, committee, agency, body, employee benefit plan, or other person or entity.

        9.    Amendment of Agreement.    This Agreement may not be modified nor may any provisions of this Agreement be waived except by written agreement of the parties.

        10.    Construction.    Wherever any words are used herein in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply.

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        11.    Governing Law.    This Agreement shall be governed, construed and enforced in accordance with its express terms, and otherwise in accordance with the laws of Maryland.

        12.    Successors and Assigns.

        (a)    This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. In the event of the Executive's death or a judicial determination of her incompetence, references in this Agreement shall be deemed, where appropriate, to refer to her beneficiary, estate or other legal representative.

        (b)   This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

        (c)    The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.

        13.    Indemnification.

        (a)    If the Executive is made a party or is threatened to be made a party to any Proceeding (as defined below) by reason of the fact that she is or was a director, officer, member, employee, agent, manager, trustee, consultant or representative of the Company or any of its affiliates or is or was serving at the request of the Company or any of its affiliates, or in connection with her service hereunder, as a director, officer, member, employee, agent, manager, trustee, consultant or representative of another Person, or if any Claim (as defined below) is made or is threatened to be made, that arises out of or relates to the Executive's service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless to the fullest extent permitted or authorized by the Certificate of Incorporation or Bylaws of the Company, or if greater, by applicable law, against any and all judgments, penalties, fines, settlements and reasonable expenses actually incurred by the Executive (including, without limitation, attorneys' and other professional fees and charges, judgments, interest, expenses of investigation, penalties, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by the Executive in connection therewith or in connection with seeking to enforce her rights under this Section 13, and such indemnification shall continue as to the Executive even if she has ceased to be a director, officer, member, employee, agent, manager, trustee, consultant or representative of the Company or other Person and shall inure to the benefit of her heirs, executors and administrators. The Executive shall be entitled to prompt advancement of any and all reasonable expenses (including, without limitation, reasonable attorneys' and other professional fees and charges) incurred by her personally in connection with any such Proceeding or Claim, or in connection with seeking to enforce her rights under this Section 13, any such advancement to be made within 15 days after the Executive gives written notice, supported by reasonable documentation, requesting such advancement. Such notice shall include (i) a written affirmation by the Executive of the Executive's good faith belief that the standard of conduct necessary for indemnification by the Company as authorized under Maryland corporate law has been met and (ii) a written undertaking by the Executive to repay the amount advanced if it is ultimately determined that such standard of conduct has not been met. Nothing in this Agreement shall operate to limit or extinguish any right to indemnification, advancement of expenses, or contribution that the Executive would otherwise have (including, without limitation, by agreement or under applicable law).

        (b)   Neither the failure of Company (including its Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of any Proceeding concerning payment of amounts claimed by the Executive under Section 13(a) that indemnification of the Executive is proper because she has met the applicable standard of conduct, nor a determination by the Company (including its Board of Directors, independent legal counsel or stockholders) that the Executive has not met such applicable standard of conduct, shall create a presumption that the Executive has not met the applicable standard of conduct.

        (c)    As used herein, the term "Proceeding" shall include, without limitation, any actual or threatened action, suit or proceeding, whether civil, criminal, administrative, investigative, appellate, formal, informal or other. As used herein, the term "Claim" shall include, without limitation, any claim, demand, request, investigation, dispute, controversy, threat, discovery request, or request for testimony or information.

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        14.    Attorney Fees.    The Company will reimburse the Executive for her legal fees and expenses that are incurred by the Executive in connection with the negotiation and execution of this Agreement not to exceed $15,000.

        15.    Notice.    Any notice, consent, demand, request, or other communication given to a Person in connection with this Agreement shall be in writing and shall be deemed to have been given to such Person (x) when delivered personally to such Person or (y), provided that a written acknowledgment of receipt is obtained, five days after being sent by prepaid certified or registered mail, or two days after being sent by a nationally recognized overnight courier, to the address (if any) specified below for such Person (or to such other address as such Person shall have specified by ten days' advance notice given in accordance with this Section 15) or (z), in the case of the Company only, on the first business day after it is sent by facsimile to the facsimile number set forth below (or to such other facsimile number as shall have specified by ten days' advance notice given in accordance with this Section 15), with a confirmatory copy sent by certified or registered mail or by overnight courier in accordance with this Section 15.

If to the Company:	Constellation Energy Group, Inc. 750 East Pratt Street, 17th Floor Baltimore, MD 21203 Attn: Charles A. Berardesco Fax #: (410) 783-3049
If to the Executive:	The address of her principal residence as it appears in the Company's' records:
	With a copy to:
	Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, New York 10022 Attn: Robert M. Sedgwick, Esq. Fax #: 212-735-8708

If to a beneficiary of the Executive: The address most recently specified by the Executive or the beneficiary.

        16.    Severability.    The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. This Section 15 shall be in addition to the similar provisions of Section 8(d)(iii) and shall not be applicable to Section 8.

        17.    Withholding.    Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations.

        18.    Entire Agreement/Inconsistencies.    Unless otherwise specifically provided in this Agreement, the Executive and the Company acknowledge that this Agreement supersedes all other agreements between them or between the Executive and the Company or any affiliate, concerning the subject matter hereof, and the Executive acknowledges that she is not entitled to severance benefits under any other severance plan, program or arrangement sponsored by the Company or an Affiliate; provided, however, that notwithstanding the foregoing, (a) this Agreement shall not supersede, and the Executive shall be entitled to applicable payments and benefits under the Change in Control Severance Agreement referenced in Section 6 of this Agreement to the extent the Executive elects to receive payments and benefits under the Change in Control Severance Agreement, in lieu of duplicative payments and benefits under this Agreement, all as contemplated by Section 6 of this Agreement and (b) nothing herein shall limit or reduce any right or benefit that shall have accrued to the Executive on or prior to the Date of Termination. Further, the parties acknowledge that concurrent with the execution of this Agreement, the Offer Letter and the attached Severance Agreement between Constellation and the Executive made May 22, 2001 is terminated. In the event of any inconsistency between any provision of this Agreement and any provision of any employee handbook, personnel manual, program, policy, or arrangement of the Company or its affiliates, or any provision of any agreement, plan, or corporate governance document or any of them, the provisions of this Agreement shall control unless the Executive otherwise agrees in a writing that expressly refers to the provision of this Agreement whose control she is waiving. There shall be no contractual or similar restrictions on the Executive's right to terminate her employment with the Company, or on her post-employment activities, other than restrictions expressly set forth in this Agreement and restrictions to which the Executive may agree after the Effective Date.

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        19.    Alienability.    The rights and benefits of the Executive under this Agreement may not be anticipated, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void.

        20.    Dispute Resolution.    The parties agree that any disputes, claims, complaints or causes of action of any type or kind (including but not limited to any disputes relating in any way to this Agreement) which the parties may have between themselves shall be resolved by final and binding arbitration using a single arbitrator from JAMS (jamsadr.com) pursuant to its then existing commercial arbitration rules or if JAMS is no longer available then using a single arbitrator from the American Arbitration Association using its then existing commercial arbitration rules. The arbitration proceedings shall be conducted in Washington, D.C. unless the parties mutually agree in writing to a different location. Any award rendered in the arbitration may be enforced in any court of competent jurisdiction. Pending the resolution of any such claim or dispute, the Executive (and her beneficiaries) shall continue to receive all payments and benefits due under this Agreement or otherwise, except to the extent that the arbitrators otherwise provide. The Company will pay all reasonable fees and expenses, if any, (including, without limitation, legal fees and expenses) as such are incurred by the Executive to enforce this Agreement and that result from a breach of this Agreement by the Company.

        21.    Counterparts.    This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument.

        IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company has caused this Agreement to be duly executed in its name on its behalf, all as of the day and year first above written.

CONSTELLATION ENERGY GROUP, INC.
By:	/s/
EXECUTIVE
/s/ E. Follin Smith

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Exhibit A

FORM OF
AGREEMENT, RELEASE AND WAIVER

        This Agreement, Release and Waiver ("Agreement") is entered into by and between [Executive] ("Executive") and Constellation Energy Group, Inc. ("Company").

           1.  The parties agree that Executive's employment with the Company shall terminate on [    ].

           2.  In consideration of Executive's termination of employment with the Company and her provision of certain waivers and promises as set forth in this Agreement, the Company agrees to provide the Executive with the payments, benefits and other rights (collectively, the "Consideration") set forth in the Employment Agreement, dated as of July 1, 2004, by and between the Executive and the Company (the "Employment Agreement"), and/or the Change of Control Severance Agreement, dated as of July 1, 2004, by and between the Executive and the Company (the "Severance Agreement"). Certain portions of the Consideration are over and above any benefit to which Executive would be entitled under the Company's benefit plans and policies upon the termination of her employment.

           3.  The Company hereby agrees to provide the benefits set forth in paragraph 2 to Executive from the Company's general assets. Executive is not entitled to any of the Consideration prior to the expiration of the seven-day revocation period described in paragraph 15 below. Such amounts set forth in paragraph 2 are not subject to alienation, assignment, attachment, garnishment or other legal process by or on behalf of Executive until such amounts are actually received by her. Such payments are subject to applicable payroll tax withholding (if applicable) and will not be considered as compensation for purposes of the Company's retirement or welfare benefit plans.

           4.  (a) In exchange for the Company's agreement to provide the Consideration, Executive knowingly, freely and voluntarily agrees that, to the full extent the law permits, she hereby releases and discharges the following entities: the Company and any person or entity controlling, controlled by or under common control with the Company ("Affiliate"), their successors, officers, directors, agents, representatives or employees (collectively, "Releasees") from any and all debts, obligations, claims, demands, judgments or causes of action of any kind that relate in any way to her employment with the Company or the termination of such employment whatsoever, known or unknown, in common law, in tort, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), and/or reimbursements of costs of any kind, including, but not limited to any and all claims, demands, rights and/or causes of action which might arise out of allegations relating to a claimed breach of contract (express or implied), or any tort, legal actions under Title VII of the Civil Rights Act of 1964, as amended (42 U.S.C. § 2000e et seq.), the Civil Rights Act of 1866 and 1871 (42 U.S.C. §§ 1981 and 1983), the Americans with Disabilities Act (42 U.S.C. § 12101 et seq.), the Age Discrimination in Employment Act (29 U.S.C. § 621 et seq.), the Equal Pay Act (29 U.S.C. § 206(d)(1)), the Rehabilitation Act (29 U.S.C. §§ 701-704), Executive Order 11246, or any other Federal, State, local or common law which may include but not be limited to those concerning age, gender, race, religion, national origin, disability or any other protected classification or category which expressly or impliedly may form the basis of alleged discrimination, or any other law or regulation. To the extent any such actions are pending, Executive agrees that they are or will be immediately withdrawn with prejudice upon her receipt of the payment set forth in Section 5(a)(ii) of the Employment Agreement or in Section 2(a) or Section 3(a) of the Severance Agreement, whichever is applicable. Executive also knowingly and voluntarily agrees that, to the full extent the law permits, she waives any and all causes of action and will not file, cause to be filed, or voluntarily assist in the prosecution of any charges, claims, lawsuits, or other actions of any kind against the Releasees. Executive acknowledges and understands, however, that she is not waiving claims that may arise based on events occurring after she executes this Agreement. Moreover, nothing in this Agreement shall be construed to prohibit Executive from engaging in any legally protected activity including activity protected by the Sarbanes-Oxley Act. Notwithstanding the foregoing, such released claims shall not (i) include any claims to enforce Executive's rights under, set forth in or with respect to, the Employment Agreement or the Severance Agreement, or any other accrued rights under the applicable terms of applicable Company plans, programs and arrangements or (ii) apply to any claim that Executive may have for indemnity or contribution for acts taken while she was employed by the Company pursuant to applicable Company policy or insurance coverage.

        Additionally, Executive does specifically, knowingly and voluntarily waive any and all rights or claims she may have under the Age Discrimination in Employment Act (ADEA).

        (b)   In exchange for the Executive's release set forth in paragraph 4.a. above and other good and valuable consideration the receipt of which is hereby acknowledged by the Company, the Company, on behalf of itself and each of its Affiliates and their successors (collectively, the "Company Releasors"), knowingly, freely and voluntarily agree that, to the

full extent the law permits, they hereby release and discharge the following persons and entities: the Executive, and her heirs, executors, administrators, representatives, agents, successors and assigns (hereinafter collectively referred to as the "Executive Releasees") from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in common law, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), and/or reimbursements of costs of any kind, whether in law or equity and whether arising under federal, state or local law, which the Company Releasors had or now have against each or any of the Executive Releasees, in each case in connection with the Executive's employment with the Company or the termination thereof. Notwithstanding the above, the Executive and the Company acknowledge and agree that the Company Releasors are not waiving any claim or action against the Executive Releasees with respect to any willful, knowing or intentional misconduct of the Executive.

           5.  Nothing in this Agreement, including the payment of any sum by the Company, constitutes an admission by the Releasees of any legal wrong.

           6.  The parties agree that the terms of this Agreement including the consideration set forth in paragraph 2 are confidential and will not be disclosed to any non-parties hereto; provided, however, that Executive may confidentially disclose such information to her spouse, personal attorney, and personal accountant or as otherwise required by applicable law, rule, or regulation (including, without limitation, any regulation of any self-regulatory organization, such as the New York Stock Exchange) or by subpoena, order or civil investigative demand, or as specifically required by any governmental or quasi-governmental agency or body. Should Executive wish to consult with anyone else she deems appropriate to review this Agreement, she must first obtain the written consent of the Company which will not be unreasonably withheld. In addition, the Company may disclose such information as is necessary, in its sole discretion, to any of the Releasees, or to federal, state or local agencies or as otherwise required by applicable law, rule, or regulation (including, without limitation, any regulation of any self-regulatory organization, such as the New York Stock Exchange) or by subpoena, order or civil investigative demand, or as specifically required by any governmental or quasi-governmental agency or body.

           7.  Executive agrees to refrain from making any untruthful, derogatory, unflattering and/or disparaging oral or written statements or communications to the public, or to any third party, about the Releasees, their business practices, or about the business practices of any present or former officers, directors, executives, employees, representatives, agents or customers, or any related services of the Releasees or about any general matter concerning the reputations, standing in the business community, or business practices of the Releasees. The Company agrees to refrain and to use best reasonable efforts to cause the Releasees to refrain from making any untruthful, derogatory, unflattering and/or disparaging oral or written statements or communications to the public, or to any third party, about the Executive or about any general matter concerning the reputation, standing in the business community, or business practices of the Executive. The Company further agrees to use its best reasonable efforts to obtain the Executive's prior approval for any announcement to the general public concerning her separation from the Company, provided that such approval is not unreasonably withheld or delayed. Nothing in this Paragraph shall prevent either party from making truthful statements, or disclosing documents and information, (a) in confidence to their attorneys, accountants and, in the Executive's case, her spouse, (b) as required by applicable law, rule, or regulation (including, without limitation, any regulation of any self-regulatory organization, such as the New York Stock Exchange) or by subpoena, order or civil investigative demand, or (c) as specifically required by any governmental or quasi-governmental agency or body.

           8.  Executive further agrees that she will, immediately upon termination of her employment with the Company, and in no event later than twenty-four (24) hours after the Termination Date, return to the Company all property of the Releasees as well as all books, records, customer and pricing lists, correspondence, contracts or orders, advertising or promotional materials, and other written, typed or printed materials, whether furnished by any of the Releasees or prepared by Executive, which contain any information relating to the Releasees' business, and Executive agrees that she will neither make nor retain copies of such materials.

           9.  Executive agrees that, for a period of one (1) year after the Termination Date she will not, directly or indirectly, as an officer, director, employee, consultant, stockholder, partner or sole proprietor, induce, entice or hire, or attempt to hire or employ any employee of the Company or any of its Affiliates or any former employee of the Company or any of its Affiliates who had been an employee of the Company or any of its Affiliates at any time during the one year period prior to Executive's attempted hiring of such individual.

         10.  The Company and Executive hereby agree that, if the scope or enforceability of any restrictive covenant in this Agreement is in any way disputed at any time, subject to Section 11, a court or other trier of fact of competent jurisdiction

2

may modify and enforce the covenant to the maximum extent that it believes to be enforceable under the circumstances existing at that time.

         11.  The parties agree that any disputes, claims, complaints or causes of action of any type or kind (including but not limited to any disputes relating in any way to this Agreement) which the parties may have between themselves shall be resolved by final and binding arbitration using a single arbitrator from JAMS (jamsadr.com) pursuant to its then existing commercial arbitration rules or if JAMS is no longer available then using a single arbitrator from the American Arbitration Association using its then existing commercial arbitration rules. The arbitration proceedings shall be conducted in Washington, D.C. unless the parties mutually agree in writing to a different location. Any award rendered in the arbitration may be enforced in any court of competent jurisdiction. Pending the resolution of any such claim or dispute, the Executive (and her beneficiaries) shall continue to receive all payments and benefits due under this Agreement or otherwise, except to the extent that the arbitrators otherwise provide. The Company will pay all reasonable fees and expenses, if any, (including, without limitation, legal fees and expenses) as such are incurred by the Executive to enforce this Agreement and that result from a breach of this Agreement by the Company. Notwithstanding the foregoing, the parties agree that, in the event of a breach by any party of the Sections 6 through 9 of this Agreement, the non-breaching party shall be entitled to institute and prosecute equitable proceedings in any court of competent jurisdiction to enjoin the other party from performing such activities.

         12.  Executive acknowledges that she has been offered a period of at least twenty-one (21) calendar days to consider this Agreement. Executive further acknowledges that unless this Agreement, signed by her, is received by Marc L. Ugol, Senior Vice President, Human Resources of Constellation Energy Group, Inc., 750 E. Pratt Street, 5^th Floor, Baltimore, MD 21202, on or before [    ], it is null and void and unenforceable.

         13.  Executive acknowledges that she has been specifically informed by the Company that for a period of seven (7) calendar days following the date of her execution of this Agreement she has the absolute right to revoke this Agreement by notifying Marc L. Ugol, Senior Vice President, Human Resources of Constellation Energy Group, Inc., 750 E. Pratt Street, 5^th Floor, Baltimore, MD 21202, in writing on or before the expiration of the seven (7) day period.

         14.  This Agreement shall not become effective or enforceable until the aforesaid seven (7) calendar day revocation period has expired.

         15.  This Agreement supersedes any and all other agreements or proposals, written or oral, made by the Company or any Releasee, or on their behalf to Executive, other than the Employment Agreement and the Severance Agreement and, except as set forth in such agreements, this Agreement is the full and final understanding between the parties.

         16.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. This Agreement may only be modified by a written agreement signed by the parties.

         17.  This Agreement shall be governed by the laws of Maryland.

         18.  Executive does hereby acknowledge that she has read and understands this Agreement.

         19.  Executive acknowledges that the Company has advised her to consult with an attorney prior to executing this Agreement.

         20.  Executive does hereby acknowledge that she has executed this Agreement freely and voluntarily.

IN WITNESS WHEREOF, Executive does hereby execute this Agreement on this            day of                , 200[    ].

		(Seal)
	Executive
Received, agreed to and accepted by:	CONSTELLATION ENERGY GROUP, INC.
	By:	(Seal)
	Name: Title:

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Attachment 2

CHANGE IN CONTROL SEVERANCE AGREEMENT

        This Agreement is made the 1st day of July, 2004, by and between CONSTELLATION ENERGY GROUP, INC. (the "Company") and E. Follin Smith (the "Executive").

        WHEREAS, the Company wishes to encourage the orderly succession of management in the event of a Change in Control (as hereinafter defined); and

        WHEREAS, the Company desires to maintain a severance benefit for the Executive covering the period from the date of a Change in Control until the end of the twenty-four month period following the date of a Change in Control, to avoid the loss or the serious distraction of the Executive to the detriment of the Company and its stockholders prior to and during such period when the Executive's undivided attention and commitment to the needs of the Company would be particularly important; and

        WHEREAS, the Executive desires to devote the Executive's time and energy for the benefit of the Company and its stockholders and not to be distracted as a result of a Change in Control.

        NOW, THEREFORE, the parties agree as follows:

1.    Definitions.

        1.1    Annual Award Amount.    The term "Annual Award Amount" means the average of the two highest annual incentive awards under the Company's annual incentive plan (or the annual cash incentive plan maintained by a successor company or a Subsidiary) payable under the terms of such annual incentive plan for the performance year during which the Qualifying Termination occurs, and paid in the last four years to the Executive prior to the occurrence of the Qualifying Termination; provided, however, that (a) if the Executive has not been employed by the Company or a Subsidiary for a sufficient length of time to have been eligible for payment of at least two full annual incentive awards, deemed target award payout shall be used for the one or two years for which the Executive was not so eligible; (b) for any year during which an annual incentive award was paid or is payable to the Executive that was prorated because of less than a full year of plan participation, such award shall be annualized; and (c) for any year during which a guaranteed minimum annual incentive award amount was paid or is payable to the Executive, such full (not prorated because of less than a full year of plan participation) guaranteed annual incentive amount shall be used for such year.

        1.2    Board.    The term "Board" means the Board of Directors of the Company.

        1.3    Cause.    The term "Cause" means the occurrence of any one or more of the following:

        (a)    The Executive is convicted of a felony involving moral turpitude; or

        (b)   The Executive engages in conduct or activities that constitutes disloyalty to the Company or a Subsidiary and such conduct or activities are materially damaging to the property, business or reputation of the Company or a Subsidiary; or

        (c)    The Executive persistently and unjustifiably fails or refuses to comply with any written direction of the Chief Executive Officer of the Company other than a directive constituting an assignment described in Section 1.7(a); or

        (d)   The Executive embezzles or knowingly, and with intent, misappropriates property of the Company or a Subsidiary, or unlawfully appropriates any corporate opportunity of the Company or a Subsidiary.

        A termination of the Executive's employment for Cause for purposes of this Agreement shall be effected only in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies, and stating the date, time and place of the Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of the Board at which the Executive's termination for Cause will be considered, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination for Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Board Meeting for Cause. The Executive's Termination for Cause shall be effective when and if a resolution is duly adopted at the Board Meeting for Cause by a two-thirds vote of the entire membership of the Board, excluding employee directors, stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause, and that conduct constitutes Cause under this Agreement. A determination by the Board that Cause exists shall be subject to de novo review in accordance with Section 12.

        1.4    Change in Control.    The term "Change in Control" means the occurrence of any one of the following events:

        (a)    individuals who, on January 24, 2003, constituted the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to January 24, 2003, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;

        (b)   any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph  (b) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (c)), or (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive);

        (c)    there is consummated a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries (a "Business Combination"), unless immediately following such Business Combination: (A) more than 60% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of at least 95% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or

        (d)   the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or the consummation of a sale of all or substantially all of the Company's assets.

        Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.

        1.5    Effective Date.    The term "Effective Date" means the first date during the term of this Agreement on which a Change in Control occurs provided that the Executive is employed by the Company or a Subsidiary on such date. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with the Company has terminated for any reason prior to the first date on which a Change in Control occurs, this Agreement shall be null and

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void as of the date of such termination of employment; provided, however, that if it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination.

        1.6    Eligible to Retire.    The term "Eligible to Retire" means an Executive who has met the eligibility requirements for retirement under any Company or Subsidiary supplemental executive non-qualified defined benefit retirement plan in which the Executive participated immediately prior to the occurrence of a Qualifying Termination.

        1.7    Good Reason.    The term "Good Reason" means, without the Executive's express written consent, the occurrence after the Effective Date of any one or more of the following:

        (a)    The assignment to the Executive of duties materially inconsistent with the Executive's authorities, duties, responsibilities, and status (including offices, title and reporting relationships) as an executive and/or officer of the Company immediately prior to the Effective Date, or a material reduction or alteration in the nature or status of the Executive's authorities, duties, or responsibilities from those in effect immediately prior to the Effective Date, (including as a type of such reduction or alteration for an Executive who is an officer of a publicly traded company immediately prior to the Effective Date, the Executive occupying the same position or title but with a company whose stock is not publicly traded), unless such act is remedied by the Company or such Subsidiary within 10 business days after receipt of written notice thereof given by the Executive; provided, however, that the elimination of the Executive's title as Chief Administrative Officer or the Executive's responsibilities with respect to the Company's human resources, legal and/or risk management groups following a Change in Control shall not constitute Good Reason; and further provided, however, that elimination of the Executive's responsibilities with respect to the Company's audit group following a determination by the Company's Audit Committee that the assignment of such responsibilities to another officer who is not the Chief Financial Officer of the Company is in the best interests of the Company shall not constitute Good Reason; or

        (b)   A reduction by the Company of the Executive's base salary in effect immediately prior to the Effective Date or as the same shall be increased from time to time, unless such reduction is less than ten percent (10%) and it is either (i) replaced by an incentive opportunity equal in value; or is (ii) consistent and proportional with an overall reduction in management compensation due to extraordinary business conditions, including but not limited to reduced profitability and other financial stress (i.e., the base salary of the Executive will not be singled out for reduction in a manner inconsistent with a reduction imposed on other executives of the Company); or

        (c)    The relocation of the Executive's office more than 50 miles from the Executive's office immediately prior to the Effective Date; or

        (d)   Failure of the Company to provide (i) the Executive the opportunity to participate in all applicable incentive, savings and retirement plans, practices, policies and programs of the Company to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company, and (ii) the Executive and/or the Executive's family, as the case may be, the opportunity to participate in, and receive all benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company, including, without limitation, medical, prescription, dental, disability, sick benefits, accidental death and travel insurance plans and programs, to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company; or

        (e)    Failure of the Company to provide the Executive such perquisites as the Company may establish from time to time which are commensurate with the Executive's position and at least comparable to those received by other senior executives at the Company; or

        (f)    The failure by the Company to comply with paragraph (c) of Section 11 of this Agreement; or

        (g)    Any other substantial breach of this Agreement by the Company that either is not taken in good faith or is not remedied by the Company promptly after receipt of notice thereof from the Executive.

        The Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein; provided, however, that if Executive desires to terminate her employment for "Good Reason," she must provide the Company with written notice ("Notice of Good Reason") of the existence of an event constituting Good Reason within six (6) months of the occurrence thereof or, if such event is not

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immediately recognizable by the Executive, within six (6) months of the date the Executive became or reasonably should have become aware of such event, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A termination of employment by the Executive for Good Reason shall be effective on the latest of (x) 20 days after giving notice of intent to terminate employment for Good Reason, (y) 10 days after the expiration of the Company's right to cure the event constituting Good Reason set forth below; and (z) the date specified in the Notice of Good Reason (which date shall not be less than 30 days nor more than 4 months after the date of the Notice of Good Reason); provided, however, that no event described hereunder shall constitute Good Reason if such event is remedied by the Company within ten (10) days after receipt of the Notice of Good Reason by the Company from the Executive; provided, further, however, that no event described hereunder shall constitute Good Reason if such event is a result of an isolated, insubstantial and inadvertent action that is not taken in bad faith and that is remedied by the Company within ten (10) days after receipt of the Notice of Termination for Good Reason by the Company from the Executive. If the Company disputes the existence of Good Reason, the burden of proof is on the Company to establish that Good Reason does not exist.

        1.8    Ineligible to Retire.    The term "Ineligible to Retire" means an Executive who has not met the eligibility requirements for retirement under any Company or Subsidiary supplemental executive non-qualified defined benefit retirement plan in which the Executive participated immediately prior to the occurrence of a Qualifying Termination.

        1.9    Qualifying Termination.    The term "Qualifying Termination" means

        (a)    The occurrence of any one or more of the following employment termination events during the period beginning with the Effective Date and ending on the second anniversary of such date, shall constitute a "Qualifying Termination":

          (i)  The Company's termination of the Executive's employment without Cause (as defined in Section 1.7); or

         (ii)  The Executive's resignation for Good Reason (as defined in Section 1.7).

        (b)   A Qualifying Termination shall not include a termination of employment by reason of death, disability, the Executive's voluntary termination of employment without Good Reason, or the Company's termination of the Executive's employment for Cause.

        1.10    Subsidiary.    The term "Subsidiary" means any corporation with respect to which the Company owns a majority of the outstanding shares of common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.

2.    Severance Benefits for an Executive Ineligible to Retire.    Upon the occurrence of a Qualifying Termination with respect to an Executive who is Ineligible to Retire:

        (a)    Severance Payment.    The Company shall pay to the Executive an amount equal to three times the sum of the Executive's annual base salary (as in effect on the date of the Qualifying Termination, not reduced by any reduction described in Section 1.7(b) above) and Annual Award Amount. The payment shall be made in a lump sum after the Qualifying Termination, and within approximately 10 business days after the Company receives the executed agreement referred to in 2(e) below but in no case prior to the expiration of any period during which the Executive is permitted to revoke such agreement.

        (b)    Supplemental Retirement Benefits.    For purposes of determining the Executive's supplemental retirement benefits which the Executive is entitled to under the Company's supplemental non-qualified retirement plan in which the Executive participated immediately prior to the Qualifying Termination (or the supplemental retirement plan maintained by a successor company or a Subsidiary), (i) the Executive's service percentage shall be computed by adding three years of executive-level service to the Executive's actual service; (ii) any minimum age and service eligibility requirements for such benefits shall be waived and such benefits shall be fully vested; and (iii) Annual Award Amount shall be used to compute such benefits in lieu of any other annual incentive award amount under such plan.

        (c)    Severance Health Benefits.    The Company shall provide to the Executive a lump sum payment equal to the present value of the Company subsidy toward medical and dental benefits provided to active employees (with such cash payment based on the amount of such subsidy in effect immediately prior to the date of the Qualifying Termination), assuming such deemed subsidy is provided to the Executive for three years after the date of the Qualifying Termination. Also, (i) for an Executive who is at least age 55 with seven or more years of service on the

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date of the Qualifying Termination, the Company shall provide to the Executive an additional lump sum payment equal to the present value of the Company subsidy toward medical and dental benefits provided to a retiree of the Company who has the deemed service used to compute supplemental retirement benefits in Section 2(b) above (based on the amount of such subsidy in effect as of the date of the Qualifying Termination), assuming such subsidy is provided to the Executive beginning immediately after the three year period referenced in the first sentence of this paragraph until the end of the estimated life expectancy of the Executive; and (ii) for an Executive who is not at least age 55 with seven or more years of service on the date of the Qualifying Termination, no additional health benefits payment shall be provided by the Company. Such payment(s) shall be made within approximately 10 business days after the Company receives the executed agreement referred to in 2(e) below but in no case prior to the expiration of any period during which the Executive is permitted to revoke such agreement.

        (d)    Outplacement.    For a 60-day period commencing on the date of the Qualifying Termination, the Executive is entitled to receive outplacement services from one or more organizations that are offered by the Company from time to time, with such services capped at a Company cost of $50,000.

        (e)    Release.    The benefits described in this Section 2 are payable by the Company to the Executive only if after the date of the Qualifying Termination, the Executive executes (and does not subsequently revoke) in writing and submits to the Company, in the form, manner, and subject to the timing established by the Company, an agreement releasing legal claims, including those against the Company and its Subsidiaries, substantially in the form of Exhibit A hereto. Such agreement shall be furnished by the Company to the Executive as soon as possible, but no later than ten (10) business days, after the date of the Qualifying Termination.

3.    Severance Benefits for an Executive Eligible to Retire.    Upon the occurrence of a Qualifying Termination with respect to an Executive who is Eligible to Retire:

        (a)    Severance Payment.    The Company shall pay to the Executive an amount equal to three times the sum of the Executive's annual base salary (as in effect on the date of the Qualifying Termination, not reduced by any reduction described in Section 1.7(b) above) and Annual Award Amount. The payment shall be made in a lump sum after the Qualifying Termination, and within approximately 10 business days after the Company receives the executed agreement referred to in 3(e) below but in no case prior to the expiration of any period during which the Executive is permitted to revoke such agreement.

        (b)    Supplemental Retirement Benefits.    For purposes of determining the Executive's supplemental retirement benefits which the Executive is entitled to under the Company's supplemental non-qualified retirement plan in which the Executive participated immediately prior to the Qualifying Termination (or the supplemental retirement plan maintained by a successor company or a Subsidiary), (i) the Executive's service percentage shall be computed by adding three years of executive-level service to the Executive's actual service; and (ii) Annual Award Amount shall be used to compute such benefits in lieu of any other annual incentive award amount under such plan.

        (c)    Severance Health Benefits.    The Company shall provide to the Executive a lump sum payment equal to the present value of the Company subsidy toward medical and dental benefits provided to active employees, less the Executive's actual Company subsidy toward such benefits (based on the amount of such subsidies in effect as of the date of the Qualifying Termination), assuming such subsidies are provided to the Executive for three years after the date of the Qualifying Termination. Also, the Company shall provide to the Executive an additional lump sum payment equal to the present value of the Company subsidy toward medical and dental benefits provided to a retiree of the Company who has attained age 65 and completed the greater of 20 years or actual years of service, less the Executive's actual Company subsidy toward such benefits (based on the amount of such subsidies in effect as of the date of the Qualifying Termination), assuming such subsidies are provided to the Executive beginning immediately after the three year period referenced in the first sentence of this paragraph until the end of the estimated life expectancy of the Executive. Such payments shall be made within approximately 10 business days after the Company receives the executed agreement referred to in 3(e) below but in no case prior to the expiration of any period during which the Executive is permitted to revoke such agreement.

        (d)    Outplacement.    For a 60-day period commencing on the date of the Qualifying Termination, the Executive is entitled to receive outplacement services from one or more organizations that are offered by the Company from time to time, with such services capped at a Company cost of $50,000.

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        (e)    Release.    The benefits described in this Section 3 are payable by the Company to the Executive only if after the date of the Qualifying Termination, the Executive executes (and does not subsequently revoke) in writing and submits to the Company, in the form, manner, and subject to the timing established by the Company, an agreement releasing legal claims, including those against the Company and its Subsidiaries, substantially in the form of Exhibit A hereto. Such agreement shall be furnished by the Company to the Executive as soon as possible, but no later than ten (10) business days, after the date of the Qualifying Termination.

4.    Non-Exclusivity of Rights.    Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or a successor company for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or a successor Company. However, if the Executive receives severance benefits under this Agreement, the Executive is not also entitled to any benefit under any other severance plan, program, arrangement or agreement maintained by the Company except under the Employment Agreement made July 1, 2004 between the Company and the Executive; provided, however that with respect to this Agreement and the Employment Agreement, to avoid duplication of payments or benefits, only such payments and benefits that would be most beneficial to the Executive, as determined by the Executive, shall be provided. Vested benefits and other amounts that the Executive is otherwise entitled to receive under any incentive compensation (including, but not limited to any restricted stock or stock option agreements), deferred compensation and other benefit programs listed in Section 1.7(d), life insurance coverage, or any other plan, policy, practice or program of, or any contract or agreement with, the Company or a successor Company on or after the date of the Qualifying Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement.

5.    Full Settlement.    Except as expressly provided in Section 4 above, the Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced, regardless of whether the Executive obtains other employment.

6.    Certain Additional Payments by the Company.

        (a)    Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereon) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

        (b)   Subject to the provisions of paragraph (c) of this Section 6, all determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by one of the major internationally recognized certified public accounting firms (commonly referred to, as of the date hereof, as a Big Four firm) designated by the Executive and approved by the Company (which approval shall not be unreasonably withheld) (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group affecting the change of control, the Executive shall designate another Big Four accounting firm (subject to the approval of the Company, which approval shall not be unreasonably withheld) to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the

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Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) of this Section 6 and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

        (c)    The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

          (i)  give the Company any information reasonably requested by the Company relating to such claim,

         (ii)  take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

        (iii)  cooperate with the Company in good faith in order effectively to contest such claim, and

         (iv)  permit the Company to participate in any proceedings relating to such claim;

PROVIDED, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c) of Section 6, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and PROVIDED, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

        (d)   If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 6, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly take all necessary action to obtain such refund and (subject to the Company's complying with the requirements of paragraph (c) of this Section 6) upon receipt of such refund shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) of this Section 6, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

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7.    Termination of Agreement.    This Agreement shall remain in effect from the date hereof until the last day of the twenty-fourth calendar month following the date of a Change in Control. Further, upon a Qualifying Termination, this Agreement shall continue until the Company or its successor shall have fully performed all of its obligations thereunder with respect to the Executive, with no future performance being possible. This Agreement may be terminated at any time by the Board with the written consent of the Executive. Notwithstanding the foregoing, this Agreement shall automatically terminate upon cessation of Executive's employment with the Company and its Subsidiaries prior to the Effective Date.

8.    Amendment of Agreement.    This Agreement may be amended at any time by the Board with the written consent of the Executive.

9.    Construction.    Wherever any words are used herein in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply.

10.    Governing Law.    This Agreement shall be governed, construed and enforced in accordance with its express terms, and otherwise in accordance with the laws of Maryland.

11.    Successors and Assigns.

        (a)    This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. In the event of the Executive's death or a judicial determination of her incompetence, references in this Agreement shall be deemed, where appropriate, to refer to her beneficiary, estate or other legal representative.

        (b)   This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

        (c)    The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.

12.    Dispute Resolution.    The parties agree that any disputes, claims, complaints or causes of action of any type or kind (including but not limited to any disputes relating in any way to this Agreement) which the parties may have between themselves shall be resolved by final and binding arbitration using a single arbitrator from JAMS (jamsadr.com) pursuant to its then existing commercial arbitration rules or if JAMS is no longer available then using a single arbitrator from the American Arbitration Association using its then existing commercial arbitration rules. The arbitration proceedings shall be conducted in Washington, D.C. unless the parties mutually agree in writing to a different location. Any award rendered in the arbitration may be enforced in any court of competent jurisdiction. Pending the resolution of any such claim or dispute, the Executive (and her beneficiaries) shall continue to receive all payments and benefits due under this Agreement or otherwise, except to the extent that the arbitrators otherwise provide. The Company will pay all reasonable fees and expenses, if any, (including, without limitation, legal fees and expenses) as such are incurred by the Executive to enforce this Agreement and that result from a breach of this Agreement by the Company.

13.    Indemnification.    The Company will pay all reasonable fees and expenses, if any, (including, without limitation, legal fees and expenses) that are incurred by the Executive to enforce this Agreement and that result from a breach of this Agreement by the Company.

14.    Notice.    Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if sent in accordance with Section 15 of the Employment Agreement.

15.    Severability.    The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law.

8

16.    Withholding.    Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations.

17.    Entire Agreement.    Unless otherwise specifically provided in this Agreement, the Executive and the Company acknowledge that this Agreement supersedes any other agreement between them or between the Executive and the Company or a Subsidiary, concerning the subject matter hereof; provided, however, that (a) this Agreement shall not supersede, and the Executive shall be entitled to applicable payments and benefits under, the Employment Agreement referenced in Section 4 of this Agreement to the extent the Executive elects to receive payments and benefits under the Employment Agreement, in lieu of duplicative payments and benefits under this Agreement, all as contemplated by Section 4 of this Agreement and (b) nothing herein shall limit or reduce any right or benefit that shall have accrued to the Executive on or prior to the termination of Executive's employment

18.    Alienability.    The rights and benefits of the Executive under this Agreement may not be anticipated, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy.

19.    Counterparts.    This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument.

        IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization of the Board, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

CONSTELLATION ENERGY GROUP, INC.
By:	/s/
/s/ E. Follin Smith

9

Exhibit A

FORM OF
AGREEMENT, RELEASE AND WAIVER

        This Agreement, Release and Waiver ("Agreement") is entered into by and between [Executive] ("Executive") and Constellation Energy Group, Inc. ("Company").

           1.  The parties agree that Executive's employment with the Company shall terminate on [    ].

           2.  In consideration of Executive's termination of employment with the Company and her provision of certain waivers and promises as set forth in this Agreement, the Company agrees to provide the Executive with the payments, benefits and other rights (collectively, the "Consideration") set forth in the Employment Agreement, dated as of July 1, 2004, by and between the Executive and the Company (the "Employment Agreement"), and/or the Change of Control Severance Agreement, dated as of July 1, 2004, by and between the Executive and the Company (the "Severance Agreement"). Certain portions of the Consideration are over and above any benefit to which Executive would be entitled under the Company's benefit plans and policies upon the termination of her employment.

           3.  The Company hereby agrees to provide the benefits set forth in paragraph 2 to Executive from the Company's general assets. Executive is not entitled to any of the Consideration prior to the expiration of the seven-day revocation period described in paragraph 15 below. Such amounts set forth in paragraph 2 are not subject to alienation, assignment, attachment, garnishment or other legal process by or on behalf of Executive until such amounts are actually received by her. Such payments are subject to applicable payroll tax withholding (if applicable) and will not be considered as compensation for purposes of the Company's retirement or welfare benefit plans.

           4.  (a) In exchange for the Company's agreement to provide the Consideration, Executive knowingly, freely and voluntarily agrees that, to the full extent the law permits, she hereby releases and discharges the following entities: the Company and any person or entity controlling, controlled by or under common control with the Company ("Affiliate"), their successors, officers, directors, agents, representatives or employees (collectively, "Releasees") from any and all debts, obligations, claims, demands, judgments or causes of action of any kind that relate in any way to her employment with the Company or the termination of such employment whatsoever, known or unknown, in common law, in tort, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), and/or reimbursements of costs of any kind, including, but not limited to any and all claims, demands, rights and/or causes of action which might arise out of allegations relating to a claimed breach of contract (express or implied), or any tort, legal actions under Title VII of the Civil Rights Act of 1964, as amended (42 U.S.C. § 2000e et seq.), the Civil Rights Act of 1866 and 1871 (42 U.S.C. §§ 1981 and 1983), the Americans with Disabilities Act (42 U.S.C. § 12101 et seq.), the Age Discrimination in Employment Act (29 U.S.C. § 621 et seq.), the Equal Pay Act (29 U.S.C. § 206(d)(1)), the Rehabilitation Act (29 U.S.C. §§ 701-704), Executive Order 11246, or any other Federal, State, local or common law which may include but not be limited to those concerning age, gender, race, religion, national origin, disability or any other protected classification or category which expressly or impliedly may form the basis of alleged discrimination, or any other law or regulation. To the extent any such actions are pending, Executive agrees that they are or will be immediately withdrawn with prejudice upon her receipt of the payment set forth in Section 5(a)(ii) of the Employment Agreement or in Section 2(a) or Section 3(a) of the Severance Agreement, whichever is applicable. Executive also knowingly and voluntarily agrees that, to the full extent the law permits, she waives any and all causes of action and will not file, cause to be filed, or voluntarily assist in the prosecution of any charges, claims, lawsuits, or other actions of any kind against the Releasees. Executive acknowledges and understands, however, that she is not waiving claims that may arise based on events occurring after she executes this Agreement. Moreover, nothing in this Agreement shall be construed to prohibit Executive from engaging in any legally protected activity including activity protected by the Sarbanes-Oxley Act. Notwithstanding the foregoing, such released claims shall not (i) include any claims to enforce Executive's rights under, set forth in or with respect to, the Employment Agreement or the Severance Agreement, or any other accrued rights under the applicable terms of applicable Company plans, programs and arrangements or (ii) apply to any claim that Executive may have for indemnity or contribution for acts taken while she was employed by the Company pursuant to applicable Company policy or insurance coverage.

        Additionally, Executive does specifically, knowingly and voluntarily waive any and all rights or claims she may have under the Age Discrimination in Employment Act (ADEA).

        (b)   In exchange for the Executive's release set forth in paragraph 4.a. above and other good and valuable consideration the receipt of which is hereby acknowledged by the Company, the Company, on behalf of itself and each of its Affiliates and their successors (collectively, the "Company Releasors"), knowingly, freely and voluntarily agree that, to the full extent the law permits, they hereby release and discharge the following persons and entities: the Executive, and her

heirs, executors, administrators, representatives, agents, successors and assigns (hereinafter collectively referred to as the "Executive Releasees") from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in common law, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), and/or reimbursements of costs of any kind, whether in law or equity and whether arising under federal, state or local law, which the Company Releasors had or now have against each or any of the Executive Releasees, in each case in connection with the Executive's employment with the Company or the termination thereof. Notwithstanding the above, the Executive and the Company acknowledge and agree that the Company Releasors are not waiving any claim or action against the Executive Releasees with respect to any willful, knowing or intentional misconduct of the Executive.

           5.  Nothing in this Agreement, including the payment of any sum by the Company, constitutes an admission by the Releasees of any legal wrong.

           6.  The parties agree that the terms of this Agreement including the consideration set forth in paragraph 2 are confidential and will not be disclosed to any non-parties hereto; provided, however, that Executive may confidentially disclose such information to her spouse, personal attorney, and personal accountant or as otherwise required by applicable law, rule, or regulation (including, without limitation, any regulation of any self-regulatory organization, such as the New York Stock Exchange) or by subpoena, order or civil investigative demand, or as specifically required by any governmental or quasi-governmental agency or body. Should Executive wish to consult with anyone else she deems appropriate to review this Agreement, she must first obtain the written consent of the Company which will not be unreasonably withheld. In addition, the Company may disclose such information as is necessary, in its sole discretion, to any of the Releasees, or to federal, state or local agencies or as otherwise required by applicable law, rule, or regulation (including, without limitation, any regulation of any self-regulatory organization, such as the New York Stock Exchange) or by subpoena, order or civil investigative demand, or as specifically required by any governmental or quasi-governmental agency or body.

           7.  Executive agrees to refrain from making any untruthful, derogatory, unflattering and/or disparaging oral or written statements or communications to the public, or to any third party, about the Releasees, their business practices, or about the business practices of any present or former officers, directors, executives, employees, representatives, agents or customers, or any related services of the Releasees or about any general matter concerning the reputations, standing in the business community, or business practices of the Releasees. The Company agrees to refrain and to use best reasonable efforts to cause the Releasees to refrain from making any untruthful, derogatory, unflattering and/or disparaging oral or written statements or communications to the public, or to any third party, about the Executive or about any general matter concerning the reputation, standing in the business community, or business practices of the Executive. The Company further agrees to use its best reasonable efforts to obtain the Executive's prior approval for any announcement to the general public concerning her separation from the Company, provided that such approval is not unreasonably withheld or delayed. Nothing in this Paragraph shall prevent either party from making truthful statements, or disclosing documents and information, (a) in confidence to their attorneys, accountants and, in the Executive's case, her spouse, (b) as required by applicable law, rule, or regulation (including, without limitation, any regulation of any self-regulatory organization, such as the New York Stock Exchange) or by subpoena, order or civil investigative demand, or (c) as specifically required by any governmental or quasi-governmental agency or body.

           8.  Executive further agrees that she will, immediately upon termination of her employment with the Company, and in no event later than twenty-four (24) hours after the Termination Date, return to the Company all property of the Releasees as well as all books, records, customer and pricing lists, correspondence, contracts or orders, advertising or promotional materials, and other written, typed or printed materials, whether furnished by any of the Releasees or prepared by Executive, which contain any information relating to the Releasees' business, and Executive agrees that she will neither make nor retain copies of such materials.

           9.  Executive agrees that, for a period of one (1) year after the Termination Date she will not, directly or indirectly, as an officer, director, employee, consultant, stockholder, partner or sole proprietor, induce, entice or hire, or attempt to hire or employ any employee of the Company or any of its Affiliates or any former employee of the Company or any of its Affiliates who had been an employee of the Company or any of its Affiliates at any time during the one year period prior to Executive's attempted hiring of such individual.

         10.  The Company and Executive hereby agree that, if the scope or enforceability of any restrictive covenant in this Agreement is in any way disputed at any time, subject to Section 11, a court or other trier of fact of competent jurisdiction

2

may modify and enforce the covenant to the maximum extent that it believes to be enforceable under the circumstances existing at that time.

         11.  The parties agree that any disputes, claims, complaints or causes of action of any type or kind (including but not limited to any disputes relating in any way to this Agreement) which the parties may have between themselves shall be resolved by final and binding arbitration using a single arbitrator from JAMS (jamsadr.com) pursuant to its then existing commercial arbitration rules or if JAMS is no longer available then using a single arbitrator from the American Arbitration Association using its then existing commercial arbitration rules. The arbitration proceedings shall be conducted in Washington, D.C. unless the parties mutually agree in writing to a different location. Any award rendered in the arbitration may be enforced in any court of competent jurisdiction. Pending the resolution of any such claim or dispute, the Executive (and her beneficiaries) shall continue to receive all payments and benefits due under this Agreement or otherwise, except to the extent that the arbitrators otherwise provide. The Company will pay all reasonable fees and expenses, if any, (including, without limitation, legal fees and expenses) as such are incurred by the Executive to enforce this Agreement and that result from a breach of this Agreement by the Company. Notwithstanding the foregoing, the parties agree that, in the event of a breach by any party of the Sections 6 through 9 of this Agreement, the non-breaching party shall be entitled to institute and prosecute equitable proceedings in any court of competent jurisdiction to enjoin the other party from performing such activities.

         12.  Executive acknowledges that she has been offered a period of at least twenty-one (21) calendar days to consider this Agreement. Executive further acknowledges that unless this Agreement, signed by her, is received by Marc L. Ugol, Senior Vice President, Human Resources of Constellation Energy Group, Inc., 750 E. Pratt Street, 5^th Floor, Baltimore, MD 21202, on or before [    ], it is null and void and unenforceable.

         13.  Executive acknowledges that she has been specifically informed by the Company that for a period of seven (7) calendar days following the date of her execution of this Agreement she has the absolute right to revoke this Agreement by notifying Marc L. Ugol, Senior Vice President, Human Resources of Constellation Energy Group, Inc., 750 E. Pratt Street, 5^th Floor, Baltimore, MD 21202, in writing on or before the expiration of the seven (7) day period.

         14.  This Agreement shall not become effective or enforceable until the aforesaid seven (7) calendar day revocation period has expired.

         15.  This Agreement supersedes any and all other agreements or proposals, written or oral, made by the Company or any Releasee, or on their behalf to Executive, other than the Employment Agreement and the Severance Agreement and, except as set forth in such agreements, this Agreement is the full and final understanding between the parties.

         16.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. This Agreement may only be modified by a written agreement signed by the parties.

         17.  This Agreement shall be governed by the laws of Maryland.

         18.  Executive does hereby acknowledge that she has read and understands this Agreement.

         19.  Executive acknowledges that the Company has advised her to consult with an attorney prior to executing this Agreement.

         20.  Executive does hereby acknowledge that she has executed this Agreement freely and voluntarily.

IN WITNESS WHEREOF, Executive does hereby execute this Agreement on this            day of            , 200[    ].

		(Seal)
	Executive
Received, agreed to and accepted by:	CONSTELLATION ENERGY GROUP, INC.
	By:	(Seal)
	Name: Title:

3

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Exhibit 10(c) Attachment 1

EMPLOYMENT AGREEMENT

Exhibit A

FORM OF AGREEMENT, RELEASE AND WAIVER

Attachment 2

CHANGE IN CONTROL SEVERANCE AGREEMENT

Exhibit A

FORM OF AGREEMENT, RELEASE AND WAIVER

EX-12.(A)

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Exhibit 12(a)

CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

		6 Months Ended		Twelve Months Ended
		June 2004		December 2003		December 2002		December 2001		December 2000		December 1999
		(In millions)
Income from Continuing Operations (Before Extraordinary Loss, Cumulative Effects of Changes in Accounting Principles and Loss from Discontinued Operations)		$	243.4	$	475.7	$	525.6	$	82.4	$	345.3	$	326.4
Taxes on Income, Including Tax Effect for BGE Preference Stock Dividends			25.0		261.0		301.0		29.7		221.4		182.5
Adjusted Income		$	268.4	$	736.7	$	826.6	$	112.1	$	566.7	$	508.9
Fixed Charges:
	Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness	$	163.3	$	329.3	$	270.2	$	226.1	$	261.5	$	245.7
	Earnings Required for BGE Preference Stock Dividends		10.9		21.7		21.8		21.4		21.9		21.0
	Capitalized Interest		5.3		12.2		42.5		55.8		21.1		2.7
	Interest Factor in Rentals		2.1		3.5		2.1		2.0		2.2		1.8
Total Fixed Charges		$	181.6	$	366.7	$	336.6	$	305.3	$	306.7	$	271.2
Amortization of Capitalized Interest		$	1.8	$	3.1	$	1.3	$	0.1	$	—	$	—
Earnings (1)		$	446.5	$	1,094.3	$	1,122.0	$	361.7	$	852.3	$	777.4
Ratio of Earnings to Fixed Charges			2.46		2.98		3.33		1.18		2.78		2.87

(1)

Earnings are deemed to consist of income from continuing operations (before extraordinary loss, cumulative effects of changes in accounting principles, and loss from discontinued operations) that includes earnings of Constellation Energy's consolidated subsidiaries, equity in the net income of unconsolidated subsidiaries, income taxes (including deferred income taxes, investment tax credit adjustments, and the tax effect of BGE's preference stock dividends), and fixed charges (including the amortization of capitalized interest but excluding the capitalization of interest).

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Exhibit 12(a)

CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

EX-12.(B)

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Exhibit 12(b)

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS

		6 Months Ended		12 Months Ended
		June 2004		December 2003		December 2002		December 2001		December 2000		December 1999
		(In millions)
Income from Continuing Operations (Before Extraordinary Loss)		$	101.2	$	163.2	$	143.1	$	97.3	$	143.5	$	328.4
Taxes on Income			66.0		105.2		93.3		60.3		94.2		182.0
Adjusted Income		$	167.2	$	268.4	$	236.4	$	157.6	$	237.7	$	510.4
Fixed Charges:
	Interest and Amortization of Debt Discount and Expense and Premium on all Indebtedness	$	49.7	$	112.8	$	142.1	$	158.8	$	186.8	$	206.4
	Capitalized Interest		—		—		—		—		—		0.4
	Interest Factor in Rentals		0.4		0.7		0.5		0.7		0.9		1.0
	Total Fixed Charges	$	50.1	$	113.5	$	142.6	$	159.5	$	187.7	$	207.8
Preferred and Preference
	Dividend Requirements: (1)
	Preferred and Preference Dividends	$	6.6	$	13.2	$	13.2	$	13.2	$	13.2	$	13.5
	Income Tax Required		4.3		8.6		8.6		8.2		8.7		7.5
	Total Preferred and Preference Dividend Requirements	$	10.9	$	21.8	$	21.8	$	21.4	$	21.9	$	21.0
Total Fixed Charges and Preferred and Preference Dividend Requirements		$	61.0	$	135.3	$	164.4	$	180.9	$	209.6	$	228.8
Earnings (2)		$	217.3	$	381.9	$	379.0	$	317.1	$	425.4	$	717.8
Ratio of Earnings to Fixed Charges			4.34		3.36		2.66		1.99		2.27		3.45
Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements			3.56		2.82		2.31		1.75		2.03		3.14

(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, income taxes (including deferred income taxes and investment tax credit adjustments), and fixed charges other than capitalized interest.

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Exhibit 12(b)

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

EX-31.(A)

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Exhibit 31(a)

CONSTELLATION ENERGY GROUP, INC.

CERTIFICATION

I, Mayo A. Shattuck III, certify that:

1.

I have reviewed this report on Form 10-Q of Constellation Energy Group, Inc.;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 6, 2004

/s/  MAYO A. SHATTUCK III Chairman of the Board, President and Chief Executive Officer

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Exhibit 31(a)

CONSTELLATION ENERGY GROUP, INC. CERTIFICATION

EX-31.(B)

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Exhibit 31(b)

CONSTELLATION ENERGY GROUP, INC.

CERTIFICATION

I, E. Follin Smith, certify that:

1.

I have reviewed this report on Form 10-Q of Constellation Energy Group, Inc.;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 6, 2004

/s/  E. FOLLIN SMITH Executive Vice President and Chief Financial Officer

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Exhibit 31(b)

CONSTELLATION ENERGY GROUP, INC. CERTIFICATION

EX-31.(C)

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Exhibit 31(c)

BALTIMORE GAS AND ELECTRIC COMPANY

CERTIFICATION

I, Frank O. Heintz, certify that:

1.

I have reviewed this report on Form 10-Q of Baltimore Gas and Electric Company;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 6, 2004

/s/  FRANK O. HEINTZ President and Chief Executive Officer

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Exhibit 31(c)

BALTIMORE GAS AND ELECTRIC COMPANY CERTIFICATION

EX-31.(D)

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Exhibit 31(d)

BALTIMORE GAS AND ELECTRIC COMPANY

CERTIFICATION

I, E. Follin Smith, certify that:

1.

I have reviewed this report on Form 10-Q of Baltimore Gas and Electric Company;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;



4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 6, 2004

/s/  E. FOLLIN SMITH Senior Vice President and Chief Financial Officer

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Exhibit 31(d)

BALTIMORE GAS AND ELECTRIC COMPANY CERTIFICATION

EX-32.(A)

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Exhibit 32(a)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mayo A. Shattuck III, Chairman of the Board, President and Chief Executive Officer of Constellation Energy Group, Inc., certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:

        (i)    The accompanying Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

        (ii)   The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Constellation Energy Group, Inc.

/s/  MAYO A. SHATTUCK III Mayo A. Shattuck III
Chairman of the Board, President and Chief Executive Officer

Date: August 6, 2004

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Exhibit 32(a)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.(B)

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Exhibit 32(b)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, E. Follin Smith, Executive Vice President and Chief Financial Officer of Constellation Energy Group, Inc., certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:

        (i)    The accompanying Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

        (ii)   The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Constellation Energy Group, Inc.

/s/  E. FOLLIN SMITH E. Follin Smith
Executive Vice President and Chief Financial Officer

Date: August 6, 2004

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Exhibit 32(b)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.(C)

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Exhibit 32(c)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Frank O. Heintz, President and Chief Executive Officer of Baltimore Gas and Electric Company, certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:

        (i)    The accompanying Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

        (ii)   The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Baltimore Gas and Electric Company.

/s/  FRANK O. HEINTZ Frank O. Heintz
President and Chief Executive Officer

Date: August 6, 2004

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Exhibit 32(c)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.(D)

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Exhibit 32(d)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, E. Follin Smith, Senior Vice President and Chief Financial Officer of Baltimore Gas and Electric Company, certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to my knowledge:

        (i)    The accompanying Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

        (ii)   The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Baltimore Gas and Electric Company.

/s/  E. FOLLIN SMITH E. Follin Smith
Senior Vice President and Chief Financial Officer

Date: August 6, 2004

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Exhibit 32(d)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002