Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation

Stock-Based Compensation

14  Stock-Based Compensation

        Under our long-term incentive plans, we grant stock options, performance and service-based restricted stock, performance- and service-based units, stock units, deferred cash and equity to officers, key employees, and members of the Board of Directors. In May 2010, shareholders approved Constellation Energy's Amended and Restated 2007 Long-Term Incentive Plan, including an increase in the number of shares available for issuance by 9,000,000. Any shares covered by an outstanding award under any of our long-term incentive plans that are forfeited or cancelled, expire or are settled in cash will become available for issuance under the Amended and Restated 2007 Long-Term Incentive Plan. At December 31, 2011, there were 10,143,863 shares available for issuance under the 2007 Long-Term Incentive Plan. At December 31, 2011, we had stock options, restricted stock, performance units and equity grants outstanding as discussed below. We may issue new shares, reuse forfeited shares, or buy shares in the market in order to deliver shares to employees for our equity grants. BGE officers and key employees participate in our stock-based compensation plans. The expense recognized by BGE in 2011, 2010, and 2009 was not material to BGE's financial results.

Non-Qualified Stock Options

        Options are granted with an exercise price equal to the market value of the common stock at the date of grant, become vested over a period up to three years (expense recognized in tranches), and expire ten years from the date of grant.

        The fair value of our stock-based awards was estimated as of the date of grant using the Black-Scholes option pricing model based on the following weighted- average assumptions:

	2011			2010			2009
Risk-free interest rate		1.69	%		1.87	%		1.95	%
Expected life (in years)		4.0			4.0			4.0
Expected market price volatility factor		27.7	%		32.5	%		37.8	%
Expected dividend yield		3.17	%		2.74	%		4.83	%

        We use the historical data related to stock option exercises in order to estimate the expected life of our stock options. We also use historical data (measured on a daily basis) for a period equal to the duration of the expected life of option awards, information on the volatility of an identified group of peer companies, and implied volatilities for certain publicly traded options in Constellation Energy common stock in order to estimate the volatility factor. We believe that the use of this data to estimate these factors provides a reasonable basis for our assumptions. The risk-free interest rate for the periods within the expected life of the option is based on the U.S Treasury yield curve in effect and the expected dividend yield is based on our current estimate for dividend payout at the time of grant.

        Summarized information for our stock option grants is as follows:

	2011					2010					2009
	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
	(Shares in thousands)
Outstanding, beginning of year		9,070		$	43.43		8,146		$	44.36		6,058		$	59.99
Granted with exercise prices at fair market value		2,244			30.25		1,468			35.07		3,511			20.14
Exercised		(474	)		23.59		(235	)		23.53		(83	)		31.07
Forfeited/expired		(184	)		56.58		(309	)		43.41		(1,340	)		52.41
Outstanding, end of year		10,656		$	41.31		9,070		$	43.43		8,146		$	44.36
Exercisable, end of year		6,539		$	49.15		5,316		$	52.65		4,114		$	55.81
Weighted-average fair value per share of options granted with exercise prices at fair market value				$	5.20				$	7.60				$	4.24

        The following table summarizes additional information about stock options during 2011, 2010 and 2009:

	2011		2010		2009
	(In millions)
Stock Option Expense Recognized	$	10.3	$	9.9	$	14.2
Stock Options Exercised:
Cash Received for Exercise Price		11.2		5.5		2.6
Intrinsic Value Realized by Employee		5.9		2.7		0.2
Realized Tax Benefit		2.4		1.1		0.1
Fair Value of Options that Vested		52.4		54.4		11.0

        As of December 31, 2011, we had $4.1 million of unrecognized compensation cost related to the unvested portion of outstanding stock option awards, of which $3.1 million is expected to be recognized during 2012.

        The following table summarizes additional information about stock options outstanding at December 31, 2011 (stock options in thousands):

		Outstanding				Exercisable
										Weighted- Average Remaining Contractual Life
Range of Exercise Prices		Stock Options		Aggregate Intrinsic Value		Stock Options		Aggregate Intrinsic Value
				(In millions)				(In millions)		(In years)
	$  0 - $  20		2,524	$	50.7		1,563	$	31.4		7.2
	$20 - $  40		4,402		31.2		1,246		5.3		7.6
	$40 - $  60		2,362		—		2,362		—		3.2
	$60 - $  80		717		—		717		—		5.2
	$80 - $100		651		—		651		—		6.1
			10,656	$	81.9		6,539	$	36.7

Restricted Stock Awards

        In addition to stock options, we issue service-based common stock that vests over periods ranging from one to five years and fully vested common stock units with sales restrictions ranging from approximately 10 months to 5 years. We account for these awards as equity awards, whereby we recognize the value of the market price of the underlying stock on the date of grant as compensation expense immediately for fully vested common stock units with sales restrictions or over the service period either ratably or in tranches (depending if the award has cliff or graded vesting) for service-based common stock.

        We recorded compensation expense related to our restricted stock awards of $12.7 million in 2011, $9.5 million in 2010, and $16.7 million in 2009. The tax benefits received associated with our restricted awards were $9.4 million in 2011, $10.0 million in 2010, and $6.7 million in 2009.

        Summarized share information for our restricted stock awards is as follows:

	2011			2010			2009
	(Shares in thousands)
Outstanding, beginning of year		1,080			1,017			1,033
Granted		622			832			866
Released to participants		(686	)		(713	)		(701	)
Canceled		(48	)		(56	)		(181	)
Outstanding, end of year		968			1,080			1,017
Weighted-average fair value of restricted stock granted (per share)	$	30.27		$	34.83		$	19.83
Total fair value of shares for which restriction has lapsed (in millions)	$	23.3		$	24.9		$	16.5

        As of December 31, 2011, we had $9.2 million of unrecognized compensation cost related to the unvested portion of outstanding restricted stock awards expected to be recognized within a 31-month period. At December 31, 2011, we have recorded in "Common shareholders' equity" approximately $17.2 million and approximately $18.6 million at December 31, 2010 for the unvested portion of service-based restricted stock granted from 2008 until 2011 to officers and other employees.

Performance-Based Units

        We recognize compensation expense ratably for our performance-based awards, which are classified as liability awards, for which the fair value of the award is remeasured at each reporting period. Each unit is equivalent to $1 in value and cliff vests at the end of a three-year service and performance period. The level of payout is based on the achievement of certain performance goals at the end of the three-year period and will be settled in cash. We recognized compensation expense of $14.7 million in 2011, compensation expense of $6.2 million in 2010, and compensation expense of $1.5 million in 2009 for these awards. During the 12 months ended December 31, 2011, our 2008 performance-based unit awards vested and we paid $1.3 million. During the 12 months ended December 31, 2010, and 2009, no performance-based unit awards vested. As of December 31, 2011, we had $11.7 million of unrecognized compensation cost related to the unvested portion of outstanding performance-based unit awards expected to be recognized within a 26-month period.

Equity-Based Grants

        We recorded compensation expense of $1.1 million in 2011, $0.8 million in 2010, and $0.9 million in 2009 related to equity-based grants to members of the Board of Directors.