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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
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<S> <C>
For the fiscal year ended 1-1910
December 31, 1994 Commission file number
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BALTIMORE GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
MARYLAND 52-0280210
(State of incorporation) (I.R.S. Employer Identification No.)
GAS AND ELECTRIC BUILDING, CHARLES CENTER,
BALTIMORE, MARYLAND 21201
(Address of principal executive offices) (Zip Code)
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410-783-5920
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock -- Without Par Value New York Stock Exchange, Inc.
Common Stock -- Without Par Value Chicago Stock Exchange, Inc.
Common Stock -- Without Par Value Pacific Stock Exchange, Inc.
Preferred Stock, Series B 4 1/2%, Cumulative,
$100 Par Value New York Stock Exchange, Inc.
Preferred Stock, Cumulative, $100 Par Value: Philadelphia Stock Exchange, Inc.
Series C 4%
Series D 5.40%
Preference Stock, Cumulative, $100 Par Value: Philadelphia Stock Exchange, Inc.
7.78%, 1973 Series
7.50%, 1986 Series
6.75%, 1987 Series
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Not Applicable
Indicate by check mark whether the registrant (1) has 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) has been
subject to such filing requirements for the past 90 days. Yes (x)
No .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. /x/
Aggregate market value of Common Stock, without par value, held
by non-affiliates as of February 28, 1995 was approximately
$3,602,357,255 based upon New York Stock Exchange composite transaction
closing price.
COMMON STOCK, WITHOUT PAR VALUE -- 147,527,114 SHARES
OUTSTANDING ON FEBRUARY 28, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
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PART OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE
<S> <C>
III Definitive Proxy Statement for the Annual Meeting of Shareholders of Baltimore Gas and
Electric Company to be held on April 18, 1995 (Proxy Statement).
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1 -- Business
General..................................................................................... 1
Capital Requirements........................................................................ 2
Regulatory Matters and Competition.......................................................... 3
Rate Matters................................................................................ 4
Nuclear Operations.......................................................................... 4
Electric Load Management, Energy, and Capacity Purchases.................................... 6
Fuel for Electric Generation................................................................ 7
Gas Operations.............................................................................. 8
Environmental Matters....................................................................... 9
Electric Operating Statistics............................................................... 12
Gas Operating Statistics.................................................................... 13
Franchises.................................................................................. 14
Diversified Businesses...................................................................... 14
Employees................................................................................... 16
Item 2 -- Properties.................................................................................. 17
Item 3 -- Legal Proceedings........................................................................... 17
Item 4 -- Submission of Matters to a Vote of Security Holders......................................... 18
Item 10 -- Executive Officers of the Registrant (Instruction 3 to Item 401(b) of Regulation S-K)....... 19
PART II
Item 5 -- Market for Registrant's Common Equity and Related Stockholder Matters....................... 20
Item 6 -- Selected Financial Data..................................................................... 21
Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................................. 22
Item 8 -- Financial Statements and Supplementary Data................................................. 30
Item 9 -- Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................................. 54
PART III
Item 10 -- Directors and Executive Officers of the Registrant.......................................... 54
Item 11 -- Executive Compensation...................................................................... 54
Item 12 -- Security Ownership of Certain Beneficial Owners and Management.............................. 54
Item 13 -- Certain Relationships and Related Transactions.............................................. 54
PART IV
Item 14 -- Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 54
Signatures................................................................................................. 59
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PART I
ITEM 1. BUSINESS
Baltimore Gas and Electric Company and Subsidiaries are herein
collectively referred to as the Company. The Company is engaged in
utility operations and related businesses through Baltimore Gas and
Electric Company (BGE). The Company is engaged in diversified businesses
primarily through two wholly owned subsidiaries of BGE, Constellation
Holdings, Inc. and its subsidiaries (collectively, the Constellation
Companies) and BGE Home Products & Services, Inc. (HPS) and its
subsidiary Maryland Environmental Systems, Inc. (MES).
BGE was incorporated under the laws of the State of Maryland on
June 20, 1906, and is primarily engaged in the business of producing,
purchasing, and selling electricity, and purchasing, transporting, and
selling natural gas within the State of Maryland. BGE is qualified to do
business in the District of Columbia where its federal affairs office is
located. BGE is qualified to do business in the Commonwealth of
Pennsylvania where it is participating in the ownership and operation of
two electric generating plants as described under ITEM 2. PROPERTIES --
ELECTRIC. BGE also owns two-thirds of the outstanding capital stock,
including one-half of the voting securities, of Safe Harbor Water Power
Corporation (Safe Harbor), a hydroelectric producer on the Susquehanna
River at Safe Harbor, Pennsylvania. (SEE ITEM 2. PROPERTIES --
ELECTRIC.) BNG, Inc. is a wholly owned subsidiary of BGE which engages
in natural gas brokering. For financial information by segment of
operation see NOTE 2 TO CONSOLIDATED FINANCIAL STATEMENTS.
BGE furnishes electric and gas retail services in the City of
Baltimore and in all or part of nine counties in Central Maryland. The
electric service territory includes an area of approximately 2,300
square miles with an estimated population of 2,625,000. The gas service
territory includes an area of approximately 627 square miles with an
estimated population of 1,980,000. There are no municipal or cooperative
bulk power markets within BGE's service territory.
As discussed throughout this report, the two units at BGE's Calvert
Cliffs Nuclear Power Plant are its principal generating facilities and
have the lowest fuel cost in BGE's system. An extended shutdown of
either of these Units could have a substantial adverse effect on the
Company's business and financial condition. (SEE NUCLEAR OPERATIONS AND
NOTE 13 TO CONSOLIDATED FINANCIAL STATEMENTS for information regarding
prior outages at the Plant.) Also, the utility industry is facing
potentially substantial regulatory change designed to foster competition
in the provision of gas and electric services. It is not possible to
predict the ultimate effect competition will have on BGE's earnings in
future years. These matters are discussed under REGULATORY MATTERS AND
COMPETITION on page 3.
Diversified businesses conducted by the Constellation Companies,
HPS and MES are discussed under DIVERSIFIED BUSINESSES on page 14 and
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (MD&A).
The percentages of Operating Revenues and Operating Income
attributable to electric, gas, and diversified operations are set forth
below:
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OPERATING REVENUES OPERATING INCOME*
<S> <C> <C> <C> <C> <C> <C>
ELECTRIC GAS DIVERSIFIED ELECTRIC GAS DIVERSIFIED
1994............................... 76% 15 % 9% 85% 6 % 9%
1993............................... 77 16 7 87 6 7
1992............................... 77 16 7 82 8 10
1991............................... 79 14 7 90 6 4
1990............................... 76 17 7 80 10 10
<FN>
Certain prior-year amounts have been reclassified to conform to the
current year's presentation.
*Net of income taxes.
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BGE currently derives approximately 23% of electric revenues and
43% of gas revenues from customers located in the City of Baltimore and
77% and 57%, respectively, from outside the City of Baltimore. No single
customer's electric revenues exceed 4% of total electric revenues and no
single customer's gas revenues exceed 4% of total gas revenues.
The disparity between the percentage of gas operating revenues in
relation to the percentage of gas operating income as compared to the
same percentages for electric operations is due to BGE's level of
investment and its
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fuel costs in each of these segments. BGE's operating revenue amounts
represent recovery of all fuel and operating expenses plus a return on
its investment in the business. BGE's net investment for ratemaking
purposes in the electric business is $4.7 billion while the comparable
investment in its gas business is approximately $500 million. Thus,
operating revenues include a much greater return component for electric
operations than gas operations. Also, as can be seen by referring to
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, CONSOLIDATED
STATEMENTS OF INCOME on page 30, gas purchased for resale as a
percentage of gas revenues (53%) is greater than electric fuel and
purchased energy as a percentage of electric revenues (26%). It should
be noted that both purchased gas costs and electric fuel costs are
passed through to the customer with no mark-up for profit. The combined
effects of these factors yield the observed relationship between
operating revenues and income for electric and gas operations.
CAPITAL REQUIREMENTS
The Company's actual capital requirements for 1992 through 1994,
along with estimated amounts for 1995 through 1997, are set forth below:
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1992 1993 1994 1995 1996 1997
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Utility Business
Construction expenditures (excluding AFC)
Electric.................................................. $ 292 $ 360 $ 339 $ 233 $ 219 $ 206
Gas....................................................... 36 51 68 61 71 84
Common.................................................... 39 44 42 56 50 35
Total construction expenditures......................... 367 455 449 350 340 325
AFC (a)...................................................... 22 23 34 35 18 13
Nuclear fuel (uranium purchases and processing charges)...... 40 47 42 48 50 52
Deferred energy conservation expenditures (b)................ 20 33 41 44 43 29
Deferred nuclear expenditures (b)............................ 16 14 8 - - -
Retirement of long-term debt and redemption of preference
stock..................................................... 486 907 203 268 98 164
Total utility business.................................. 951 1,479 777 745 549 583
Diversified Businesses......................................... 198 300 88 122 135 165
Total................................................... $ 1,149 $ 1,779 $ 865 $ 867 $ 684 $ 748
<FN>
(a) Allowance for Funds Used During Construction (AFC) is accrued for
all construction projects with a construction period of more than
one month. (SEE NOTE 1 TO CONSOLIDATED FINANCIAL STATEMENTS for a
discussion of AFC.)
(b) See NOTE 5 TO CONSOLIDATED FINANCIAL STATEMENTS for a discussion of
deferred nuclear expenditures and deferred energy conservation
expenditures.
</TABLE>
BGE's actual capital requirements may vary from the estimates set
forth above because of a number of factors such as inflation, economic
conditions, regulation, legislation, load growth, environmental
protection standards, and the cost and availability of capital. The
Constellation Companies' capital requirements for diversified businesses
may vary from the estimates set forth above due to a number of factors
including market and economic conditions and are discussed in detail
under MD&A -- DIVERSIFIED BUSINESSES CAPITAL REQUIREMENTS on page 29.
BGE's estimated construction, nuclear fuel, and deferred energy
conservation expenditures are expected to amount to approximately $1.7
billion, $260 million, and $170 million, respectively, for the five-year
period 1995-1999. Electric construction expenditures reflect the
installation of two 5,000-kilowatt diesel generators at Calvert Cliffs
Nuclear Power Plant, one of which is scheduled to be placed in service
in 1995 and the second in 1996; the construction of a 140-megawatt
combustion turbine at Perryman, scheduled to be placed in service in
1995, which the Public Service Commission of Maryland (PSC) authorized
in an order dated March 25, 1993; and improvements in BGE's existing
generating plants and its transmission and distribution facilities.
Future electric construction expenditures do not include additional
generating units.
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During the period January 1, 1990 through December 31, 1994, BGE
expended $2,349 million for gross additions to utility plant or
approximately 31% of its total utility plant (exclusive of nuclear fuel)
at December 31, 1994. During the same period, a total of $338 million of
utility plant was retired. Nuclear fuel expenditures include uranium
purchases and processing charges.
BGE presently estimates that approximately $900 million will be
required for retirements and redemptions of long-term debt (including
sinking fund payments) and BGE preference stock during the five-year
period 1995-1999.
For further information with respect to capital requirements and
for a discussion of internal generation of cash, see ITEM 7. MD&A --
LIQUIDITY AND CAPITAL RESOURCES.
REGULATORY MATTERS AND COMPETITION
Regulatory changes in the natural gas business are well under way.
In 1992, the Federal Energy Regulatory Commission (FERC) issued Order
636, which unbundled gas-service elements. This gave gas users the
ability to choose various gas purchasing, transportation, brokering, and
storage options. Prior to Order 636, BGE purchased gas, transportation
and storage services primarily from pipeline companies. Now, BGE and
other local distribution companies buy gas directly from various
suppliers and arrange separately for transportation and storage. BGE's
large gas customers are arranging for their own gas supplies and are
contracting with BGE for transportation. The PSC is encouraging BGE and
other utilities to offer options for unbundling the gas services offered
by local distribution companies and allowing smaller customers to
arrange for their own gas supplies.
Regulatory changes in the electric business are in process. FERC is
implementing the Energy Policy Act of 1992, focusing upon promoting
efficiency by creating a competitive bulk power market through equal
access to utility transmission systems. FERC also is examining the role
of power pooling and electric utility restructuring in an era of
increased competition. FERC has indicated its intent to determine terms
for the industry about open-access transmission, comparable transmission
service and recovery of stranded costs in the near future.
State regulators around the United States are also redefining the
regulatory scheme for the electric utility industry. In September, 1994,
the PSC announced it would hold hearings in 1995 to consider electric
utility restructuring, the impact of competition, and regulatory reform.
The PSC issued a paper defining possible scenarios ranging from limited
to full competition. The PSC plans to issue a general policy statement
in June, 1995 on changes recommended for Maryland's electric industry.
BGE is unable to predict what position the PSC will take or the impact,
if any, on its financial condition or competitive position.
Electric utilities presently face competition in the construction
of generating units to meet future load growth and in the sale of
electricity in the bulk power markets. Electric and gas utilities also
face the future prospect of competition for electric and gas sales to
retail customers. It is not possible to predict the ultimate effect
competition will have on BGE's earnings in the future.
In BGE's last rate proceeding, the PSC directed that an independent
study be performed regarding the distribution of costs between BGE's
regulated utility operations and unregulated merchandise and appliance
services activities. During that rate proceeding, a coalition of HVAC
contractors had alleged that the unregulated operations were being
subsidized by the utility. A subsequent proceeding was held to examine
the Company's allocation procedures as well as to deal with the demand
by the coalition that the unregulated activities be required to pay a
royalty based on unregulated revenues to compensate ratepayers for the
use of the BGE name and its goodwill. In July, 1994, BGE formed its HPS
subsidiary to conduct its merchandise and appliance service activities.
When HPS acquired MES in December, 1994, these activities expanded into
HVAC installation and servicing. On December 30, 1994, the Hearing
Examiner in the cost allocation case made a finding that HPS should be
required to pay BGE a royalty payment equivalent to 2% of its gross
revenues. BGE strongly disagrees with the reasoning set forth in the
Hearing Examiner's opinion and has appealed this matter to the PSC. If
the order were allowed to stand, it would be virtually impossible to
profitably operate HPS as a subsidiary of BGE.
In response to the competitive forces and regulatory changes under
consideration at the PSC and FERC, as discussed above, BGE from time to
time will consider various strategies designed to enhance its
competitive position and to increase its ability to adapt to and
anticipate regulatory changes in its utility business. These strategies
may include internal restructurings involving the complete or partial
separation of its generation, transmission and distribution businesses,
acquisitions of related or unrelated businesses, business combinations,
and additions to or dispositions of portions of its franchised service
territories. BGE and its subsidiaries may from
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time to time be engaged in preliminary discussions, either internally or
with third parties, regarding one or more of these potential strategies.
No assurances can be given as to whether any potential transaction of
the type described above may actually occur, or as to the ultimate
effect thereof on the financial condition or competitive position of
BGE.
RATE MATTERS
REVISED DEPRECIATION RATES
The PSC issued an Order, which became effective in January, 1995,
adjusting BGE's utility plant depreciation rates to reflect the results
of a detailed depreciation study. The new depreciation rates are
expected to result in an increase in depreciation accruals of
approximately $21 million annually. BGE plans to defer the increased
depreciation accruals for recovery in future base rate proceedings,
consistent with previous rate actions of the PSC.
ENERGY CONSERVATION SURCHARGE
The PSC approved a base rate surcharge effective July 1, 1992 which
provides for the recovery of deferred energy conservation expenditures,
a return thereon, lost revenues, and incentives for achievement of
predetermined goals for certain conservation programs subject to an
earnings test. The compensation for foregone sales due to conservation
programs and the incentives for achieving conservation goals must be
refunded to customers if BGE is earning in excess of its authorized rate
of return, as determined by the PSC. (See discussion in ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS.) The surcharge is reset on July 1
of each year.
ELECTRIC FUEL RATE PROCEEDINGS
By statute, electric fuel costs are recoverable if the PSC finds
that BGE demonstrates that, among other things, it has maintained the
productive capacity of its generating plants at a reasonable level. The
PSC and Maryland's highest appellate court have interpreted this as
permitting a subjective evaluation of each unplanned outage at BGE's
generating plants to determine whether or not BGE had implemented all
reasonable and cost effective maintenance and operating control
procedures appropriate for preventing the outage. The PSC has
established a Generating Unit Performance Program (GUPP) to measure
annual utility compliance with maintaining the productive capacity of
generating plants at reasonable levels by establishing a system-wide
generating performance target and individual performance targets for
each base load generating unit. As a result, actual generating
performance, after adjustment for planned outages, is compared to the
system-wide target and, if met, should signify compliance with the
requirements of Maryland law. Failure to meet the system-wide target
will result in review of each unit's adjusted actual generating
performance versus its performance target in determining compliance with
the law, and the basis for possibly imposing a penalty on BGE. Failure
to meet these targets requires BGE to demonstrate that the outages
causing the failure are not the result of mismanagement. Parties to fuel
rate hearings may still question the prudence of BGE's actions or
inactions with respect to any given generating plant outage, which could
result in a disallowance of replacement energy costs. BGE is involved in
fuel rate proceedings annually where issues concerning individual plant
outages can be raised. Recovery of a portion of replacement energy costs
has been denied in past proceedings and BGE cannot estimate the amount
that could be denied in future fuel rate proceedings, but such amounts
could be material. (See NUCLEAR OPERATIONS.)
BGE is required to submit to the PSC the actual generating
performance data for each calendar year 45 days after year end. The PSC
reviews BGE's performance for each calendar year in the first fuel rate
proceeding initiated following the submission of the actual generating
performance data for that year. BGE must initiate fuel rate proceedings
in any month following a month during which the calculated fuel rate
decreased by more than 5% and may initiate fuel rate proceedings in any
month following a month during which the calculated fuel rate increased
by more than 5%.
NUCLEAR OPERATIONS
Discussed below are certain events relating to the operations of
the Calvert Cliffs Nuclear Power Plant (the Plant) during the period
1987 to the present including issues involving the possible disallowance
of replacement energy costs incurred during unplanned outages at the
Plant. All outstanding issues will be resolved in fuel rate proceedings
before the PSC which are conducted in accordance with the procedures
outlined above under RATE MATTERS -- ELECTRIC FUEL RATE PROCEEDINGS.
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OPERATIONS IN 1987
The Plant generated 10,069,576 megawatt hours (MWH) in 1987 which
resulted in a capacity factor of 70%. In October 1988, BGE filed a fuel
rate application for a change in its electric fuel rate under GUPP,
which covered BGE's operating performance in 1987. This was the first
proceeding filed under this program and BGE's filing demonstrated that
it met the system-wide and individual plant performance targets for
1987, including the performance target for the Plant. BGE believes,
therefore, it is entitled to recover all fuel costs incurred in 1987
without any disallowances. However, People's Counsel alleged that a
number of the outages at the Plant, including the 66-day outage to
document compliance with NRC mandated environmental qualification
requirements, were due to management imprudence and requested that the
PSC disallow recovery of the associated replacement energy costs which
BGE estimated to be approximately $33 million. On January 23, 1995, the
Hearing Examiner issued his decision in the 1987 fuel rate proceeding
and found that the Company had met the GUPP standard which establishes a
presumption that BGE had operated the Plant at a reasonably productive
capacity level. However, the Order found that the presumption of
reasonableness would be overcome by a showing of mismanagement and that
such a showing was made with respect to the environmental qualifications
outage time. In mitigation for meeting the GUPP standard, the Hearing
Examiner disallowed replacement energy costs recovery for 15.5 days of
the 66-day outage time. The Hearing Examiner's Order was appealed to the
PSC by both BGE and People's Counsel. If the PSC upholds the Hearing
Examiner, the Company's earnings would be impacted by approximately $4.5
million.
OPERATIONS IN 1988
The Plant generated 11,733,900 MWH in 1988 which resulted in a
capacity factor of 81%. BGE filed a fuel rate application under GUPP in
May, 1989 in which it demonstrated that it met the system-wide and
individual plant performance targets for 1988. People's Counsel alleged
that BGE imprudently managed several outages at the Plant and requested
that the PSC disallow recovery of $2 million of replacement energy
costs. On November 14, 1991, a Hearing Examiner at the PSC issued a
proposed Order, which became final on December 17, 1991 and concluded
that no disallowance was warranted. The Hearing Examiner found that BGE
maintained the productive capacity of the Plant at a reasonable level,
noting that it produced a near record amount of power and exceeded the
GUPP standard. Based on this record, the Order concluded there was
sufficient cause to excuse any avoidable failures to maintain productive
capacity at higher levels.
OPERATIONS IN 1989 TO 1991 -- EXTENDED OUTAGE
The Plant generated 2,719,197 MWH in 1989 and 1,251,416 MWH in
1990. In the Spring of 1989, a leak was discovered around the Unit 2
pressurizer heater sleeves during a refueling outage. BGE shut down Unit
1 as a precautionary measure on May 6, 1989 to inspect for similar leaks
and none were found at that time. However, Unit 1 was out of service for
the remainder of 1989 and 285 days of 1990 to undergo maintenance and
modification work to enhance the reliability of various safety systems,
to repair equipment, and to perform required periodic surveillance
tests. Unit 2 remained out of service until May 4, 1991 to complete
repair of the pressurizer, perform maintenance and modification work,
and complete the refueling. The replacement energy costs associated with
these extended outages for both Units at Calvert Cliffs, concluding with
the return to service of Unit 2, are estimated to be $458 million. This
estimate is based on a computer simulation comparing the actual
operating conditions during the extended outages with operating
conditions assuming the Plant ran at its targeted capacity factor.
The extended outages experienced at the Plant are being reviewed by
the PSC in the 1989-1991 fuel rate proceeding, and People's Counsel and
others have challenged recovery of some part of the associated
replacement energy costs. In the PSC's Rate Order issued in BGE's 1990
Base Rate Case, it found that $4 million of operations and maintenance
expenses incurred by BGE during the 1989-1990 outages at the Plant
should not be recoverable from customers. The PSC concluded that the
related work, which was performed at Unit 1 during the 1989-1990 outage,
was avoidable and caused by Company actions which were deficient. The
work characterized as avoidable had a significant impact on the duration
of the Unit 1 outage. The PSC's Order stated that its conclusions in
this proceeding did not have a binding effect in the fuel rate
proceeding on the recoverability of Calvert Cliffs' replacement energy
costs. However, BGE believes that is is doubtful that the PSC will
authorize recovery of the full amount of replacement energy costs
presently under investigation. Based on a review of the circumstances
surrounding the extended outages by BGE personnel as well as independent
consultants, in 1990 BGE recorded a provision of $35 million against the
possible disallowance of such costs. However, BGE cannot
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determine whether replacement energy costs may be disallowed in the
1989-1991 fuel rate proceeding in excess of the provision, but such
amounts could be material.
On March 15, 1994, the PSC Staff and the Office of People's Counsel
filed testimony in the 1989-1991 fuel rate proceedings. The PSC Staff
concluded that approximately 46% of the outage time was unreasonably
incurred and that approximately $200 million of replacement energy costs
should be disallowed. People's Counsel concluded that approximately $400
million of the replacement energy costs should be disallowed. BGE filed
rebuttal testimony in January 1995 in which it vigorously contested the
findings of Staff and People's Counsel. Further hearings in this matter
are not expected until 1996.
As previously reported, in December 1988, the NRC categorized the
Plant as one requiring close monitoring and increased NRC attention. The
NRC did so following certain events that the NRC indicated raised
questions about the effectiveness of past corrective action regarding
engineering and technical areas and the overall approach to safety at
the Plant. Details of such events were described in the Report on Form
10-K for the year ended December 31, 1990 in the section titled "Nuclear
Operations" on pages 4 through 7. In February 1992, the NRC removed the
Plant from its list of nuclear plants categorized as requiring close
monitoring as a result of improved performance in previously identified
problem areas and the demonstration of a sustained period of safe
operation.
OPERATIONS IN 1991 AFTER THE EXTENDED OUTAGE
The Plant generated 9,036,100 MWH in 1991, which resulted in a
capacity factor of 63%. BGE filed a fuel rate application under GUPP in
June 1992, however, the Hearing Examiner has determined that the 1991
case will not be addressed until the case covering the extended outage
has been resolved.
OPERATIONS SUBSEQUENT TO THE EXTENDED OUTAGE
The Plant generated 10,663,950 MWH in 1992, which resulted in a
capacity factor of 74%. There were no contested performance issues based
on 1992 performance. The Plant generated 12,300,816 MWH in 1993, which
resulted in a capacity factor of 85%. In 1994, the Plant generated
11,225,977 MWH achieving a capacity factor of 77%. Review of the GUPP
filings in 1993 and 1994 have not been completed, but BGE is not aware
of any significant performance issues in either of these years.
ELECTRIC LOAD MANAGEMENT, ENERGY, AND CAPACITY PURCHASES
BGE has implemented various active load management programs
designed to be used when system operating conditions require a reduction
in load. These programs include customer-owned generation and
curtailable service for large commercial and industrial customers, air
conditioning control which is available to residential and commercial
customers, and residential water heater control. The load reductions
typically have been invoked on peak summer days; the summer peak
capacity impact for 1995 from active load management is expected to be
approximately 430 megawatts (MW). Cost recovery for these load
management programs is attained through the inclusion in rate base of
capital investments and the appropriate expenses (including credits on
customer bills) for recovery in base rate proceedings.
The generating and transmission facilities of BGE are
interconnected with those of neighboring utility systems to form the
Pennsylvania-New Jersey-Maryland Interconnection (PJM). Under the PJM
agreement, the interconnected facilities are used for substantial energy
interchange and capacity transactions as well as emergency assistance.
In addition, BGE enters into short-term capacity transactions at various
times to meet PJM obligations.
BGE has an agreement with Pennsylvania Power & Light Company (PP&L)
to purchase a mix of energy and capacity from June 1, 1990 through May
31, 2001. This agreement, which has been accepted by the FERC, is
designed to help maintain adequate reserve margins through this decade
and provide flexibility in meeting capacity obligations. The PP&L
agreement entitles BGE to 5.94% of the energy output, and net capacity
(currently 127 MW), of PP&L's nuclear Susquehanna Steam Electric Station
from October 1, 1991 to May 31, 2001 and also enables BGE to treat a
portion of PP&L's capacity as BGE's capacity for purposes of satisfying
BGE's installed capacity requirements as a member of the PJM. BGE is not
acquiring an ownership interest in any of PP&L's generating units. PP&L
will continue to control, manage, operate, and maintain that station and
all other PP&L-owned generating facilities. BGE's firm capacity
purchases at December 31, 1994 represented 170 MW of rated
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zcapacity of Bethlehem Steel Corporation's Sparrows Point complex, 57 MW
of rated capacity of the Baltimore Refuse Energy Systems Company, and
the 127 MW of Susquehanna capacity from PP&L.
In 1994 PECO Energy won a competitive bidding program to supply 140
MW for firm electric capacity and associated energy for 25 years
beginning June 1, 1997. FERC acceptance of the contract is pending, and
Duquesne Light Company has filed a protest and motion to intervene with
FERC.
FUEL FOR ELECTRIC GENERATION
Information regarding BGE's electric generation by fuel type and
the cost of fuels in the five-year period 1990-1994 is set forth in the
following tables:
<TABLE>
<CAPTION>
AVERAGE COST OF FUEL CONSUMED
GENERATION BY FUEL TYPE ((CENTS) PER MILLION BTU)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
Nuclear (a)................... 39 % 43 % 40 % 33 % 5 % 52.06 53.01 45.54 48.64 54.86
Coal.......................... 56 55 54 44 44 148.64 151.85 154.76 160.74 154.56
Oil........................... 3 3 1 5 7 245.28 253.36 254.19 284.87 319.44
Hydro & Gas................... 3 3 3 4 6 - - - - -
101 104 98 86 62
Interchange/Purchases (b)..... (1) (4) 2 14 38
100 % 100 % 100 % 100 % 100 %
<FN>
(a) Nuclear fuel costs provide for disposal costs associated with
long-term off-site spent fuel storage and shipping, currently set by
law at one mill per kilowatt-hour of nuclear generation
(approximately 10 cents per million Btu) and for contributions to a
fund for decommissioning and decontaminating the Department of
Energy's uranium enrichment facility. (SEE FUEL FOR ELECTRIC
GENERATION -- NUCLEAR.)
(b) Net purchases from (sales to) others.
</TABLE>
COAL: BGE obtains a large amount of its coal under supply contracts
with mining operators. The remainder of its coal requirements are
obtained through spot purchases. BGE believes that it will be able to
renew such contracts as they expire or enter into similar contractual
arrangements with other coal suppliers. BGE's Brandon Shores Units 1 and
2 have a total annual requirement of approximately 3,400,000 tons of
coal (combined) with a sulfur content of less than approximately 0.8%.
The average delivered costs per ton paid by BGE for Brandon Shores coal
for the years 1990 through 1994 were $39.00, $39.80, $39.98, $39.49, and
$37.55, respectively. BGE's Crane Units 1 and 2 have a total annual
requirement of about 700,000 tons of coal (combined) with a sulfur
content of less than approximately 2.4% and a low ash melting
temperature. The average delivered costs per ton paid by BGE for coal at
Crane for the years 1990 through 1994 were $40.45, $38.88, $38.37,
$37.25, and $37.42, respectively. BGE's Wagner Units 2 and 3 have a
total annual requirement of approximately 1,000,000 tons of coal
(combined) with a sulfur content of no more than 1%. The average
delivered costs per ton paid by BGE for coal at Wagner for the years
1990 through 1994 were $41.28, $44.49, $43.19, $40.62, and $37.54,
respectively.
Coal deliveries to BGE's coal burning facilities are made by rail
and barge. The coal used by BGE is produced from mines located in
central and northern Appalachia.
BGE has a 20.99% undivided interest in the Keystone coal-fired
generating plant and a 10.56% undivided interest in the Conemaugh
coal-fired generating plant. The bulk of the annual coal requirements
for the Keystone plant is under contract from Rochester and Pittsburgh
Coal Company. The Conemaugh plant purchases coal from local suppliers on
the open market. The average delivered costs per ton for coal for these
plants for the years 1990 through 1994 were $36.69, $33.07, $31.53,
$32.42, and $33.22, respectively.
OIL: Under normal burn practices, BGE's requirements for residual
fuel oil amount to approximately 1,000,000 barrels of low-sulfur oil per
year. Deliveries of residual fuel oil are made directly into BGE barges
from the suppliers' Baltimore Harbor marine terminal for distribution to
the various generating plant locations. The average delivered prices per
barrel paid by BGE for residual fuel oil for the years 1990 through 1994
were $20.24, $15.53, $17.25, $15.69, and $16.30, respectively.
7
<PAGE>
NUCLEAR: The supply of fuel for nuclear generating stations
involves the acquisition of uranium concentrates, its conversion to
uranium hexafluoride, enrichment of uranium hexafluoride, and the
fabrication of nuclear fuel assemblies. Information is set forth below
with respect to fuel for Calvert Cliffs Units 1 and 2:
<TABLE>
<S> <C>
Uranium Concentrates: BGE has, either in inventory or under contract, sufficient quantities of
uranium concentrates to meet approximately 80% of its requirements
through 1997 and approximately 50% of its requirements for 1998.
Conversion: BGE has contractual commitments providing for the conversion of uranium
concentrates into uranium hexafluoride which will meet 100% of BGE's
requirements through 1995 and approximately 40% of its requirements
from 1996 through 1998.
Enrichment: BGE has a contract with the Department of Energy for the enrichment of
100% of BGE's enrichment requirements through 1995 and 70% of its
requirements from 1996 through 1998.
Fuel Assembly Fabrication: BGE has contracted for the fabrication of fuel assemblies for reloads it
requires through 1996.
</TABLE>
The nuclear fuel market is very competitive and BGE does not
anticipate any problem in meeting its requirements beyond the periods
noted above. Expenditures for nuclear fuel are discussed in MD&A --
LIQUIDITY AND CAPITAL RESOURCES on page 28.
Under the Nuclear Waste Policy Act of 1982 (the 1982 Act), spent
fuel discharged from nuclear power plants, including Calvert Cliffs, is
required to be placed into a federal repository. Such facilities do not
currently exist, and, consequently, must be developed and licensed. BGE
cannot now predict when such facilities will be available, although the
1982 Act obligates the federal government to accept spent fuel starting
in 1998. While BGE cannot now predict what the ultimate cost will be,
the 1982 Act assesses a one mill per kilowatt-hour fee on nuclear
electricity generated and sold. At anticipated operating levels, it is
expected that this fee will be approximately $11 million for Calvert
Cliffs each year.
The Energy Policy Act of 1992 (the 1992 Act) contains provisions
requiring domestic utilities to contribute to a fund for decommissioning
and decontaminating the Department of Energy's (DOE) uranium enrichment
facilities. These contributions are generally payable over a
fifteen-year period with escalation for inflation and are based upon the
amount of uranium enriched by DOE for each utility. The 1992 Act
provides that these costs are recoverable through utility service rates
as a cost of fuel. Information about the cost of decommissioning is
discussed in NOTE 1 TO THE CONSOLIDATED FINANCIAL STATEMENTS on page 40
under the heading "UTILITY PLANT, DEPRECIATION AND AMORTIZATION, AND
DECOMMISSIONING."
Maryland law makes it unlawful to establish within the State a
facility for the permanent storage of high-level nuclear waste, unless
otherwise expressly required by federal law. BGE has received a license
from the NRC to operate its on-site independent spent fuel storage
facility. BGE now has storage capacity at Calvert Cliffs that will
accommodate spent fuel from operations through the year 2006. In
addition, BGE can expand its temporary storage capacity to meet future
requirements until federal storage is available.
GAS: BGE has a firm natural gas transportation entitlement of 3,500
dekatherms a day to provide ignition and banking at certain power
plants. Gas for electric generation is purchased as needed in the spot
market using interruptible transportation arrangements. Certain gas
fired units can use residual fuel oil as an alternative.
GAS OPERATIONS
BGE distributes natural gas purchased directly from several
producers and marketers. Transportation to BGE's city gate for these
purchases is provided by Columbia Gas Transmission Corporation
(Columbia), CNG Transmission Corporation (CNG), and Transcontinental Gas
Pipe Line Corporation under various transportation agreements. BGE has
upstream transportation capacity under contract on Tennessee Gas
Pipeline Company, Texas Eastern Transmission Corporation, Columbia Gulf
Transmission Company and ANR Pipeline Company (ANR). BGE has storage
service agreements with Columbia, CNG and ANR. The transportation and
storage agreements are on file with the Federal Energy Regulatory
Commission (FERC).
BGE's current pipeline firm transportation entitlements to serve
its firm loads are 473,597 dekatherms (DTH) per day during the winter
period and 291,231 DTH per day during the summer period. BGE uses the
firm
8
<PAGE>
transportation capacity to move gas from the Gulf of Mexico, Louisiana,
south central regions of Texas and Canada to BGE's city gate. The gas is
subject to a mix of long and short-term contracts that are managed to
provide economic, reliable and flexible service. Additional short-term
contracts or exchange agreements with other gas companies can be
arranged in the event of short-term emergencies.
To supplement BGE's gas supply at times of heavy winter demands and
to be available in temporary emergencies affecting gas supply, BGE has
propane air and liquefied natural gas facilities. The liquefied natural
gas facility consists of a plant for the liquefaction and storage of
natural gas with a storage capacity of 1,000,000 DTH and an installed
daily capacity of 281,760 DTH. The propane air facility consists of a
plant with a mined cavern and refrigerated storage facilities having a
total storage capacity equivalent to 1,000,000 DTH and a daily capacity
of 91,600 DTH. BGE has under contract sufficient volumes of propane for
the operation of the propane air facility and is capable of liquefying
sufficient volumes of natural gas during the summer months for operation
of its liquefied natural gas facility during winter periods.
BGE offers gas for sale to its residential, commercial and
industrial customers on a firm and interruptible basis. BGE also
provides its large commercial and industrial customers with a
transportation service across its distribution system so that these
customers may make direct purchase and transportation arrangements with
suppliers and pipelines. BGE is in the process of expanding its
transportation service to smaller customers. A transportation fee is
charged by BGE that is equivalent to its operating margin on gas it
sells to similar customers for the service from the city gate to the
customer's facility. This program enables BGE to maintain throughput at
a level which assures that fixed costs are spread over the maximum
number of DTH. BGE is authorized by the PSC to provide balancing and gas
brokering services for its transportation customers.
Future purchased gas costs are expected to increase due to
transition costs incurred by BGE gas pipeline suppliers in implementing
FERC Order No. 636. These transition costs, if approved by the PSC and
FERC, will be passed on to BGE customers through the purchased gas
adjustment clause.
ENVIRONMENTAL MATTERS
The Company is subject to regulation with regard to air and water
quality, waste disposal, and other environmental matters by various
federal, state, and local authorities. Certain of these regulations
require substantial expenditures for additions to utility plant and the
use of more expensive low-sulfur fuels. While the Company cannot now
precisely estimate the total effect of existing and future environmental
regulations and standards upon its existing and proposed facilities and
operations, the necessity for compliance with existing standards and
regulations has caused BGE to increase capital expenditures by
approximately $206 million during the five-year period 1990-1994. It is
estimated that the capital expenditures necessary to comply with such
standards and regulations will be approximately $16 million, $9 million,
and $16 million for 1995, 1996, and 1997, respectively.
AIR: The Federal Clean Air Act (the Act) mandates health and
welfare standards for concentrations of air pollutants. The State of
Maryland is charged by the Act with the responsibility for setting
limits on all major sources of these pollutants in the State so that
these standards are not exceeded. Except for Crane Units 1 and 2, BGE's
generating units are limited to burning fuel (coal or oil) with sulfur
content of 1% or below. All units are limited to emitting particulate
matter at or below 0.02 grains per standard cubic foot of exhaust gas
for oil fired units and 0.03 grains per standard cubic foot for coal
fired units. Brandon Shores, a newer plant, is subject to more stringent
standards for sulfur dioxide (1.2 pounds per million Btu), and nitrogen
dioxide (0.7 pounds per million Btu). The Crane Units must meet limits
of 3.5 pounds per million Btu for sulfur dioxide, which is equivalent to
a coal sulfur content of approximately 2.4%. BGE is in compliance with
existing air quality regulations.
The Clean Air Act Amendments of 1990 contain two titles designed to
reduce emissions of sulfur dioxide and nitrogen oxide (NOx) from
electric generating stations. Title IV contains provisions for
compliance in two phases. Phase I of Title IV became effective January
1, 1995, and Phase II of Title IV must be implemented by 2000. BGE met
the requirements of Phase I by installing flue gas desulfurization
systems and through fuel switching and unit retirements. BGE is
currently examining what actions will be required in order to comply
with Phase II. However, BGE anticipates that compliance will be attained
by some combination of fuel switching, flue gas desulfurization, unit
retirements, or allowance trading.
At this time, plans for complying with nitrogen oxide (NOx) control
requirements under Title I of the Act are less certain because all
implementation regulations have not yet been finalized by the
government. It is
9
<PAGE>
expected that by the year 1999 these regulations will require additional
NOx controls for ozone attainment at BGE's generating plants and other
BGE facilities. The controls will result in additional expenditures that
are difficult to predict prior to the issuance of such regulations.
Based on existing and proposed ozone nonattainment regulations, BGE
currently estimates that the NOx controls at BGE's generating plants
will cost approximately $70 million. BGE is currently unable to predict
the cost of compliance with the additional requirements at other BGE
facilities.
WATER: The discharge of effluents into the waters of the State of
Maryland is regulated by the Maryland Department of the Environment
(MDE), in accordance with the National Pollutant Discharge Elimination
System (NPDES) permit program, established pursuant to the Federal Clean
Water Act. At the present time, all of BGE's steam electric generating
plants have the required NPDES permits.
MDE water quality regulations require, among other things,
specifying procedures for determining compliance with State water
quality standards. These procedures require extensive studies involving
sampling and monitoring of the waters around affected generating plants.
The State of Maryland may require changes in plant operations. At this
time BGE continually performs studies to determine whether any
modifications will be required to comply with these regulations.
WASTE DISPOSAL: The United States Environmental Protection Agency
(EPA) has promulgated regulations implementing those portions of the
Resource Conservation and Recovery Act which deal with management of
hazardous wastes. These regulations, and the Hazardous and Solid Waste
Amendments of 1984, designate certain spent materials as hazardous
wastes and establish standards and permit requirements for those who
generate, transport, store, or dispose of such wastes. The State of
Maryland has adopted similar regulations governing the management of
hazardous wastes, which closely parallel the federal regulations. BGE
has implemented procedures for compliance with all applicable federal
and state regulations governing the management of hazardous wastes.
Certain high volume utility wastes such as fly ash and bottom ash have
been exempted from these regulations. The Company currently utilizes
almost all of its coal fly ash and bottom ash as structural fill
material in a manner approved by the State of Maryland. The remainder of
the coal ash is sold to the construction industry for a number of
approved applications.
The Federal Comprehensive Environmental Response, Compensation and
Liability Act (Superfund statute) establishes liability for the cleanup
of hazardous wastes found contaminating the soil, water, or air. Those
who generated, transported or deposited the waste at the contaminated
site are each jointly and severally liable for the cost of the cleanup,
as are the current property owner and their predecessors in title at the
time of the contamination. In addition, many states have enacted laws
similar to the Superfund statute.
On October 16, 1989, the EPA filed a complaint in the U.S. District
Court for the District of Maryland under the Superfund statute against
BGE and seven other defendants to recover past and future expenditures
associated with cleanup of a site located at Kane and Lombard Streets in
Baltimore. The State of Maryland intervened by filing a similar
complaint in the same case and court on February 12, 1990. The
complaints allege that BGE arranged for its fly ash to be deposited on
the site. Settlement discussions continue among all parties. Additional
investigation was initiated on the remainder of the site by the MDE for
the EPA but was never completed. BGE and three other defendants agreed
to complete the remedial investigation and feasibility study of
groundwater contamination around the site in a July 1993 consent order.
The remedial action, if any, for the remainder of the site will not be
selected until these investigations are concluded. Therefore, neither
the total site cleanup costs, nor BGE's share, can presently be
estimated.
In the early 1970's, BGE shipped an unknown number of scrapped
transformers to Metal Bank of America, a metal reclaimer in
Philadelphia. Metal Bank's scrap and storage yard has been found to be
contaminated with oil containing high levels of PCBs (PCBs are hazardous
chemicals frequently used as a fire-resistant coolant in electrical
equipment). On December 7, 1987, the EPA notified BGE and nine other
utilities that they are considered potentially responsible parties
(PRPs) with respect to the cleanup of the site. A remedial investigation
and feasibility study (RI/FS) by BGE and the other PRPs was submitted to
the EPA on October 14, 1994. Estimated costs for the various remedies
included in the RI/FS range greatly (from $2 million to $90 million).
Until a specific remedy is chosen, BGE is not able to predict where
within the range the actual cleanup costs will fall. BGE's share of the
cleanup costs, estimated to be approximately 15.79%, could be material.
During the early 1970's, BGE disposed of a small amount of
low-level nuclear waste at a site in Morehead, Kentucky, known as Maxey
Flats. This site was found to have been operated improperly. As a
result, low-level radioactive contaminants have been found to be leaking
from the site. On November 26, 1986, the EPA notified BGE that it is
one of approximtaely 800 PRPs. A RI/FS was completed by BGE and other
PRPs. The EPA has issued its Record of Decision, recommending a natural
stabilization remedy. The cost estimate for this remedy is currently
estimated to be approximately $60 million for all PRPs. BGE's
volumetric share of the waste on-site is 0.0103 percent of the total,
based upon BGE's records of waste shipped to the site compared to the
total recorded waste. BGE's potential liability cannot be estimated,
but such liability is not likely to be substantial because its
volumetric share of the waste on-site is so small.
From 1985 until 1989, BGE shipped waste oil and other materials to
the Industrial Solvents and Chemical Company in York County,
Pennsylvania for disposal. The Pennsylvania Department of Environmental
Resources
10
<PAGE>
(Pennsylvania Department) subsequently investigated this site and found
it to be heavily contaminated by hazardous wastes. The Pennsylvania
Department notified BGE on August 15, 1990, that it and approximately
1,000 other entities were PRPs with respect to the cost of all remedial
activities to be conducted at the site. The PRPs have agreed to perform
waste characterization, remove and dispose of all tanks and drums of
waste, and perform a remedial investigation at the site. BGE's share of
the liability at this site currently is estimated to be approximately
2.39%, but this may change as additional information about the site is
obtained. The actual cost of remedial activities has not been
determined. As a result of these factors, BGE's potential liability
cannot presently be estimated. However, such liability could be
material.
On August 30, 1994, BGE was named as a defendant in UNITED STATES
V. KEYSTONE SANITATION COMPANY, ET AL. The litigation was instituted by
EPA in the United States District Court for the Middle District of
Pennsylvania involving contamination of the Keystone Sanitation Company
landfill Superfund site located in Adams County, Pennsylvania. BGE was
named as a third party defendant based upon allegations that BGE had
drums of asbestos shipped to the site. There are eleven original
defendants and approximately 150 other third party defendants. Neither
the costs of future site remediation, nor the extent of BGE's potential
liability can be estimated at this time.
In the early part of the century, predecessor gas companies (which
were later merged into BGE) manufactured coal gas for residential and
industrial use. The residue from this manufacturing process was coal
tar, previously thought to be harmless but now found to contain a number
of chemicals designated by the EPA as hazardous substances. BGE is
coordinating an investigation of these former coal gas plant sites,
including exploration of corrective action options to remove coal tar,
with the MDE. No formal legal proceedings have been instituted against
BGE with respect to these sites. The technology for cleaning up such
sites is still developing, and potential remedies for these sites have
not been identified. As explained in NOTE 13 TO THE CONSOLIDATED
FINANCIAL STATEMENTS on page 52, BGE has recognized estimated
environmental costs at these sites totaling $37.9 million as of December
31, 1994. Any cleanup costs for these sites in excess of the amount
accrued, which could be significant in total, cannot presently be
estimated.
On May 3, 1994 Constellation Energy was named as a defendant in
REPUBLIC IMPERIAL ACQUISITION V. STOCKMAR ENERGY, INC., ET AL. Civil No.
940120R(LSP) (Dist. Ct., So. Dist. California). The plaintiffs are
owners of a non-hazardous waste landfill located in Imperial County,
California. The plaintiffs allege that defendants delivered hazardous
materials consisting of spent geothermal filters containing certain
metals used in the operation of four geothermal projects. The claims are
made under the Superfund statute and state and common law against the
operators, project owners and others. Certain Constellation Energy
subsidiaries have ownership interests in three of the projects. These
Constellation Companies have indemnification rights from project lessees
and operators. Approximately 45 other defendants, in addition to
Constellation Energy, have been named to date. The Constellation
Companies are currently evaluating the claims and site investigation is
at a preliminary stage. As a result, total investigation and clean up
costs, as well as the Constellation Companies' share of such costs,
cannot presently be estimated.
11
<PAGE>
ELECTRIC OPERATING STATISTICS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Electric Output (In Thousands) -- MWH:
Generated................................ 28,413 28,907 25,626 22,767 15,193
Purchased (A)............................ 4,857 2,627 4,323 5,522 11,859
Subtotal............................ 33,270 31,534 29,949 28,289 27,052
Less Interchange Sales................... 5,684 4,149 3,180 1,167 1,088
Total Output........................ 27,586 27,385 26,769 27,122 25,964
Power Generated and Purchased at
Times of Peak Load (MW) (one hour):
Generated by Company..................... 3,384 5,245 3,679 4,948 3,032
Net Purchased (A)........................ 2,654 631 1,879 962 2,445
Peak Load (B)............................ 6,038 5,876 5,558 5,910 5,477
Annual System Load Factor (%).............. 54.7 55.2 54.8 52.4 54.1
Revenues (In Thousands)
Residential.............................. $ 931,711 $ 931,643 $ 839,954 $ 882,591 $ 718,032
Commercial............................... 852,989 869,829 842,694 850,038 758,573
Industrial............................... 205,611 199,042 201,950 212,864 194,951
System Sales............................. 1,990,311 2,000,514 1,884,598 1,945,493 1,671,556
Interchange Sales........................ 118,027 91,543 64,323 23,845 26,629
Other.................................... 19,083 20,090 16,611 21,531 13,359
Total............................... $2,127,421 $2,112,147 $1,965,532 $1,990,869 $1,711,544
Sales (In Thousands) -- MWH:
Residential.............................. 10,670 10,614 9,735 10,097 9,283
Commercial............................... 12,351 12,395 11,909 11,707 11,352
Industrial............................... 4,433 3,763 3,663 3,708 3,743
System Sales............................. 27,454 26,772 25,307 25,512 24,378
Interchange Sales........................ 5,684 4,149 3,180 1,166 1,088
Total............................... 33,138 30,921 28,487 26,678 25,466
Customers
Residential.............................. 978,591 968,212 956,570 939,734 930,880
Commercial............................... 101,957 100,820 99,673 98,254 96,567
Industrial............................... 3,967 3,800 3,761 3,584 3,526
Total............................... 1,084,515 1,072,832 1,060,004 1,041,572 1,030,973
Average Cost of Fuel Consumed ((cents) per
million Btu)............................. 112.44 112.77 110.20 127.89 177.00
BGE achieved an all-time peak load of 6,038 megawatts on January 19, 1994.
<FN>
(A) Includes purchases from Safe Harbor Water Power Corporation, a
hydroelectric company, of which the Company owns two-thirds of the
capital stock.
(B) See page 6 for a discussion of active load management programs which
may be activated at times of peak load. Certain prior-year amounts
have been reclassified to conform to the current year's
presentation.
</TABLE>
12
<PAGE>
GAS OPERATING STATISTICS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Gas Output (In Thousands) -- DTH:
Purchased.......................................... 68,547 71,204 70,208 63,159 59,470
LNG Withdrawn from Storage......................... 698 725 742 551 333
Produced........................................... 828 259 92 17 5
Total Output.................................. 70,073 72,188 71,042 63,727 59,808
Delivery Service Gas
Delivered (A)...................................... 41,897 38,521 41,048 40,503 43,377
Total......................................... 111,970 110,709 112,090 104,230 103,185
Peak Day Sendout (DTH)............................... 761,900 657,700 609,200 610,200 653,900
Capability on Peak Day (DTH)......................... 847,000 847,000 847,000 817,000 853,000
Revenues (In Thousands)
Residential........................................ $262,736 $265,601 $242,737 $220,653 $218,967
Commercial
Excluding Delivery Service...................... 121,005 121,832 112,147 96,189 89,573
Delivery Service................................ 2,285 3,287 3,591 3,031 3,304
Industrial
Excluding Delivery Service...................... 20,140 22,250 21,123 14,855 32,439
Delivery Service................................ 9,635 12,920 14,290 14,288 17,851
Other.............................................. 5,448 7,273 6,511 6,777 9,197
Total......................................... $421,249 $433,163 $400,399 $355,793 $371,331
Sales (In Thousands) -- DTH:
Residential........................................ 40,279 40,029 39,042 36,519 35,026
Commercial
Excluding Delivery Service...................... 23,712 23,830 23,478 20,687 18,164
Delivery Service................................ 6,490 7,428 7,102 6,433 5,872
Industrial
Excluding Delivery Service...................... 4,410 5,298 5,314 3,605 7,305
Delivery Service................................ 33,837 31,390 33,638 34,240 34,720
Total......................................... 108,728 107,975 108,574 101,484 101,087
Customers
Residential........................................ 498,152 491,165 486,863 482,085 482,680
Commercial......................................... 37,891 37,518 37,000 36,561 35,953
Industrial......................................... 1,354 1,353 1,412 1,385 1,401
Total......................................... 537,397 530,036 525,275 520,031 520,034
<FN>
BGE achieved an all-time peak day sendout of 761,900 DTH on
January 19, 1994.
(A) Represents gas purchased by alternate fuel customers directly from
suppliers for which BGE receives a fee for transportation through
its system ("delivery service"). (SEE MD&A -- RESULTS OF
OPERATIONS.) Certain prior-year amounts have been reclassified to
conform to the current year's presentation.
</TABLE>
13
<PAGE>
FRANCHISES
BGE has nonexclusive electric and gas franchises to use streets and other
highways which are adequate and sufficient to permit BGE to engage in its
present business. All such franchises, other than the gas franchises in
Manchester, Hampstead, Perryville, Sykesville, Havre de Grace, and Montgomery
and Frederick Counties, are unlimited as to time. The gas franchises for these
jurisdictions expire at various times from 2015 to 2020, except for Havre de
Grace which has the right, exercisable at twenty-year intervals from 1907, to
purchase all of BGE's gas properties in that municipality. Conditions of the
franchises are satisfactory. BGE also has rights-of-way to maintain 26-inch
natural gas mains across certain Baltimore City owned property (principally
parks) which expire in 1999 and 2004, each subject to renewal during the last
year thereof for an additional period of 25 years on a fair revaluation of the
rights so granted. Conditions of the grants are satisfactory.
Franchise provisions relating to rates have been superseded by the Public
Service Commission Law of Maryland.
DIVERSIFIED BUSINESSES
GENERAL
Diversified businesses consist of the operations of the Constellation
Companies, HPS and its subsidiary MES and BNG, Inc.
The Constellation Companies' businesses are concentrated in three major
areas -- power generation projects, financial investments, and real estate
projects (including senior living facilities). A significant portion of the
Constellation Companies' activities are conducted through joint ventures in
which they hold varying ownership interests.
The Constellation Companies hold up to a 50% ownership interest in 24 power
generating projects in operation or under construction accounting for $298
million of the Constellation Companies' assets. These projects, all of which
either are qualifying facilities under the Public Utility Regulatory Policies
Act of 1978 or are otherwise exempt from the Public Utility Holding Company Act
of 1935, are of the following types and aggregate generation capacities: coal
160 MW, solar 170 MW, geothermal 121 MW, waste coal 182 MW, wood burning 70 MW,
and hydro 30 MW. In addition, another $7 million has been spent on projects in
development. The Constellation Companies also participate in the operation and
maintenance of 24 power generation projects existing or under construction, 10
of which are projects in which the Constellation Companies hold an ownership
interest. Financial investments account for $224 million of the Constellation
Companies' assets. These assets include $99 million in internally and externally
managed securities portfolios, $88 million in monoline financial guaranty
(credit enhancement) companies, and $37 million in tax-oriented transactions.
Real estate and senior living projects account for $483 million of the
Constellation Companies' assets. These projects include raw land, office
buildings, retail, and commercial projects, an entertainment, dining, and retail
complex in Orlando, Florida, a mixed-use planned unit development, and senior
living facilities. The majority of the real estate projects are in the
Baltimore-Washington area and have been adversely affected by the depressed real
estate and economic market.
The Constellation Companies' investment in wholesale power generating
projects includes $177 million representing ownership interests in 16 projects
which sell electricity in California under Interim Standard Offer No. 4 power
purchase agreements. Under these agreements, the properties supply electricity
to purchasing utilities at a fixed energy rate for the first ten years of the
agreements and at variable energy rates based on the utilities' avoided cost for
the remaining term of the agreements. Avoided cost generally represents a
utility's next lowest cost generation to service the demands on its system.
These power generation projects are scheduled to convert to supplying
electricity at avoided cost rates in various years beginning in late 1996
through the end of
14
<PAGE>
2000. As a result of declines in purchasing utilities' avoided costs subsequent
to the inception of these agreements, revenues at these projects based on
current avoided cost levels would be substantially lower than revenues presently
being realized under the fixed price terms of the agreements. If current avoided
cost levels were to continue into 1996 and beyond, the Constellation Companies
could experience reduced earnings or incur losses associated with these
projects, which could be significant. The Constellation Companies are
investigating and pursuing alternatives for certain of these power generation
projects including, but not limited to, repowering the projects to reduce
operating costs, renegotiating the power purchase agreements, and selling their
ownership interests in the projects. Two of these wholesale power generating
projects, in which the Constellation Companies' investment totals $27.4 million,
have executed agreements with Pacific Gas & Electric (PG&E) providing for the
curtailment of output through the end of the fixed price period in return for
payments from PG&E. The payments from PG&E during the curtailment period will be
sufficient to fully amortize the existing project finance debt. However,
following the curtailment period, the projects remain contractually obligated to
commence production of electricity at the avoided cost rates, which could result
in reduced earnings or losses for the reasons described above. The Company
cannot predict the impact that these matters regarding any of the 16 projects
may have on the Constellation Companies or the Company, but the impact could be
material.
HPS was formed in mid 1994. HPS is engaged in the sales and service of gas
and electric appliances. This business recently was expanded to include kitchen
remodeling and servicing of heating and air conditioning systems. In December
1994, HPS acquired MES, a company specializing in installation of commercial and
residential heating, air conditioning, and plumbing.
BNG, Inc. is a wholly owned subsidiary of BGE which engages in natural gas
brokering.
CAPITAL REQUIREMENTS
Capital requirements for diversified businesses for 1992 through 1994,
along with estimated amounts for 1995 through 1997, are set forth below:
<TABLE>
<CAPTION> 1992 1993 1994 1995 1996 1997
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Retirement of long-term debt........................... $118 $222 $37 $ 56 $ 65 $125
Investment requirements................................ 80 78 51 66 70 40
Total diversified businesses......................... $198 $300 $88 $122 $135 $165
</TABLE>
The investment requirements shown above include the Constellation
Companies' portion of equity funding to committed projects under development as
well as net loans made to project partnerships. The investment requirements for
past periods reflect actual funding of projects, whereas investment requirements
for the years 1995-1997 reflect the Constellation Companies' estimate of funding
during such periods for ongoing and anticipated projects. Also, guarantees of
$17 million may be called which are not included above.
Estimates of the Constellation Companies' investment requirements are
subject to continuous review and modification. Actual investment requirements
may vary significantly from the amounts above due to the type and number of
projects selected for development, the impact of market conditions on those
projects, the ability to obtain financing, and the availability of internally
generated cash. The Constellation Companies' investment requirements have been
met in the past through the internal generation of cash and through borrowings
from institutional lenders.
15
<PAGE>
See NOTES 3 AND 4 TO CONSOLIDATED FINANCIAL STATEMENTS AND
MD&A -- LIQUIDITY AND CAPITAL RESOURCES -- DIVERSIFIED BUSINESSES CAPITAL
REQUIREMENTS for additional information about diversified activities.
EMPLOYEES
As of December 31, 1994, BGE employed 7,296 people for its utility
operations. 136 people were employed by the Constellation Holdings, Inc. In
addition, the Constellation Companies employ approximately 800 employees at an
entertainment, dining, and retail complex in Orlando, Florida, 55 employees of
two wholly owned subsidiaries operating two power generation facilities, and 71
employees at a senior living facility. Four hundred sixty-eight people were
employed by BGE Home Products & Services, Inc. (HPS) and 174 people were
employed by HPS' subsidiary, Maryland Environmental Systems, Inc.
16
<PAGE>
ITEM 2. PROPERTIES
ELECTRIC: The principal electric generating plants of BGE are as follows:
<TABLE>
<CAPTION> INSTALLED GENERATION (MWH)
PLANT LOCATION CAPACITY (MW) PRIMARY FUEL 1994 1993
(AT DECEMBER 31, 1994)
<S> <C> <C> <C> <C> <C>
Steam
Calvert Cliffs Calvert County, MD 1,675 Nuclear 11,219,516 12,300,816
Brandon Shores Anne Arundel County, MD 1,291 Coal 8,857,557 7,584,610
Herbert A. Wagner Anne Arundel County, MD 1,001 Coal/Oil/Gas 2,940,978 2,953,056
Charles P. Crane Baltimore County, MD 380 Coal 1,847,851 2,102,530
Gould Street Baltimore City, MD 104 Oil 124,323 162,160
Riverside Baltimore County, MD 78 Oil/Gas 9,146 81,710
Westport Baltimore City, MD - Oil - 33,717
Jointly Owned -- Steam
Keystone Armstrong and 359(A) Coal 2,188,760 2,497,351
Indiana Counties, PA
Conemaugh Indiana County, PA 181(A) Coal 1,156,109 1,147,729
Combustion Turbine
Notch Cliff Baltimore County, MD 128 Gas 11,472 12,276
Perryman Harford County, MD 208 Oil 26,960 11,320
Westport Baltimore City, MD 121 Gas 10,266 9,863
Riverside Baltimore County, MD 173 Oil/Gas 8,711 6,632
Philadelphia Road Baltimore City, MD 64 Oil 8,250 2,537
Charles P. Crane Baltimore County, MD 14 Oil 1,804 386
Herbert A. Wagner Anne Arundel County, MD 14 Oil 1,300 172
Totals 5,791 28,413,003 28,906,865
<FN>
(A) BGE-owned proportionate interest and entitlement. These totals include
diesel capacity of 2 megawatts and 1 megawatt for Keystone and Conemaugh,
respectively.
</TABLE>
BGE also owns two-thirds of the outstanding capital stock of Safe Harbor
Water Power Corporation, and is currently entitled to 277 megawatts of the rated
capacity of the Safe Harbor Hydroelectric Project. Safe Harbor is operated under
a FERC license which expires in the year 2030.
GAS: BGE has propane air and liquefied natural gas facilities as described
in Gas Operations on page 8.
GENERAL: All of the principal plants and other important units of BGE
located in Maryland are held in fee except that several properties (not
including any principal electric or gas generating plant or the principal
headquarters building owned by BGE in downtown Baltimore) in BGE's service area
are held under lease arrangements. The leased spaces are used for various
offices, service and/or retail merchandising purposes. Electric transmission and
electric and gas distribution lines are constructed principally (a) in public
streets and highways pursuant to franchises or (b) on permanent fee simple or
easement rights-of-way secured for the most part by grants from record owners
and as to a relatively small part by condemnation.
BGE's undivided interests as a tenant in common in the properties acquired
for the Keystone and Conemaugh Plants located in Pennsylvania are held in fee by
BGE, subject to minor defects and encumbrances which do not materially interfere
with the use of the properties by BGE.
All of BGE's property referred to above is subject to the lien of the
Mortgage securing BGE's First Refunding Mortgage Bonds.
ITEM 3. LEGAL PROCEEDINGS
ASBESTOS
During 1993 and 1994, BGE was served in several actions concerning
asbestos. The actions are collectively titled IN RE BALTIMORE CITY PERSONAL
INJURIES ASBESTOS CASES in the Circuit Court for Baltimore City, Maryland. 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.
17
<PAGE>
The first type, direct claims by individuals exposed to asbestos, were
described in a Report on Form 8-K filed August 20, 1993. BGE and approximately
70 other defendants are involved. The 482 non-employee plaintiffs each claim $6
million in damages ($2 million compensatory and $4 million punitive). BGE does
not know the specific facts necessary for BGE to assess its potential liability
for these type claims, such as the identity of the BGE facilities at which the
plaintiffs allegedly worked as contractors, the names of the plaintiffs'
employers, and the date on which the exposure allegedly occurred.
The second type are claims by two manufacturers -- Owens Corning Fiberglass
and Pittsburgh Corning Corp. -- against BGE and approximately eight others, as
third-party defendants. These relate to approximately 1,500 individual
plaintiffs. BGE does not know the specific facts necessary for BGE to assess its
potential liability for these type claims, such as the identity of BGE
facilities containing asbestos manufactured by the two manufacturers, 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, and the dates on which/places at which the exposure
allegedly occurred.
Until the relevant facts for both type claims are determined, BGE is unable
to estimate what its liability, if any, might be. Although insurance and hold
harmless agreements from contractors who employed the plaintiffs may cover a
portion of any ultimate awards in the actions, BGE's potential liability could
be material.
SEE ITEM 1. BUSINESS -- RATE MATTERS, NUCLEAR OPERATIONS, ENVIRONMENTAL
MATTERS, and NOTE 13 TO CONSOLIDATED FINANCIAL STATEMENTS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
18
<PAGE>
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers of the Registrant are:
<TABLE>
<CAPTION> OTHER OFFICES OR POSITIONS
NAME AGE PRESENT OFFICE HELD DURING PAST FIVE YEARS
<S> <C> <C> <C>
Christian H. Poindexter 56 Chairman of the Board (A) Vice Chairman of the Board
(Since January 1, 1993)
Edward A. Crooke 56 President (B) President, Utility Operations
(Since September 1, 1992)
Bruce M. Ambler 55 President and Chief Executive
Officer
Constellation Holdings, Inc.
(Since August 1, 1989)
George C. Creel 61 Senior Vice President Senior Vice President
Generation Vice President, Nuclear Energy
(Since January 1, 1993)
Thomas F. Brady 45 Vice President Vice President
Customer Service and Customer Service and
Distribution Accounting
(Since July 1, 1993) Vice President, Accounting and
Economics
Herbert D. Coss, Jr. 60 Vice President Vice President
Gas Marketing and Gas Operations
(Since October 1, 1994) Vice President
Electric Interconnection and
Transmission
Vice President, Interconnection
and Operations
Robert E. Denton 51 Vice President Plant General Manager, Calvert
Nuclear Energy Cliffs Nuclear Power Plant
(Since September 1, 1992) Manager, Calvert Cliffs Nuclear
Power Plant
Carserlo Doyle 50 Vice President Manager, Telecommunications
Electric Interconnection Principal Engineer -- Electric
and Transmission Interconnection
(Since January 1, 1994)
Jon M. Files 59 Vice President
Management Services
(Since September 1, 1981)
Ronald W. Lowman 50 Vice President Manager, Fossil Engineering
Fossil Energy Manager, Fossil Engineering
(Since January 1, 1993) Services
G. Dowell Schwartz, Jr. 58 Vice President Manager, Auditing
General Services
(Since April 1, 1990)
Charles W. Shivery 49 Vice President Vice President
Finance and Accounting, Corporate Finance Group
Chief Financial Officer and Treasurer and Secretary
Secretary
(Since July 1, 1993)
Joseph A. Tiernan 56 Vice President Vice President
Corporate Affairs Corporate Administration
(Since February 1, 1993)
Stephen F. Wood 42 Vice President Manager, Major Customer Projects
Marketing and Sales Manager, System Engineering
(Since October 1, 1994) and Construction
Manager, Distribution Engineering
Manager, Transportation
<FN>
(A) Chief Executive Officer, Director, and member of the Executive Committee.
(B) Chief Operating Officer, Director, and member of the Executive Committee.
</TABLE>
19
<PAGE>
Officers of the Registrant are elected by, and hold office at the will of,
the Board of Directors and do not serve a "term of office" as such. There is no
arrangement or understanding between any officer and any other person pursuant
to which the officer was selected.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK TRADING
BGE's Common Stock, which is traded under the ticker symbol BGE, is listed
on the New York, Chicago, and Pacific stock exchanges, and has unlisted trading
privileges on the Boston, Cincinnati, and Philadelphia exchanges.
As of February 28, 1995, there were 81,056 common shareholders of record.
DIVIDEND POLICY
The Common Stock is entitled to dividends when and as declared by the Board
of Directors. There are no limitations in any indenture or other agreements on
payment of dividends; however, holders of Preferred Stock (first) and holders of
Preference Stock (next) are entitled to receive, when and as declared, from the
surplus or net profits, cumulative yearly dividends at the fixed preferential
rate specified for each series and no more, payable, quarterly, and to receive
when due the applicable Preference Stock redemption payments, before any
dividend on the Common Stock shall be paid or set apart.
Dividends have been paid on the Common Stock continuously since 1910.
Future dividends depend upon future earnings, the financial condition of the
Company and other factors. Quarterly dividends were declared on the Common Stock
during 1994 and 1993 in the amounts set forth below.
COMMON STOCK DIVIDENDS AND PRICE RANGES
<TABLE>
<CAPTION> 1994 1993
DIVIDEND PRICE* DIVIDEND PRICE*
DECLARED HIGH LOW DECLARED HIGH LOW
<S> <C> <C> <C> <C> <C> <C>
First Quarter.......................... $ .37 $ 25 1/2 $ 22 3/8 $ .36 $ 26 3/8 $ 22 3/8
Second Quarter......................... .38 24 3/8 20 1/2 .37 26 5/8 23 7/8
Third Quarter.......................... .38 23 3/4 20 3/4 .37 27 1/2 25 1/8
Fourth Quarter......................... .38 23 5/8 21 1/4 .37 26 7/8 23 1/2
Total................................ $ 1.51 $ 1.47
</TABLE>
*Based on New York Stock Exchange Composite Transactions as reported in the
eastern edition of THE WALL STREET JOURNAL.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION> 1994 1993 1992 1991 1990
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Total Revenues $2,782,985 $2,741,385 $2,559,536 $2,514,631 $2,248,613
Expenses Other Than Interest and Income Taxes 2,147,726 2,124,993 2,024,227 2,026,910 1,922,498
Income From Operations 635,259 616,392 535,309 487,721 326,115
Other Income 32,365 20,310 22,132 28,095 34,488
Income Before Interest and Income Taxes 667,624 636,702 557,441 515,816 360,603
Interest Expense 190,154 188,764 189,747 196,588 165,205
Income Before Income Taxes 477,470 447,938 367,694 319,228 195,398
Income Taxes 153,853 138,072 103,347 85,547 19,952
Income Before Cumulative Effect of Changes in
Accounting Methods 323,617 309,866 264,347 233,681 175,446
Cumulative Effect of Change in the Method of
Accounting for Income Taxes - - - 19,745 -
Cumulative Effect of Change in the Method of
Accounting for Unbilled Revenues, Net of Taxes - - - - 37,754
Net Income 323,617 309,866 264,347 253,426 213,200
Preferred and Preference Stock Dividends 39,922 41,839 42,247 42,746 40,261
Earnings Applicable to Common Stock $ 283,695 $268,027 $ 222,100 $ 210,680 $ 172,939
Earnings Per Share of Common Stock
Before Cumulative Effect of Changes
in Accounting Methods $ 1.93 $1.85 $ 1.63 $ 1.51 $ 1.09
Cumulative Effect of Change in the Method of
Accounting for Income Taxes - - - .16 -
Cumulative Effect of Change in the Method of
Accounting for Unbilled Revenues - - - - .31
Total Earnings Per Share of Common Stock $ 1.93 $1.85 $ 1.63 $ 1.67 $ 1.40
Dividends Declared Per Share of Common Stock $ 1.51 $1.47 $ 1.43 $ 1.40 $ 1.40
Ratio of Earnings to Fixed Charges 3.14 3.00 2.65 2.27 1.78
Ratio of Earnings to Fixed Charges and Preferred
and Preference Stock Dividends Combined 2.47 2.34 2.08 1.82 1.47
FINANCIAL STATISTICS AT YEAR END
Total Assets $8,143,538 $7,987,039 $7,374,357 $7,137,989 $6,710,375
Capitalization
Long-term debt $2,584,932 $2,823,144 $2,376,950 $2,390,115 $2,193,844
Preferred stock 59,185 59,185 59,185 59,185 59,185
Redeemable preference stock 279,500 342,500 395,500 398,500 365,000
Preference stock not subject to mandatory
redemption 150,000 150,000 110,000 110,000 110,000
Common shareholders' equity 2,717,866 2,620,511 2,534,639 2,153,306 2,073,158
Total capitalization $5,791,483 $5,995,340 $5,476,274 $5,111,106 $4,801,187
Book Value Per Share of Common Stock $ 18.42 $17.94 $ 17.63 $ 17.00 $ 16.58
Number of Common Shareholders 81,505 82,287 80,371 71,131 73,049
</TABLE>
CERTAIN PRIOR-YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE
CURRENT YEAR'S PRESENTATION.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This annual report presents the financial condition and results of
operations of Baltimore Gas and Electric Company (BGE) and its
subsidiaries (collectively, the Company). Among other information, it
provides Consolidated Financial Statements, Notes to Consolidated
Financial Statements (Notes), Utility Operating Statistics, and Selected
Financial Data. The following discussion explains factors that
significantly affect the Company's results of operations, liquidity,
and capital resources.
Effective July 1, 1994, BGE formed a wholly owned subsidiary, BGE
Home Products & Services, Inc. (HPS), consisting of BGE's existing
merchandise and gas and appliance service operations. HPS' revenues and
expenses are included in diversified businesses revenues and diversified
businesses selling, general, and administrative expenses, respectively.
Prior-year amounts have been reclassified to conform with the current
year's presentation.
RESULTS OF OPERATIONS
EARNINGS PER SHARE OF COMMON STOCK
Consolidated earnings per share were $1.93 for 1994 and $1.85 for 1993,
an increase of $.08 and $.22 from prior-year amounts, respectively. The
changes in earnings per share reflect a higher level of earnings
applicable to common stock, offset partially by the larger number of
outstanding common shares. The summary below presents the
earnings-per-share amounts.
1994 1993 1992
Utility business $1.81 $1.77 $1.52
Diversified businesses .12 .08 .11
Total $1.93 $1.85 $1.63
EARNINGS APPLICABLE TO COMMON STOCK
Earnings applicable to common stock increased $15.7 million in 1994
and $45.9 million in 1993. The 1994 increase reflects higher utility and
diversified businesses earnings. The 1993 increase reflects higher
utility earnings, slightly offset by lower earnings from diversified
businesses.
Utility earnings increased in 1994 compared to the prior year due to
three principal factors: lower operations and maintenance expenses; an
increase in the allowance for funds used during construction; and
greater sales of electricity. The higher sales of electricity are
primarily due to an increased number of customers compared to 1993. The
1994 earnings increase was offset partially by higher depreciation and
amortization expense, which includes the write-off of certain Perryman
costs (see discussion on page 29). Utility earnings increased in 1993
over 1992 because BGE sold more electricity than in the previous year
and because of increased base rates. Three factors produced the increase
in sales of electricity: the summer of 1993 was hotter than 1992;
commercial customers used more electricity; and the number of
residential customers increased. The effect of weather on utility sales
is discussed below. The 1993 earnings increases were offset partially by
higher operations and maintenance expenses, depreciation and
amortization expense, property taxes, and the effect of the Omnibus
Budget Reconciliation Act of 1993 (1993 Tax Act), which increased the
federal corporate income tax rate to 35% from 34%.
The following factors influence BGE's utility operations earnings:
regulation by the Public Service Commission of Maryland (PSC); the
effect of weather and economic conditions on sales; and competition in
the generation and sale of electricity. The base rate increases
authorized by the PSC in April 1993 favorably affected utility earnings
through April 1994. Several electric fuel rate cases now pending before
the PSC discussed in Notes 1 and 13 could also affect future years'
earnings.
Future competition may also affect earnings in ways that are not
possible to predict (see discussion on page 33).
Earnings from diversified businesses, which primarily represent the
operations of Constellation Holdings, Inc. (CHI) and its subsidiaries
(collectively, the Constellation Companies) and BGE Home Products &
Services, Inc. (HPS), increased during 1994 and decreased during 1993.
The reasons for these changes are discussed in the "Diversified
Businesses Earnings" section on pages 30 and 31.
EFFECT OF WEATHER ON UTILITY SALES
Weather conditions affect BGE's utility sales. BGE measures weather
conditions using degree days. A degree day is the difference between the
average daily actual temperature and the baseline temperature of 65
degrees. Hotter weather during the summer, measured by more cooling
degree days, results in greater demand for electricity to operate
cooling systems. Conversely, cooler weather during the summer, measured
by fewer cooling degree days, results in less demand for electricity to
operate cooling systems. Colder weather during the winter, as measured
by greater heating degree days, results in greater demand for
electricity and gas to operate heating systems. Conversely, warmer
weather during the winter, measured by fewer heating degree days,
results in less demand for electricity and gas to operate heating
systems. The degree-days chart below presents information regarding
cooling and heating degree days for 1994 and 1993.
30-Year
1994 1993 Average
Cooling degree days 949 865 804
Percentage change
compared to prior year 9.7% 22.3%
Heating degree days 4,670 4,959 4,901
Percentage change
compared to prior year (5.8)% (0.3)%
22
<PAGE>
BGE UTILITY REVENUES AND SALES
Electric revenues changed during 1994 and 1993 because of the following
factors:
1994 1993
(IN MILLIONS)
System sales volumes $ 9.9 $112.4
Base rates 1.4 58.5
Fuel rates (21.5) (55.0)
Revenues from system sales (10.2) 115.9
Interchange sales 26.5 27.2
Other revenues (1.9) 3.5
Total electric revenues $ 14.4 $146.6
Electric system sales represent volumes sold to customers within
BGE's service territory at rates determined by the PSC. These amounts
exclude interchange sales, discussed separately later. Below is a
comparison of the changes in electric system sales volumes.
1994 1993
Residential 0.5% 9.0%
Commercial (0.4) 4.1
Industrial 17.8 2.7
Total 2.5 5.8
Sales to residential and commercial customers were essentially
unchanged from the prior year due to three factors: the number of
customers increased; higher sales from extreme weather conditions early
in the year slightly exceeded lower sales from milder weather in the
second half of the year; and usage-per-customer decreased. Sales to
industrial customers reflect primarily an increase in the sale of
electricity to Bethlehem Steel, which purchased more electricity from
BGE due to increased steel production and the fact that Bethlehem Steel
is now purchasing its full electricity requirements from BGE. Bethlehem
Steel is still producing power with its own generating facility, but is
now selling the output from this facility to BGE rather than using the
power to reduce its requirements. Hotter summer weather was the main
reason for the increase in total sales in 1993. The sales increases to
the residential and commercial customers reflect significantly hotter
summer weather, and to a lesser extent, increased usage and customer
growth. Sales to the industrial class reflect increased sales of
electricity to Bethlehem Steel to support its increased steel production
during 1993.
Base rates increased slightly during 1994 due to the remaining
effect of the PSC's April 1993 rate order, offset partially by the
deferral of the portion of energy conservation surcharge billings
subject to refund. Base rates increased in 1993 due to the PSC's April
1993 rate order and an increased recovery of eligible electric
conservation program costs through the energy conservation surcharge.
The April 1993 rate order for an annualized electric base rate
increase of $84.9 million provided for a higher level of operating
expenses and a return on BGE's higher level of electric rate base. The
order also reduced the authorized rate of return to 9.40% from the
previous rate of 9.94%.
Under the energy conservation surcharge, if the PSC determines that
BGE is earning in excess of its authorized rate of return, BGE will have
to refund (by means of lowering future surcharges) a portion of energy
conservation surcharge revenues to its customers. The portion subject to
the refund is compensation for foregone sales from conservation programs
and incentives for achieving conservation goals and will be refunded to
customers with interest beginning in the ensuing July when the annual
resetting of the conservation surcharge rates occurs. BGE earned in
excess of its authorized rate of return on electric operations for the
period July 1, 1993 through June 30, 1994. As a result, BGE deferred the
portion of electric energy conservation revenues subject to refund for
the period December 1993 through November 1994. The deferral of these
billings totaled $20.1 million.
Changes in fuel rate revenues result from the operation of the
electric fuel rate formula. The fuel rate formula is designed to recover
the actual cost of fuel, net of revenues from interchange sales (see
Notes 1 and 13). Changes in fuel rate revenues and interchange sales
normally do not affect earnings. However, if the PSC were to disallow
recovery of any part of these costs, earnings would be reduced as
discussed in Note 13.
Fuel rate revenues decreased during both 1994 and 1993 due to a
lower fuel rate, offset partially by increased electric system sales
volumes. The rate was lower in both years because of a less-costly
twenty-four month generation mix from greater generation at the Calvert
Cliffs Nuclear Power Plant compared to the previous year. BGE expects
electric fuel rate revenues to remain relatively constant through 1995.
Interchange sales are sales of BGE' s energy to the Pennsylvania-New
Jersey-Maryland Interconnection (PJM), a regional power pool of eight
member companies including BGE. Interchange sales occur after BGE has
satisfied the demand for its own system sales of electricity, if BGE' s
available generation is the least costly available to PJM utilities.
Interchange sales increased during 1994 and 1993 because BGE had a
less-costly generation mix than other PJM utilities. The less-costly mix
reflects greater generation from the Brandon Shores Power Plant and the
operation of the Calvert Cliffs Nuclear Power Plant.
23
<PAGE>
Gas revenues decreased during 1994 and increased during 1993 because
of the following factors:
1994 1993
(IN MILLIONS)
Sales volumes $ 3.6 $ 0.6
Base rates 2.4 2.6
Gas cost adjustment revenues (16.1) 28.8
Other revenues (1.8) 0.8
Total gas revenues $ (11.9) $32.8
The changes in gas sales volumes compared to the year before were:
1994 1993
Residential 0.6% 2.5%
Commercial (3.4) 2.2
Industrial 4.2 (5.8)
Total 0.7 (0.6)
Total gas sales increased during 1994 because of higher sales to
residential and industrial customers, offset partially by lower sales to
commercial customers. Sales to industrial customers reflect primarily
greater usage of natural gas by Bethlehem Steel. Sales to commercial and
industrial customers were negatively impacted because delivery service
customers either voluntarily switched their fuel source from natural gas
to alternate fuels, or were involuntarily interrupted by BGE as a result
of extreme winter weather conditions in the first quarter of 1994.
Interruptible customers maintain alternate fuel sources and pay reduced
rates in exchange for BGE's right to interrupt service during periods
of peak demand. Total gas sales decreased during 1993 because of lower
sales to industrial customers, offset partially by increased sales to
the remainder of the gas-system customers. Sales to industrial customers
decreased primarily because of lower use of delivery service gas by
Bethlehem Steel and interruptible service customers, who increased their
use of alternative fuels. Gas sales to Bethlehem Steel also decreased
because of a maintenance outage at their L-Blast furnace. The increases
in sales to the residential and commercial classes of customers reflect
the colder winter weather during the first quarter of 1993 and an
increase in the number of customers.
Base rates increased slightly in 1994 due to an increased recovery
of eligible gas conservation program costs through the energy
conservation surcharge. Base rates increased in 1993 for two reasons:
the PSC's April 1993 rate order and an increased recovery of eligible
gas conservation program costs through the energy conservation
surcharge. The April 1993 rate order for an annualized gas base rate
increase of $1.6 million provided a return on BGE's higher level of gas
rate base.
Changes in gas cost adjustment revenues result primarily from the
operation of the purchased gas adjustment clauses which are designed to
recover actual gas costs (see Note 1). Changes in gas cost adjustment
revenues normally do not affect earnings. Gas cost adjustment revenues
decreased during 1994 primarily because of decreased prices of purchased
gas and slightly lower sales volumes subject to the clauses. Gas cost
adjustment revenues increased during 1993 primarily because of increased
prices to recover higher costs of purchased gas and higher sales volumes
subject to gas cost adjustment clauses. Delivery service sales volumes
are not subject to gas cost adjustment clauses because delivery service
customers purchase their gas directly from third parties.
BGE UTILITY FUEL AND ENERGY EXPENSES
Electric fuel and purchased energy expenses were as follows:
1994 1993 1992
(IN MILLIONS)
Actual costs $541.2 $483.9 $445.2
Net recovery of costs
under electric fuel rate
clause (see Note 1) 1.1 50.7 111.0
Total expense $542.3 $534.6 $556.2
Actual electric fuel and purchased energy costs increased during
1994 as a result of a more costly actual generation mix and an increase
in the net output of electricity generated to meet the demand of BGE's
system and the PJM system. The cost of the actual generation mix
increased due to higher purchased energy costs and scheduled outages at
the Calvert Cliffs Nuclear Power Plant in 1994. Actual electric fuel and
purchased energy costs during 1993 increased for two reasons: a higher
net output of electricity generated to meet the demand of BGE's system
and the PJM system and higher purchased-capacity costs under the
Pennsylvania Power & Light Company Energy and Capacity Purchase
Agreement.
Purchased gas expenses were as follows:
1994 1993 1992
(IN MILLIONS)
Actual costs $222.7 $246.4 $213.6
Net (deferral) recovery of costs
under purchased gas adjustment
clause (see Note 1) 1.9 (3.7) 0.5
Total expense $224.6 $242.7 $214.1
24
<PAGE>
Actual purchased gas costs decreased during 1994 for two reasons:
lower gas prices and lower output associated with the decreased demand
for BGE gas. The lower gas prices reflect market conditions and
take-or-pay and other supplier refunds, offset by higher costs related
to the implementation of Federal Energy Regulatory Commission (FERC)
Order 636 and higher demand charges. Actual purchased gas costs
increased in 1993 for three reasons: higher gas prices caused by market
conditions; higher reservation charges; and higher output to meet
greater demand for BGE gas.
Purchased gas costs exclude gas purchased by delivery service
customers, including Bethlehem Steel, who obtain gas directly from third
parties. Future purchased gas costs are expected to increase due to
transition costs incurred by BGE gas pipeline suppliers in implementing
FERC Order No. 636. These transition costs, if approved by FERC, will be
passed on to BGE customers through the purchased gas adjustment clause.
OTHER OPERATING EXPENSES
In 1994, in order to more accurately reflect utility operations
expense, BGE reclassified the amortization of deferred energy
conservation expenditures and deferred nuclear expenditures from
operations expense to depreciation and amortization expense. In
addition, BGE reclassified diversified businesses' expenses from
operations expense to diversified businesses-selling, general, and
administrative expense. Prior-year amounts have been reclassified to
conform with the current year's presentation.
Operations expense decreased during 1994 primarily due to labor
savings achieved as a result of the Company's employee reduction
programs discussed in Note 7 and continuing cost control efforts. These
savings offset higher expense from the amortization of the cost of the
1993 and 1992 Voluntary Special Early Retirement Programs (VSERP) and a
$10.0 million charge for a bonus paid to employees in lieu of a general
wage increase. In addition, operations expense for 1994 decreased
because operations expense for 1993 included a $17.2 million charge for
certain employee reduction programs, offset partially by a credit to
expense equivalent to the $9.8 million cost of termination benefits
associated with the Company' s 1992 VSERP.
Operations expense increased during 1993 due to higher labor costs,
employee reduction expenses (see Note 7), postretirement benefit
expenses resulting from the implementation of Statement of Financial
Accounting Standards No. 106 (see Note 6), and higher nuclear operating
costs. These increases were offset partially by the 1993 reversal of the
$9.8 million charge originally recorded in 1992 for termination benefits
associated with the Company's 1992 VSERP to reflect the ratemaking
treatment adopted by the PSC in its April 1993 rate order.
Operations expense is expected to be reduced in 1995 due to the
realization of a full year of cost savings from the employee reduction
programs and continuing cost control efforts. These lower costs are
expected to exceed other increases in operations expenses.
Maintenance expense decreased during 1994 due primarily to lower
costs at the Calvert Cliffs Nuclear Power Plant. Maintenance expense
increased in 1993 because of higher labor costs and higher costs at the
Calvert Cliffs Nuclear Power Plant.
Depreciation and amortization expense increased during 1994 because
of the write-off of certain Perryman costs discussed below.
Additionally, depreciation and amortization expense increased in 1994
and 1993 because of higher depreciable plant in service and higher
levels of energy conservation program costs. The increase in depreciable
plant in service resulted from the addition of electric transmission and
distribution plant and certain capital additions at the Calvert Cliffs
Nuclear Power Plant during 1994 and 1993.
Initially, BGE had planned to build two combined cycle generating
units at its Perryman site. However, due to significant changes in the
environment in which utilities operate, BGE now has no plans to
construct the second combined cycle generating unit. Accordingly, during
the third quarter of 1994, BGE wrote off $15.7 million of the costs
associated with that second combined cycle unit. This write-off reduced
after-tax earnings during 1994 by $11.0 million or 7 cents per share.
Work on the first 140mw combustion turbine at Perryman continues to be
on schedule for commercial operation in 1995.
Depreciation and amortization expense in 1995 will be affected by
the completion of a facility-specific study of the cost to decommission
the Calvert Cliffs Nuclear Power Plant. This study generated a higher
decommissioning cost than the prior estimate which will increase
depreciation expense $9 million annually. In addition, the PSC issued an
order adjusting BGE' s utility plant depreciation rates to reflect the
results of a detailed depreciation study. The new depreciation rates are
expected to result in an increase in depreciation accruals of
approximately $21 million annually. BGE plans to defer the increased
depreciation accruals for recovery in a future base rate proceeding,
consistent with previous rate actions of the PSC.
25
<PAGE>
Taxes other than income taxes increased slightly during 1994 due
primarily to higher property taxes resulting from higher levels of
utility plant in service. Taxes other than income taxes increased during
1993 because of higher property taxes from the addition of Brandon
Shores Unit 2 to the taxable base effective July 1, 1992, higher
franchise taxes because of the increase in total electric and gas
revenues, and increased payroll taxes.
Inflation affects the Company through increased operating expenses
and higher replacement costs for utility plant assets. Although timely
rate increases can lessen the effects of inflation, the regulatory
process imposes a time lag which can delay BGE's recovery of increased
costs. There is a regulatory lag primarily because rate increases are
based on historical costs rather than projected costs. The PSC has
historically allowed recovery of the cost of replacing plant assets,
together with the opportunity to earn a fair return on BGE's
investment, beginning at the time of replacement.
OTHER INCOME AND EXPENSES
The allowance for funds used during construction (AFC) increased
during 1994 because of a higher level of construction work in progress
which was offset partially by the lower AFC rate established by the PSC
in the April 1993 rate order. AFC was essentially unchanged in 1993
because a higher level of construction work in progress was offset by
the lower AFC rate discussed above.
Net other income and deductions increased in 1994 primarily due to a
lower level of charitable contributions and gains realized on the sale
of receivables.
Capitalized interest decreased during 1994 due to lower capitalized
interest on the Constellation Companies' power generation systems,
offset partially by the accrual by BGE of carrying charges on electric
deferred fuel costs excluded from rate base (see Note 5). Capitalized
interest increased during 1993 due to the accrual of carrying charges on
electric deferred fuel costs excluded from rate base.
Income tax expense increased during both years because of higher
pre-tax earnings. The 1993 increase also reflects the effect of the 1993
Tax Act, which increased the federal corporate income tax rate to 35%
from 34%, retroactive to January 1, 1993. As a result, income tax
expense related to 1993 operations increased by $4.6 million and the
Company' s deferred income tax liability increased by $20.1 million. The
Company deferred $12.8 million of the increase in the deferred income
tax liability applicable to utility operations for recovery through
future rates and charged the remaining $7.3 million to income tax
expense. Of this $7.3 million charged to expense, $5.8 million pertains
to the Constellation Companies as discussed on page 31.
DIVERSIFIED BUSINESSES EARNINGS
Earnings per share from diversified businesses were:
1994 1993 1992
Constellation Holdings, Inc.
Power generation systems $ .10 $ .07 $ .08
Financial investments .03 .10 .09
Real estate development and senior
living facilities (.03) (.04) (.05)
Effect of 1993 Tax Act - (.04) -
Other (.01) (.01) (.01)
Total Constellation Holdings, Inc. .09 .08 .11
BGE Home Products & Services, Inc. .03 - -
Total diversified businesses $ .12 $ .08 $ .11
The Constellation Companies' power generation systems business
includes the development, ownership, management, and operation of
wholesale power generating projects in which the Constellation Companies
hold ownership interests, as well as the provision of services to power
generation projects under operation and maintenance contracts. Power
generation systems earnings increased in 1994 primarily due to payments
for the curtailment of output at two wholesale power generating projects
as discussed below. Power generation systems earnings during 1993 were
essentially unchanged. Earnings for 1993 include $8.0 million of energy
tax credits on the commercial operation of the Puna geothermal plant,
offset by costs incurred at the Panther Creek waste-coal project in
order to resolve fuel quality and other start-up problems.
The Constellation Companies' investment in wholesale power
generating projects includes $177 million representing ownership
interests in 16 projects which sell electricity in California under
Interim Standard Offer No. 4 power purchase agreements. Under these
agreements, the projects supply electricity to purchasing utilities at a
fixed rate for the first ten years of the agreements and at variable
rates based on the utilities' avoided cost for the remaining term of the
agreements. Avoided cost generally represents a utility' s next lowest
cost generation to service the demands on its system. These power
generation projects are scheduled to convert to supplying electricity at
avoided cost rates in various years beginning in late 1996 through the
end of 2000. As a result of declines in purchasing utilities' avoided
costs subsequent to the inception of these agreements, revenues at these
projects based on current avoided cost levels would be substantially
lower than revenues presently being realized under the fixed price terms
of the agreements. If current avoided cost levels were to continue into
1996 and beyond, the Constellation Companies could experience reduced
earnings or incur losses associated with these projects, which could be
significant. The Constellation Companies are investigating and pursuing
26
<PAGE>
alternatives for certain of these power generation projects including,
but not limited to, repowering the projects to reduce operating costs,
renegotiating the power purchase agreements, and selling its ownership
interests in the projects. Two of these wholesale power generating
projects, in which the Constellation Companies' investment totals $27.4
million, have executed agreements with Pacific Gas & Electric (PG&E)
providing for the curtailment of output through the end of the fixed
price period in return for payments from PG&E. The payments from PG&E
during the curtailment period will be sufficient to fully amortize the
existing project finance debt. However, following the curtailment
period, the projects remain contractually obligated to commence
production of electricity at the avoided cost rates, which could result
in reduced earnings or losses for the reasons described above. The
Company cannot predict the impact that these matters regarding any of
the 16 projects may have on the Constellation Companies or the Company,
but the impact could be material.
Earnings from the Constellation Companies' portfolio of financial
investments include capital gains and losses, dividends, income from
financial limited partnerships, and income from financial guaranty
insurance companies. Financial investment earnings decreased during 1994
due to reduced earnings from the investment portfolio. Additionally,
1993 results reflected a $6.1 million gain from the sale of a portion of
an investment in a financial guaranty insurance company. Earnings
increased slightly in 1993 as compared to 1992 because this gain was
substantially offset by lower investment income resulting from the
decline in the size of the investment portfolio due to the sale of
selected assets to provide liquidity for ongoing businesses of the
Constellation Companies.
The Constellation Companies' real estate development business
includes land under development; office buildings; retail projects;
commercial projects; an entertainment, dining and retail complex in
Orlando, Florida; a mixed-use planned-unit-development; and senior
living facilities. The majority of these projects are in the
Baltimore-Washington corridor. They have been affected adversely by the
depressed real estate market and economic conditions, resulting in
reduced demand for the purchase or lease of available land, office, and
retail space.
Earnings from real estate development increased slightly during 1994
due to gains recognized from the sale of two retail centers, an office
building, and interests in two senior living facilities. The increases
in diversified businesses' revenues and in selling, general, and
administrative expenses reflect the proceeds of these sales and the cost
of the facilities sold, respectively. Earnings from real estate
development and senior living facilities were essentially unchanged in
1993 because a $2.1 million gain on the sale of a substantial portion of
the investment in senior living facilities was offset by greater
operating losses at other real estate projects. The senior living
facilities which were sold contributed real estate revenues and
operating expenses of approximately $17 million and $16 million,
respectively, in 1993.
The Constellation Companies' real estate portfolio has experienced
continuing carrying costs and depreciation. Additionally, the
Constellation Companies have been expensing rather than capitalizing
interest on certain undeveloped land where development activities were
at minimal levels. These factors have affected earnings negatively and
are expected to continue to do so until the levels of undeveloped land
are reduced. Cash flow from real estate operations has been insufficient
to cover the debt service requirements of certain of these projects.
Resulting cash shortfalls have been satisfied through cash infusions
from Constellation Holdings, Inc., which obtained the funds through a
combination of cash flow generated by other Constellation Companies and
its corporate borrowings. To the extent the real estate market continues
to improve, earnings from real estate activities are expected to improve
also.
The Constellation Companies continued investment in real estate
projects is a function of market demand, interest rates, credit
availability, and the strength of the economy in general. The
Constellation Companies' Management believes that although the real
estate market has improved, until the economy reflects sustained growth
and the excess inventory in the market in the Baltimore-Washington
corridor goes down, real estate values will not improve significantly.
If the Constellation Companies were to sell their real estate projects
in the current depressed market, losses would occur in amounts difficult
to determine. Depending upon market conditions, future sales could also
result in losses. In addition, were the Constellation Companies to
change their intent about any project from an intent to hold until
market conditions improve to an intent to sell, applicable accounting
rules would require a write-down of the project to market value at the
time of such change in intent if market value is below book value.
The Effect of the 1993 Tax Act represents a $5.8 million charge to
income tax expense to reflect the increase in the Constellation
Companies' deferred income tax liability because of the increase in the
federal corporate tax rate.
BGE Home Products & Services earnings increased during 1994
primarily due to a gain on the sale of receivables.
ENVIRONMENTAL MATTERS
The Company is subject to increasingly stringent federal, state, and
local laws and regulations relating to improving or maintaining the
quality of the environment. These laws and regulations require the
Company to remove or remedy the effect on the environment of the
disposal or release of specified substances at ongoing and former
operating sites, including Environmental Protection Agency Superfund
sites. Details regarding these matters, including financial information,
are presented in Note 13 and in this Report under Item 1.
Business-Environmental Matters.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL REQUIREMENTS
The Company's capital requirements reflect the capital-intensive nature
of the utility business. Actual capital requirements for the years 1992
through 1994, along with estimated amounts for the years 1995 through
1997, are reflected below.
<TABLE>
<CAPTION> 1992 1993 1994 1995 1996 1997
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Utility Business:
Construction expenditures (excluding AFC)
Electric $ 292 $ 360 $339 $233 $219 $206
Gas 36 51 68 61 71 84
Common 39 44 42 56 50 35
Total construction expenditures 367 455 449 350 340 325
AFC 22 23 34 35 18 13
Nuclear fuel (uranium purchases and processing charges) 40 47 42 48 50 52
Deferred energy conservation expenditures 20 33 41 44 43 29
Deferred nuclear expenditures 16 14 8 - - -
Retirement of long-term debt and redemption of
preference stock 486 907 203 268 98 164
Total utility business 951 1,479 777 745 549 583
Diversified Businesses:
Retirement of long-term debt 118 222 37 56 65 125
Investment requirements 80 78 51 66 70 40
Total diversified businesses 198 300 88 122 135 165
Total $1,149 $1,779 $865 $867 $684 $748
</TABLE>
BGE UTILITY CAPITAL REQUIREMENTS
BGE's construction program is subject to continuous review and
modification, and actual expenditures may vary from the estimates above.
Electric construction expenditures include the installation of two 5,000
kilowatt diesel generators at Calvert Cliffs Nuclear Power Plant, one of
which is scheduled to be placed in service in 1995 and the second in
1996; the construction of a 140-megawatt combustion turbine at Perryman,
scheduled to be placed in service in 1995, which the PSC authorized in
an order dated March 25, 1993; and improvements in BGE's existing
generating plants and its transmission and distribution facilities.
Future electric expenditures do not include additional generating units.
During 1994, 1993, and 1992, the internal generation of cash from
utility operations provided 72%, 71%, and 81% respectively, of the
funds required for BGE's capital requirements exclusive of retirements
and redemptions of debt and preference stock. In addition, in 1994, $70
million of cash was provided by the sale of certain BGE and HPS
receivables (see Note 13). During the three-year period 1995 through
1997, the Company expects to provide through utility operations 100% of
the funds required for BGE's capital requirements, exclusive of
retirements and redemptions.
Utility capital requirements not met through the internal generation
of cash are met through the issuance of debt and equity securities.
During the three-year period ended December 31, 1994, BGE's issuances of
long-term debt, preference stock, and common stock were $1,557 million,
$130 million, and $448 million, respectively. During the same period,
retirements and redemptions of BGE's long-term debt and preference stock
28
<PAGE>
totaled $1,425 million and $149 million, respectively, exclusive of any
redemption premiums or discounts. The increase in issuances and
retirements of long-term debt during 1993 reflects the refinancing of a
significant portion of BGE's debt in order to take advantage of the
favorable interest rate market. The amount and timing of future
issuances and redemptions will depend upon market conditions and BGE's
actual capital requirements.
The Constellation Companies' capital requirements are discussed
below in the section titled "Diversified Businesses Capital Requirements
- Debt and Liquidity." The Constellation Companies plan to meet their
capital requirements with a combination of debt and internal generation
of cash from their operations. Additionally, from time to time, BGE may
make loans to Constellation Holdings, Inc., or contribute equity to
enhance the capital structure of Constellation Holdings, Inc.
DIVERSIFIED BUSINESSES CAPITAL REQUIREMENTS
DEBT AND LIQUIDITY
The Constellation Companies intend to meet capital requirements by
refinancing debt as it comes due and through internally generated cash.
These internal sources include cash that may be generated from
operations, sale of assets, and cash generated by tax benefits earned by
the Constellation Companies. In the event the Constellation Companies
can obtain reasonable value for real estate properties, additional cash
may become available through the sale of projects (for additional
information see the discussion of the real estate business and market on
page 31). The ability of the Constellation Companies to sell or
liquidate assets described above will depend on market conditions, and
no assurances can be given that such sales or liquidations can be made.
Also, to provide additional liquidity to meet interim financial needs,
CHI has entered into a $50 million revolving credit agreement.
INVESTMENT REQUIREMENTS
The investment requirements of the Constellation Companies include its
portion of equity funding to committed projects under development, as
well as net loans made to project partnerships. Investment requirements
for the years 1995 through 1997 reflect the Constellation Companies'
estimate of funding for ongoing and anticipated projects and are subject
to continuous review and modification. Actual investment requirements
may vary significantly from the amounts on page 32 because of the type
and number of projects selected for development, the impact of market
conditions on those projects, the ability to obtain financing, and the
availability of internally generated cash. The Constellation Companies
have met their investment requirements in the past through the internal
generation of cash and through borrowings from institutional lenders.
RESPONSE TO REGULATORY CHANGE
Electric utilities presently face competition in the construction of
generating units to meet future load growth and in the sale of
electricity in the bulk power markets. Electric utilities also face the
future prospect of competition for electric sales to retail customers.
It is not possible to predict currently the ultimate effect competition
will have on BGE's earnings in future years. In response to the
competitive forces and regulatory changes, as discussed in Part 1 of
this Report under the heading Regulatory Matters and Competition, BGE
from time to time will consider various strategies designed to enhance
its competitive position and to increase its ability to adapt to and
anticipate regulatory changes in its utility business. These strategies
may include internal restructurings involving the complete or partial
separation of its generation, transmission and distribution businesses,
acquisitions of related or unrelated businesses, business combinations,
and additions to or dispositions of portions of its franchised service
territories. BGE may from time to time be engaged in preliminary
discussions, either internally or with third parties, regarding one or
more of these potential strategies. No assurances can be given as to
whether any potential transaction of the type described above may
actually occur, or as to the ultimate effect thereof on the financial
condition or competitive position of BGE.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Baltimore Gas and Electric Company
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Baltimore Gas and Electric Company and
Subsidiaries at December 31, 1994 and 1993, and the related consolidated
statements of income, cash flows, common shareholders' equity, and
income taxes for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the
Company's Management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by Management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Baltimore Gas and Electric Company and Subsidiaries at December 31, 1994
and 1993, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting principles.
As discussed in Note 13 to the consolidated financial statements,
the Public Service Commission of Maryland is currently reviewing the
replacement energy costs resulting from the 1989-1991 outages at the
Company's nuclear power plant, and the Company established in 1990 a
reserve of $35 million for the possible disallowance of replacement
energy costs. The ultimate outcome of the fuel rate proceedings,
however, cannot be determined but may result in a disallowance in excess
of the reserve provided.
We have also previously audited, in accordance with generally accepted
standards, the consolidated balance sheets and statements of capitalization
at December 31, 1992, 1991, and 1990, and the related consolidated
statements of income, cash flows, common shareholders' equity, and income
taxes for each of the two years in the period ended December 31, 1991 (none
of which are presented herein); and we expressed unqualified opinions on
those consolidated financial statements. In our opinion, the information set
forth in the Summary of Operations included in the Selected Financial Data for
each of the five years in the period ended December 31, 1994, appearing on page
21 is fairly stated in all material respects in relation to the financial
statements from which it has been derived.
/s/ Coopers and Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 20, 1995
30
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>YEAR ENDED DECEMBER 31, 1994 1993 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Electric $2,126,581 $2,112,147 $1,965,532
Gas 421,249 433,163 400,399
Diversified businesses 235,155 196,075 193,605
Total revenues 2,782,985 2,741,385 2,559,536
Expenses Other Than Interest and Income Taxes
Electric fuel and purchased energy 542,314 534,628 556,184
Gas purchased for resale 224,590 242,685 214,103
Operations 545,413 574,073 537,593
Maintenance 164,892 181,208 172,248
Diversified businesses - selling, general, and
administrative 174,834 143,654 131,580
Depreciation and amortization 295,950 253,913 229,515
Taxes other than income taxes 199,733 194,832 183,004
Total expenses other than interest and income taxes 2,147,726 2,124,993 2,024,227
Income from Operations 635,259 616,392 535,309
Other Income
Allowance for equity funds used during construction 21,746 14,492 13,892
Equity in earnings of Safe Harbor Water Power
Corporation 4,349 4,243 4,267
Net other income and deductions 6,270 1,575 3,973
Total other income 32,365 20,310 22,132
Income Before Interest and Income Taxes 667,624 636,702 557,441
Interest Expense
Interest charges 214,347 212,971 211,712
Capitalized interest (12,427) (16,167) (13,800)
Allowance for borrowed funds used during
construction (11,766) (8,040) (8,165)
Net interest expense 190,154 188,764 189,747
Income Before Income Taxes 477,470 447,938 367,694
Income Taxes 153,853 138,072 103,347
Net Income 323,617 309,866 264,347
Preferred and Preference Stock Dividends 39,922 41,839 42,247
Earnings Applicable to Common Stock $ 283,695 $268,027 $ 222,100
Average Shares of Common Stock Outstanding 147,100 145,072 136,248
Earnings Per Share of Common Stock $ 1.93 $ 1.85 $ 1.63
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CERTAIN PRIOR-YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT
YEAR'S PRESENTATION.
31
<PAGE>
Consolidated Balance Sheets
AT DECEMBER 31, 1994 1993
(IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents $ 38,590 $ 84,236
Accounts receivable (net of allowance for
uncollectibles) 314,842 401,853
Fuel stocks 70,627 70,233
Materials and supplies 149,614 145,130
Prepaid taxes other than income taxes 57,740 54,237
Other 47,022 38,971
Total current assets 678,435 794,660
Investments and Other Assets
Real estate projects 471,435 487,397
Power generation systems 311,960 298,514
Financial investments 224,340 213,315
Nuclear decommissioning trust fund 66,891 56,207
Safe Harbor Water Power Corporation 34,168 34,138
Senior living facilities 11,540 2,005
Other 58,824 65,355
Total investments and other assets 1,179,158 1,156,931
Utility Plant
Plant in service
Electric 5,929,996 5,713,259
Gas 616,823 557,942
Common 511,016 487,740
Total plant in service 7,057,835 6,758,941
Accumulated depreciation (2,305,372) (2,161,984)
Net plant in service 4,752,463 4,596,957
Construction work in progress 506,030 436,440
Nuclear fuel (net of amortization) 134,012 139,424
Plant held for future use 24,320 24,066
Net utility plant 5,416,825 5,196,887
Deferred Charges
Regulatory assets 773,034 768,125
Other 96,086 70,436
Total deferred charges 869,120 838,561
Total Assets $ 8,143,538 $7,987,039
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
32
<PAGE>
Consolidated Balance Sheets
AT DECEMBER 31, 1994 1993
(IN THOUSANDS)
LIABILITIES AND CAPITALIZATION
Current Liabilities
Short-term borrowings $ 63,700 $ -
Current portions of long-term debt and
preference stock 323,675 44,516
Accounts payable 181,931 195,534
Customer deposits 24,891 22,345
Accrued taxes 19,585 20,623
Accrued interest 60,348 58,541
Dividends declared 66,012 63,966
Accrued vacation costs 30,917 35,546
Other 30,857 38,716
Total current liabilities 801,916 479,787
Deferred Credits and Other Liabilities
Deferred income taxes 1,156,429 1,067,611
Deferred investment tax credits 149,394 157,426
Pension and postemployment benefits 138,835 183,043
Decommissioning of federal uranium enrichment
facilities 45,836 46,858
Other 59,645 56,974
Total deferred credits and other liabilities 1,550,139 1,511,912
Capitalization
Long-term debt 2,584,932 2,823,144
Preferred stock 59,185 59,185
Redeemable preference stock 279,500 342,500
Preference stock not subject to mandatory
redemption 150,000 150,000
Common shareholders' equity 2,717,866 2,620,511
Total capitalization 5,791,483 5,995,340
Commitments, Guarantees, and Contingencies -
See Note 13
Total Liabilities and Capitalization $8,143,538 $7,987,039
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
33
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>YEAR ENDED DECEMBER 31, 1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 323,617 $309,866 $ 264,347
Adjustments to reconcile to net cash provided by
operating activities
Depreciation and amortization 351,064 314,027 273,549
Deferred income taxes 79,278 53,057 26,914
Investment tax credit adjustments (8,192) (8,444) (8,854)
Deferred fuel costs 11,461 51,445 105,430
Accrued pension and postemployment benefits (41,113) (25,276) -
Allowance for equity funds used during
construction (21,746) (14,492) (13,892)
Equity in earnings of affiliates and joint
ventures (net) (20,225) (4,655) (11,525)
Changes in current assets other than sale of
accounts receivable (10,536) (37,252) (26,206)
Changes in current liabilities, other than
short-term borrowings (24,447) 71,153 (9,614)
Other 7,153 (6,643) (31,005)
Net cash provided by operating activities 646,314 702,786 569,144
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
Short-term borrowings (net) 63,700 (11,900) (139,600)
Long-term debt 207,169 1,206,350 603,400
Preference stock - 128,776 -
Common stock 33,869 57,379 355,759
Proceeds from sale of receivables 70,000 - -
Reacquisition of long-term debt (240,853) (1,012,514) (687,052)
Redemption of preference stock (4,406) (144,310) (2,924)
Common stock dividends paid (220,152) (211,137) (189,180)
Preferred and preference stock dividends paid (39,950) (42,425) (42,300)
Other (437) (7,094) (399)
Net cash used in financing activities (131,060) (36,875) (102,296)
CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures (including AFC) (483,059) (477,878) (389,416)
Allowance for equity funds used during construction 21,746 14,492 13,892
Nuclear fuel expenditures (42,089) (47,329) (39,486)
Deferred nuclear expenditures (8,393) (13,791) (15,809)
Deferred energy conservation expenditures (40,440) (32,909) (19,918)
Contributions to nuclear decommissioning trust fund (9,780) (9,699) (8,900)
Purchases of marketable equity securities (52,099) (46,820) (49,003)
Sales of marketable equity securities 40,585 33,754 56,690
Other financial investments 2,469 19,589 44,929
Real estate projects 14,926 (30,330) (23,385)
Power generation systems (1,116) (26,841) (31,483)
Other (3,650) 8,965 4,746
Net cash used in investing activities (560,900) (608,797) (457,143)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (45,646) 57,114 9,705
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 84,236 27,122 17,417
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 38,590 $84,236 $ 27,122
OTHER CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amounts capitalized) $ 184,441 $183,266 $ 183,209
Income taxes $ 112,923 $126,034 $ 87,693
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CERTAIN PRIOR-YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT
YEAR'S PRESENTATION.
34
<PAGE>
Consolidated Statements of Common Shareholders' Equity
<TABLE>
<CAPTION> Unrealized
Loss on
Available Pension
YEARS ENDED DECEMBER 31, 1994, 1993, Common Stock Retained For Sale Liability Total
AND 1992 Shares Amount Earnings Securities Adjustment Amount
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 126,690 $ 979,211 $1,174,095 $ - $ - $2,153,306
Net income 264,347 264,347
Dividends declared
Preferred and preference stock (42,247) (42,247)
Common stock ($1.43 per share) (196,601) (196,601)
Common stock issued 17,098 356,230 356,230
Other (4) (439) 43 (396)
BALANCE AT DECEMBER 31, 1992 143,784 1,335,002 1,199,637 - - 2,534,639
Net income 309,866 309,866
Dividends declared
Preferred and preference stock (41,839) (41,839)
Common stock ($1.47 per share) (213,407) (213,407)
Common stock issued 2,250 57,379 57,379
Other (917) (3,117) (4,034)
Pension liability adjustment (33,990) (33,990)
Deferred taxes on pension liability adjustment 11,897 11,897
BALANCE AT DECEMBER 31, 1993 146,034 1,391,464 1,251,140 - (22,093) 2,620,511
Net income 323,617 323,617
Dividends declared
Preferred and preference stock (39,922) (39,922)
Common stock ($1.51 per share) (222,180) (222,180)
Common stock issued 1,493 33,869 33,869
Other 45 45
Net unrealized loss on securities (5,609) (5,609)
Deferred taxes on net unrealized loss on securities 1,963 1,963
Pension liability adjustment 8,573 8,573
Deferred taxes on pension liability adjustment (3,001) (3,001)
BALANCE AT DECEMBER 31, 1994 147,527 $1,425,378 $1,312,655 $(3,646) $(16,521) $2,717,866
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
35
<PAGE>
Consolidated Statements of Capitalization
<TABLE>
<CAPTION> AT DECEMBER 31,
1994 1993
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt
First Refunding Mortgage Bonds of BGE
9 1/8% Series, due October l5, 1995 $ 188,014 $200,000
5 1/8% Series, due April 15, 1996 26,454 26,585
6 1/8% Series, due August 1, 1997 24,935 24,957
7% Series, due December 15, 1998 - 28,638
Floating rate series, due April 15, 1999 125,000 -
8.40% Series, due October 15, 1999 96,225 100,000
5 1/2% Series, due July 15, 2000 125,000 125,000
7 1/4% Series, due April 15, 2001 - 59,911
8 3/8% Series, due August 15, 2001 122,430 124,980
7 1/8% Series, due January 1, 2002 49,957 49,999
7 1/4% Series, due July 1, 2002 124,850 125,000
5 1/2% Installment Series, due July 15, 2002 11,650 12,080
6 1/2% Series, due February 15, 2003 124,947 125,000
6 1/8% Series, due July 1, 2003 124,925 125,000
5 1/2% Series, due April 15, 2004 125,000 125,000
6.80% Series, due September 15, 2004 - 20,000
7 1/2% Series, due January 15, 2007 125,000 125,000
6 5/8% Series, due March 15, 2008 125,000 125,000
6.90% Installment Series, due September 15, 2009 - 55,000
7 1/2% Series, due March 1, 2023 124,998 124,998
7 1/2% Series, due April 15, 2023 100,000 100,000
Total First Refunding Mortgage Bonds 1,744,385 1,802,148
Other long-term debt of BGE
Medium-term notes, Series A 10,500 23,500
Medium-term notes, Series B 100,000 100,000
Medium-term notes, Series C 173,050 173,050
Pollution control loan, due July 1, 2011 36,000 36,000
Port facilities loan, due June 1, 2013 48,000 48,000
Adjustable rate pollution control loan, due July 1, 2014 20,000 20,000
5.55% Pollution control revenue refunding loan,
due July 15, 2014 47,000 47,000
Economic development loan, due December 1, 2018 35,000 35,000
6.00% Pollution control revenue refunding loan,
due April 1, 2024 75,000 -
Total other long-term debt of BGE 544,550 482,550
Long-term debt of Constellation Companies
Mortgage and construction loans and other
collateralized notes
7.67%, due October 1, 1995 13,000 -
Variable rates, due through 2009 116,613 151,251
7.73%, due March 15, 2009 6,152 6,465
Unsecured notes 440,000 440,000
Total long-term debt of Constellation Companies 575,765 597,716
Unamortized discount and premium (17,593) (17,754)
Current portion of long-term debt (262,175) (41,516)
Total long-term debt 2,584,932 2,823,144
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
36
<PAGE>
Consolidated Statements of Capitalization
<TABLE>
<CAPTION> AT DECEMBER 31,
1994 1993
(IN THOUSANDS)
<S> <C> <C>
PREFERRED STOCK
Cumulative, $100 par value, 1,000,000 shares authorized
Series B, 4 1/2%, 222,921 shares outstanding,
callable at $110 per share $ 22,292 $22,292
Series C, 4%, 68,928 shares outstanding,
callable at $105 per share 6,893 6,893
Series D, 5.40%, 300,000 shares outstanding,
callable at $101 per share 30,000 30,000
Total preferred stock 59,185 59,185
PREFERENCE STOCK
Cumulative, $100 par value, 6,500,000 shares
authorized
Redeemable preference stock
7.50%, 1986 Series, 455,000 and 470,000 shares
outstanding. Callable
at $105 per share prior to October 1, 1996
and at lesser amounts thereafter 45,500 47,000
6.75%, 1987 Series, 455,000 and 485,000 shares
outstanding. Callable at
$104.50 per share prior to April 1, 1997
and at lesser amounts thereafter 45,500 48,500
6.95%, 1987 Series, 500,000 shares outstanding 50,000 50,000
7.80%, 1989 Series, 500,000 shares outstanding 50,000 50,000
8.25%, 1989 Series, 500,000 shares outstanding 50,000 50,000
8.625%, 1990 Series, 650,000 shares outstanding 65,000 65,000
7.85%, 1991 Series, 350,000 shares outstanding 35,000 35,000
Current portion of redeemable preference stock (61,500) (3,000)
Total redeemable preference stock 279,500 342,500
Preference stock not subject to mandatory redemption
7.78%, 1973 Series, 200,000 shares outstanding,
callable at $101 per share 20,000 20,000
7.125%, 1993 Series, 400,000 shares outstanding,
not callable prior to July 1, 2003 40,000 40,000
6.97%, 1993 Series, 500,000 shares outstanding,
not callable prior to October 1, 2003 50,000 50,000
6.70%, 1993 Series, 400,000 shares outstanding,
not callable prior to January 1, 2004 40,000 40,000
Total preference stock not subject to mandatory
redemption 150,000 150,000
COMMON SHAREHOLDERS' EQUITY
Common stock without par value, 175,000,000 shares
authorized; 147,527,114 and 146,034,014
shares issued and outstanding at December 31,
1994 and 1993, respectively . (At December 31,
1994, 166,893 shares were reserved for the
Employee Savings Plan and 3,277,655 shares
were reserved for the Dividend Reinvestment and
Stock Purchase Plan.) 1,425,378 1,391,464
Retained earnings 1,312,655 1,251,140
Unrealized loss on available for sale securities (3,646) -
Pension liability adjustment (16,521) (22,093)
Total common shareholders' equity 2,717,866 2,620,511
Total Capitalization $5,791,483 $5,995,340
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
37
<PAGE>
Consolidated Statements of Income Taxes
<TABLE>
<CAPTION> YEAR ENDED DECEMBER 31,
1994 1993 1992
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
INCOME TAXES
Current $ 82,767 $93,459 $ 85,287
Deferred
Change in tax effect of temporary differences 88,896 63,972 44,975
Change in income taxes recoverable through
future rates (8,580) (30,086) (18,061)
Deferred taxes credited (charged) to
shareholders' equity (1,038) 11,897 -
Deferred taxes charged to expense 79,278 45,783 26,914
Effect on deferred taxes of enacted change in
federal corporate income tax rate
Increase in deferred tax liability - 20,105 -
Income taxes recoverable through future rates - (12,831) -
Deferred taxes charged to expense - 7,274 -
Investment tax credit adjustments (8,192) (8,444) (8,854)
Income taxes per Consolidated Statements of
Income $153,853 $138,072 $103,347
RECONCILIATION OF INCOME TAXES COMPUTED AT STATUTORY
FEDERAL RATE TO TOTAL INCOME TAXES
Income before income taxes $477,470 $447,938 $367,694
Statutory federal income tax rate 35% 35% 34%
Income taxes computed at statutory federal rate 167,115 156,778 125,016
Increases (decreases) in income taxes due to
Depreciation differences not normalized on
regulated activities 9,791 9,253 8,955
Allowance for equity funds used during
construction (7,611) (5,072) (4,723)
Amortization of deferred investment tax
credits (8,164) (8,444) (8,854)
Tax credits flowed through to income (1,754) (9,736) (804)
Change in federal corporate income tax
rate charged to expense - 7,274 -
Amortization of deferred tax rate
differential on regulated activities (1,885) (5,789) (7,365)
Other (3,639) (6,192) (8,878)
Total income taxes $153,853 $138,072 $103,347
Effective federal income tax rate 32.2% 30.8% 28.1%
</TABLE>
AT DECEMBER 31, 1994 1993
(DOLLAR AMOUNTS IN THOUSANDS)
DEFERRED INCOME TAXES
Deferred tax liabilities
Accelerated depreciation $ 840,376 $ 789,165
Allowance for funds used during construction 208,726 202,490
Income taxes recoverable through future rates 93,952 90,950
Deferred termination and postemployment costs 53,749 55,890
Deferred fuel costs 41,507 45,518
Leveraged leases 31,948 32,613
Percentage repair allowance 36,630 35,431
Other 148,064 125,850
Total deferred tax liabilities 1,454,952 1,377,907
Deferred tax assets
Alternative minimum tax 71,074 73,203
Accrued pension and postemployment benefit costs 51,163 64,065
Deferred investment tax credits 52,288 55,099
Other 123,998 117,929
Total deferred tax assets 298,523 310,296
Deferred income taxes per Consolidated Balance Sheets $1,156,429 $1,067,611
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
Baltimore Gas and Electric Company (BGE) and Subsidiaries (collectively,
the Company) is primarily an electric and gas utility serving a
territory which encompasses Baltimore City and all or part of nine
Central Maryland counties. The Company is also engaged in diversified
businesses as described further in Note 3.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BGE and
all subsidiaries in which BGE owns directly or indirectly a majority of
the voting stock. Intercompany balances and transactions have been
eliminated in consolidation. Under this policy, the accounts of
Constellation Holdings, Inc. and its subsidiaries (collectively, the
Constellation Companies), BGE Home Products & Services, Inc. (HPS) and
BNG, Inc. are consolidated in the financial statements, and Safe Harbor
Water Power Corporation is reported under the equity method. Corporate
joint ventures, partnerships, and affiliated companies in which a 20% to
50% voting interest is held are accounted for under the equity method,
unless control is evident, in which case the entity is consolidated.
Investments in power generation systems and certain financial
investments in which less than a 20% voting interest is held are
accounted for under the cost method, unless significant influence is
exercised over the entity, in which case the investment is accounted for
under the equity method.
REGULATION OF UTILITY OPERATIONS
BGE's utility operations are subject to regulation by the Public Service
Commission of Maryland (PSC). The accounting policies and practices used
in the determination of service rates are also generally used for
financial reporting purposes in accordance with generally accepted
accounting principles for regulated industries. See Note 5.
UTILITY REVENUES
BGE recognizes utility revenues as service is rendered to customers.
FUEL AND PURCHASED ENERGY COSTS
Subject to the approval of the PSC, the cost of fuel used in generating
electricity, net of revenues from interchange sales, and the cost of gas
sold may be recovered through zero-based electric fuel rate (see Note
13) and purchased gas adjustment clauses, respectively. The difference
between actual fuel costs and fuel revenues is deferred on the balance
sheet to be recovered from or refunded to customers in future periods.
The electric fuel rate formula is based upon the latest
twenty-four-month generation mix and the latest three-month average fuel
cost for each generating unit. The fuel rate does not change unless the
calculated rate is more than 5% above or below the rate then in effect.
The purchased gas adjustment is based on recent annual volumes of
gas and the related current prices charged by BGE's gas suppliers. Any
deferred underrecoveries or overrecoveries of purchased gas costs for
the twelve months ended November 30 each year are charged or credited to
customers over the ensuing calendar year.
INCOME TAXES
The deferred tax liability represents the tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities. It is measured using presently enacted tax rates. The
portion of BGE's deferred tax liability applicable to utility operations
which has not been reflected in current service rates represents income
taxes recoverable through future rates. It has been recorded as a
regulatory asset on the balance sheet. Deferred income tax expense
represents the net change in the deferred tax liability and regulatory
asset during the year, exclusive of amounts charged or credited to
common shareholders' equity.
Current tax expense consists solely of regular tax. In certain prior
years, tax expense included an alternative minimum tax (AMT) that can be
carried forward indefinitely as tax credits to future years in which the
regular tax liability exceeds the AMT liability. As of December 31,
1994, this carryforward totaled $71.1 million.
The investment tax credit (ITC) associated with BGE's regulated
utility operations has been deferred and is amortized to income ratably
over the lives of the subject property. ITC and other tax credits
associated with nonregulated diversified businesses other than leveraged
leases are flowed through to income.
BGE's utility revenue from system sales is subject to the Maryland
public service company franchise tax in lieu of a state income tax. The
franchise tax is included in taxes other than income taxes in the
Consolidated Statements of Income.
INVENTORY VALUATION
Fuel stocks and materials and supplies are generally stated at average
cost.
REAL ESTATE PROJECTS
Real estate projects consist of the Constellation Companies' investment
in rental and operating properties and properties under development.
Rental and operating properties are held for investment. Properties
under development are held for future development and sale. Costs
incurred in the acquisition and active development of such properties
are capitalized. Rental and operating properties and properties under
development are stated at cost unless the amount invested exceeds the
amounts expected to be recovered through operations and sales. In these
cases, the projects are written down to the amount estimated to be
recoverable.
39
<PAGE>
INVESTMENTS AND OTHER ASSETS
The Company adopted Statement of Financial Accounting Standards No. 115
(Statement No. 115), "Accounting for Certain Investments in Debt and
Equity Securities," effective January 1, 1994. Securities subject to the
requirements of Statement No. 115 are reported at fair value as of
December 31, 1994. Certain of Constellation Companies' marketable equity
securities totaling $24.3 million are classified as trading securities.
These securities are reported as other current assets, and unrealized
gains and losses are included in diversified businesses revenues. The
investments comprising the nuclear decommissioning trust fund and
certain marketable equity securities of CHI are classified as available
for sale. Unrealized gains and losses on these securities, as well as
CHI's portion of unrealized gains and losses on securities of
equity-method investees, are recorded in shareholders' equity. At
December 31, 1993 marketable equity securities are stated at the lower
of cost or market value.
UTILITY PLANT, DEPRECIATION AND AMORTIZATION, AND DECOMMISSIONING
Utility plant is stated at original cost, which includes material,
labor, and, where applicable, construction overhead costs and an
allowance for funds used during construction. Additions to utility plant
and replacements of units of property are capitalized to utility plant
accounts. Utility plant retired or otherwise disposed of is charged to
accumulated depreciation. Maintenance and repairs of property and
replacements of items of property determined to be less than a unit of
property are charged to maintenance expense.
Depreciation is generally computed using composite straight-line
rates applied to the average investment in classes of depreciable
property. Vehicles are depreciated based on their estimated useful
lives. Effective in 1995, BGE revised its utility plant depreciation
rates to reflect the results of a detailed depreciation study. The new
rates are expected to result in an increase in depreciation accruals of
approximately $21 million annually.
Depreciation expense for 1994 includes the write-off of certain
costs at BGE's Perryman site. Initially, BGE had planned to build two
combined cycle generating units at this site. However, due to
significant changes in the environment in which utilities operate, BGE
now has no plans to construct the second combined cycle generating unit.
Accordingly, during the third quarter of 1994, BGE wrote off $15.7
million of the costs associated with that second combined cycle unit.
This write-off reduced after-tax earnings during 1994 by $11.0 million
or 7 cents per share. Also in 1994, BGE reclassified the amortization of
deferred energy conservation expenditures and deferred nuclear
expenditures from operations expense to depreciation and amortization
expense. Prior-year amounts have been reclassified to conform with the
current year's presentation.
BGE owns an undivided interest in the Keystone and Conemaugh
electric generating plants located in western Pennsylvania, as well as
in the transmission line which transports the plants' output to the
joint owners' service territories. BGE's ownership interest in these
plants is 20.99% and 10.56%, respectively, and represents a net
investment of $143 million as of December 31, 1994. Financing and
accounting for these properties are the same as for wholly owned utility
plant.
Nuclear fuel expenditures are amortized as a component of actual
fuel costs based on the energy produced over the life of the fuel. Fees
for the future disposal of spent fuel are paid quarterly to the
Department of Energy and are accrued based on the kilowatt-hours of
electricity sold. Nuclear fuel expenses are subject to recovery through
the electric fuel rate.
Nuclear decommissioning costs are accrued by and recovered through a
sinking fund methodology. In its April 1993 rate order, the PSC granted
BGE revenue to accumulate a decommissioning reserve of $336 million in
1992 dollars by the end of Calvert Cliffs' service life in 2016,
adjusted to reflect expected inflation, to decommission the radioactive
portion of the plant. The total decommissioning reserve of $109.8
million and $93.4 million at December 31, 1994 and 1993, respectively,
is included in accumulated depreciation in the Consolidated Balance
Sheets. In accordance with Nuclear Regulatory Commission (NRC)
regulations, BGE has established an external decommissioning trust to
which a portion of accrued decommissioning costs have been contributed.
The NRC requires utilities to provide financial assurance that they
will accumulate sufficient funds to pay for the cost of nuclear
decommissioning based upon either a generic NRC formula or a
facility-specific decommissioning cost estimate. The Company completed a
facility-specific study in 1995 which generated an estimate of $521
million in 1993 dollars to decommission the radioactive portion of the
plant. The Company plans to use the facility-specific cost estimate as a
basis for recording decommissioning expense in 1995, for funding these
costs, and providing the requisite financial assurance.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION AND CAPITALIZED INTEREST
The allowance for funds used during construction (AFC) is an accounting
procedure which capitalizes the cost of funds used to finance utility
construction projects as part of utility plant on the balance sheet,
crediting the cost as a noncash item on the income statement. The cost
of borrowed and equity funds is segregated between interest expense and
other income, respectively. BGE recovers the capitalized AFC and a
return thereon after the related utility plant is placed in service and
included in depreciable assets and rate base.
Prior to April 23, 1993, the Company accrued AFC at a pre-tax rate
of 9.94%, compounded annually. Effective April 24, 1993, a rate order of
the PSC reduced the pre-tax AFC rate to 9.40%, compounded annually.
The Constellation Companies capitalize interest on qualifying real
estate and power generation development projects. BGE capitalizes
interest on carrying charges accrued on certain deferred fuel costs as
discussed in Note 5.
40
<PAGE>
LONG-TERM DEBT
The discount or premium and expense of issuance associated with
long-term debt are deferred and amortized over the original lives of the
respective debt issues. Gains and losses on the reacquisition of debt
are amortized over the remaining original lives of the issuances.
CASH FLOWS
For the purpose of reporting cash flows, highly liquid investments
purchased with a maturity of three months or less are considered to be
cash equivalents.
ACCOUNTING STANDARDS ISSUED
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards Nos. 114 and 118, regarding accounting
for impairment of a loan, effective January 1, 1995. Adoption of these
statements is not expected to have a material impact on the Company's
financial statements.
NOTE 2. SEGMENT INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
ELECTRIC
Nonaffiliated revenues $2,126,581 $2,112,147 $1,965,532
Affiliated revenues 840 - -
Total revenues 2,127,421 2,112,147 1,965,532
Income from operations 539,739 534,185 438,057
Depreciation and amortization 252,273 219,735 197,853
Construction expenditures (including AFC) 406,928 419,519 346,728
Identifiable assets at December 31 6,123,194 6,012,225 5,494,354
GAS
Total revenues (nonaffiliated) $ 421,249 $ 433,163 $ 400,399
Income from operations 35,205 34,738 40,598
Depreciation and amortization 32,478 23,875 21,513
Construction expenditures (including AFC) 76,131 58,359 42,688
Identifiable assets at December 31 733,624 690,783 575,513
DIVERSIFIED BUSINESSES
Nonaffiliated revenues $ 235,155 $ 196,075 $ 193,605
Affiliated revenues 15,649 6,825 6,468
Total revenues 250,804 202,900 200,073
Income from operations 60,315 47,469 56,654
Depreciation and amortization 11,199 10,303 10,149
Identifiable assets at December 31 1,158,162 1,166,997 1,090,667
TOTAL
Nonaffiliated revenues $2,782,985 $2,741,385 $2,559,536
Affiliated revenues 16,489 6,825 6,468
Intercompany eliminations (16,489) (6,825) (6,468)
Total revenues 2,782,985 2,741,385 2,559,536
Income from operations 635,259 616,392 535,309
Depreciation and amortization 295,950 253,913 229,515
Construction expenditures (including AFC) 483,059 477,878 389,416
Identifiable assets at December 31 8,014,980 7,870,005 7,160,534
Other assets at December 31 128,558 117,034 213,823
Total assets at December 31 8,143,538 7,987,039 7,374,357
</TABLE>
CERTAIN PRIOR-YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE
CURRENT YEAR'S PRESENTATION.
41
<PAGE>
NOTE 3. SUBSIDIARY INFORMATION
Diversified businesses consist of the operations of Constellation
Holdings, Inc. and its subsidiaries, BGE Home Products & Services, Inc.
(HPS), and BNG, Inc. Diversified businesses' operating expenses have
been reclassified as diversified businesses-selling, general, and
administrative expense in the consolidated statements of income.
Prior-year amounts have been reclassified to conform with the current
year s presentation.
Constellation Holdings, Inc., a wholly owned subsidiary, holds all
of the stock of three other subsidiaries, Constellation Real Estate
Group, Inc., Constellation Energy, Inc., and Constellation Investments,
Inc. These companies are engaged in real estate development and
ownership of senior living facilities; development, ownership, and
operation of power generation systems; and financial investments,
respectively.
Effective July 1, 1994, BGE formed a wholly owned subsidiary, BGE
Home Products & Services, Inc., which engages in the businesses of
appliance and consumer electronics sales and service; heating,
ventilation, and air conditioning system sales, installation and
service; and home improvements and services.
BNG, Inc. is a wholly owned subsidiary which engages in natural gas
brokering.
BGE's investment in Safe Harbor Water Power Corporation, a producer
of hydroelectric power, represents two-thirds of Safe Harbor's total
capital stock, including one-half of the voting stock, and a two-thirds
interest in its retained earnings.
The following is condensed financial information for Constellation
Holdings, Inc. and its subsidiaries. The condensed financial information
does not reflect the elimination of inter-company balances or
transactions which are eliminated in the Company's consolidated
financial statements.
1994 1993 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income Statements
Revenues
Real estate projects $ 106,915 $ 77,598 $ 76,582
Power generation systems 41,301 24,971 28,084
Financial investments 12,126 21,195 21,485
Total revenues 160,342 123,764 126,151
Expenses other than interest
and income taxes 107,267 80,707 77,154
Income from operations 53,075 43,057 48,997
Interest expense (45,782) (47,845) (43,903)
Capitalized interest 10,776 14,702 13,800`
Income tax benefit (expense) (4,305) 1,984 (3,637)
Net income $ 13,764 $ 11,898 $ 15,257
Contribution to the Company's
earnings per share of
common stock $ .09 $ .08 $ .11
Balance Sheets
Current assets $ 53,034 $ 54,039 $ 29,899
Noncurrent assets 1,055,056 1,036,507 990,273
Total assets $1,108,090 $1,090,546 $1,020,172
Current liabilities $ 70,670 $ 24,201 $ 113,404
Noncurrent liabilities 718,846 759,048 611,370
Shareholders' equity 318,574 307,297 295,398
Total liabilities and
shareholders' equity $1,108,090 $1,090,546 $1,020,172
42
<PAGE>
NOTE 4. REAL ESTATE PROJECTS AND FINANCIAL INVESTMENTS
Real estate projects consist of the following investments held by the
Constellation Companies:
AT DECEMBER 31, 1994 1993
(IN THOUSANDS)
Properties under development $267,483 $249,473
Rental and operating properties
(net of accumulated
depreciation) 203,000 237,194
Other real estate ventures 952 730
Total $471,435 $487,397
Financial investments consist of the following investments held by
the Constellation Companies:
AT DECEMBER 31, 1994 1993
(IN THOUSANDS)
Insurance companies $ 87,700 $ 83,275
Marketable equity securities 51,175 42,681
Financial limited partnerships 48,014 44,903
Leveraged leases 37,451 38,669
Other securities - 3,787
Total $224,340 $213,315
The Constellation Companies' marketable equity securities and the
investments comprising the nuclear decommissioning trust fund are
classified as available for sale. The fair value and gross unrealized
gains and losses for available for sale securities, exclusive of $3.2
million of unrealized net losses on securities of equity-method
investees, are as follows:
Fair Unrealized Unrealized
AT DECEMBER 31, 1994 Value Gains Loss
(IN THOUSANDS)
Marketable equity securities $ 51,175 $1,276 $1,859
U.S. government agency 5,102 - 113
State municipal bonds 58,034 929 2,599
Total $114,311 $2,205 $4,571
Contractual maturities of debt securities:
(IN THOUSANDS)
Less than 1 year $ -
1-5 years 13,855
5-10 years 46,010
More than 10 years 4,765
Total $64,630
Gross realized gains and losses on available for sale securities
totaled $1.1 million and $3.1 million, respectively, in 1994. Net
realized gains from financial investments totaled $6.5 million in 1993
and $9.8 million in 1992.
NOTE 5. REGULATORY ASSETS
Certain utility expenses normally reflected in income are deferred on
the balance sheet as regulatory assets and liabilities and are
recognized in income as the related amounts are included in service
rates and recovered from or refunded to customers in utility revenues.
The following table sets forth BGE's regulatory assets.
AT DECEMBER 31, 1994 1993
(IN THOUSANDS)
Income taxes recoverable
through future rates $268,436 $259,856
Deferred fuel costs 118,591 130,052
Deferred nuclear expenditures 90,937 86,726
Deferred termination
benefit costs 79,979 96,793
Deferred postemployment
benefit costs 73,591 62,892
Deferred cost of
decommissioning federal
uranium enrichment facilities 52,748 49,562
Deferred energy conservation
expenditures 45,534 38,655
Deferred environmental costs 35,015 32,966
Other 8,203 10,623
Total $773,034 $768,125
Income taxes recoverable through future rates represent principally
the tax effect of depreciation differences not normalized and the
allowance for equity funds used during construction, offset by
unamortized deferred tax rate differentials and deferred taxes on
deferred ITC. These amounts are amortized as the related temporary
differences reverse. See Note 1 for a further discussion of income
taxes.
Deferred fuel costs represent the difference between actual fuel
costs and the fuel rate revenues under BGE's fuel clauses (see Note 1).
Deferred fuel costs are reduced as they are collected from customers.
The underrecovered costs deferred under the fuel clauses were as
follows:
AT DECEMBER 31, 1994 1993
(IN THOUSANDS)
Electric
Costs deferred $152,815 $155,901
Reserve for possible
disallowance of replacement
energy costs (see Note 13) (35,000) (35,000)
Net electric 117,815 120,901
Gas 776 9,151
Total $118,591 $130,052
43
<PAGE>
Deferred nuclear expenditures represent the net unamortized balance
of certain operations and maintenance costs which are being amortized
over the remaining life of the Calvert Cliffs Nuclear Power Plant in
accordance with orders of the PSC. These expenditures consist of costs
incurred from 1979 through 1982 for inspecting and repairing seismic
pipe supports, expenditures incurred from 1989 through 1994 associated
with nonrecurring phases of certain nuclear operations projects, and
expenditures incurred during 1990 for investigating leaks in the
pressurizer heater sleeves.
Deferred termination benefit costs represent the net unamortized
balance of the cost of certain termination benefits (see Note 7)
applicable to BGE's regulated operations. These costs are being
amortized over a five-year period in accordance with rate actions of the
PSC.
Deferred postemployment benefit costs represent the excess of such
costs recognized in accordance with Statements of Financial Accounting
Standards No. 106 and No. 112 over the amounts reflected in utility
rates. These costs will be amortized over a 15-year period beginning in
1998 (see Note 6).
Deferred cost of decommissioning federal uranium enrichment
facilities represents the unamortized portion of BGE's required
contributions to a fund for decommissioning and decontaminating the
Department of Energy's (DOE) uranium enrichment facilities. The Energy
Policy Act of 1992 requires domestic utilities to make such
contributions, which are generally payable over a 15-year period with
escalation for inflation and are based upon the amount of uranium
enriched by DOE for each utility. These costs are being amortized over
the contribution period as a cost of fuel.
Deferred energy conservation expenditures represent the net
unamortized balance of certain operations costs which are being
amortized over five years in accordance with orders of the PSC. These
expenditures consist of labor, materials, and indirect costs associated
with the conservation programs approved by the PSC. Deferred
environmental costs represent the estimated costs of investigating
contamination and performing certain remediation activities at
contaminated Company-owned sites (see Note 13). These costs are
generally amortized over the estimated term of the remediation process.
Electric deferred fuel costs in excess of $72.8 million are excluded
from rate base by the PSC for ratemaking purposes. Effective April 24,
1993, BGE has been authorized by the PSC to accrue carrying charges on
deferred fuel costs in excess of $72.8 million, net of related deferred
income taxes. These carrying charges are accrued prospectively at the
9.40% authorized rate of return. The income effect of the equity funds
portion of the carrying charges is being deferred until such amounts are
recovered in utility service rates subsequent to the completion of the
fuel rate proceeding examining the 1989-1991 outages at Calvert Cliffs
Nuclear Power Plant as discussed in Note 13.
NOTE 6. PENSION AND POSTEMPLOYMENT BENEFITS
PENSION BENEFITS
The Company sponsors several noncontributory defined benefit pension
plans, the largest of which (the Pension Plan) covers substantially all
BGE employees and certain employees of the Constellation Companies and
HPS. The other plans, which are not material in amount, provide
supplemental benefits to certain non-employee directors and key
employees. Benefits under the plans are generally based on age, years of
service, and compensation levels.
Prior service cost associated with retroactive plan amendments is
amortized on a straight-line basis over the average remaining service
period of active employees.
The Company's funding policy is to contribute at least the minimum
amount required under Internal Revenue Service regulations using the
projected unit credit cost method. Plan assets at December 31, 1994
consisted primarily of marketable fixed income and equity securities,
group annuity contracts, and short-term investments.
The tables on page 49 set forth the combined funded status of the
plans and the composition of total net pension cost. At December 31,
1994 and 1993, the accumulated pension obligation was greater than the
fair value of the Pension Plan's assets. As a result, the Company
recorded an additional pension liability, a portion of which was charged
to shareholders' equity.
Net pension cost shown below does not include the cost of
termination benefits described in Note 7.
44
<PAGE>
AT DECEMBER 31, 1994 1993
(IN THOUSANDS)
Vested benefit obligation $ 622,445 $ 677,069
Nonvested benefit obligation 8,838 11,359
Accumulated benefit obligation 631,283 688,428
Projected benefits related to increase
in future compensation levels 82,815 109,161
Projected benefit obligation 714,098 797,589
Plan assets at fair value (614,284) (605,629)
Projected benefit obligation less
plan asset 99,814 191,960
Unrecognized prior service cost (23,863) (21,252)
Unrecognized net loss (112,546) (148,450)
Pension liability adjustment 52,177 58,553
Unamortized net asset from adoption of
FASB Statement No. 87 1,586 1,812
Accrued pension liability $ 17,168 $ 82,623
YEAR ENDED DECEMBER 31, 1994 1993 1992
(IN THOUSANDS)
Components of net pension cost
Service cost-benefits earned
during the period $ 15,015 $ 11,645 $ 11,771
Interest cost on projected
benefit obligation 58,723 51,183 47,355
Actual return on plan assets 7,932 (56,225) (33,685)
Net amortization and deferral (60,071) 6,591 (12,257)
Total net pension cost 21,599 13,194 13,184
Amount capitalized as
construction cost (2,578) (1,800) (1,839)
Amount charged to expense $ 19,021 $ 11,394 $ 11,345
The Company also sponsors a defined contribution savings plan covering
all eligible BGE employees and certain employees of the Constellation
Companies and HPS. Under this plan, the Company makes contributions on
behalf of participants. Company contributions to this plan totaled $8.7
million, $9.0 million, and $14.8 million in 1994, 1993, and 1992,
respectively.
POSTRETIREMENT BENEFITS
The Company sponsors defined benefit postretirement health care and life
insurance plans which cover substantially all BGE employees and certain
employees of the Constellation Companies and HPS. Benefits under the
plans are generally based on age, years of service, and pension benefit
levels. The postretirement benefit (PRB) plans are unfunded.
Substantially all of the health care plans are contributory, and
participant contributions for employees who retire after June 30, 1992
are based on age and years of service. Retiree contributions increase
commensurate with the expected increase in medical costs. The
postretirement life insurance plan is noncontributory.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, which requires a change in the
method of accounting for postretirement benefits other than pensions
from the pay-as-you-go method used prior to 1993 to the accrual method.
The transition obligation existing at the beginning of 1993 is being
amortized over a 20-year period.
In April 1993, the PSC issued a rate order authorizing BGE to
recognize in operating expense one-half of the annual increase in PRB
costs applicable to regulated operations as a result of the adoption of
Statement No. 106 and to defer the remainder of the annual increase in
these costs for inclusion in BGE's next base rate proceeding. In
accordance with the PSC's Order, the increase in annual PRB costs
applicable to regulated operations for the period January through April
1993, net of amounts capitalized as construction cost, has been
deferred. This amount, which totaled $5.7 million, as well as all
amounts to be deferred prior to completion of BGE's next base rate
proceeding, will be amortized over a 15-year period beginning in 1998 in
accordance with the PSC's Order. This phase-in approach meets the
guidelines established by the Emerging Issues Task Force of the
Financial Accounting Standards Board for deferring postretirement
benefit costs as a regulatory asset. Accrual-basis PRB costs applicable
to nonregulated operations are charged to expense.
45
<PAGE>
The following table sets forth the components of the accumulated
postretirement benefit obligation and a reconciliation of these amounts
to the accrued postretirement benefit liability.
<TABLE>
<CAPTION>AT DECEMBER 31, 1994 1993
Life Life
Health Care Insurance Health Care Insurance
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 161,134 $ 45,146 $ 182,638 $ 45,461
Fully eligible active employees 15,777 101 19,177 839
Other active employees 44,371 12,597 58,832 15,377
Total accumulated postretirement benefit obligation 221,282 57,844 260,647 61,677
Unrecognized transition obligation (158,725) (46,081) (179,764) (48,641)
Unrecognized net gain (loss) 1,238 (2,141) (36,675) (9,072)
Accrued postretirement benefit liability $ 63,795 $ 9,622 $ 44,208 $ 3,964
</TABLE>
The following table sets forth the composition of net
post-retirement benefit cost. Net postretirement benefit cost shown
below does not include the cost of termination benefits described in
Note 7.
YEAR ENDED DECEMBER 31, 1994 1993
(IN THOUSANDS)
Net postretirement benefit cost:
Service cost-benefits earned during
the period $ 5,035 $ 4,373
Interest cost on accumulated postretirement
benefit obligation 23,037 20,451
Amortization of transition obligation 11,700 12,021
Net amortization and deferral 646 -
Total net postretirement benefit cost 40,418 36,845
Amount capitalized as construction cost (5,773) (5,898)
Amount deferred (10,213) (11,965)
Amount charged to expense $ 24,432 $ 18,982
Postretirement benefit costs recognized under the pay-as-you-go
method in 1992 totaled $11.7 million, of which $1.9 million was
capitalized and the remainder was charged to expense.
OTHER POSTEMPLOYMENT BENEFITS
The Company provides certain pay continuation payments and health and
life insurance benefits to employees of BGE and certain employees of the
Constellation Companies and HPS who are determined to be disabled under
BGE's Long-Term Disability Plan. The Company adopted Statement of
Financial Accounting Standards No. 112, which requires a change in the
method of accounting for these benefits from the pay-as-you-go method to
an accrual method, as of December 31, 1993. The liability for these
benefits totaled $48 million and $52 million as of
December 31, 1994 and 1993, respectively. The portion of the
December 31, 1993 liability attributable to regulated activities was
deferred. The amounts deferred will be amortized over a 15-year period
beginning in 1998. The adoption of Statement No. 112 did not have a
material impact on net income.
ASSUMPTIONS
The pension and postemployment benefit liabilities were determined using
the following assumptions.
AT DECEMBER 31, 1994 1993
Assumptions:
Discount rate 8.5% 7.5%
Average increase in
future compensation levels 4.0% 4.5%
Expected long-term rate of
return on assets 9.0% 9.5%
The health care inflation rates for 1994 are assumed to be 9.0% for
Medicare-eligible retirees and 11.5% for retirees not covered by
Medicare. Both rates are assumed to decrease by 0.5% annually to an
ultimate rate of 5.5% in the years 2001 and 2006, respectively. A one
percentage point increase in the health care inflation rate from the
assumed rates would increase the accumulated postretirement benefit
obligation by approximately $35 million as of December 31, 1994 and
would increase the aggregate of the service cost and interest cost
components of postretirement benefit cost by approximately $4 million
annually.
46
<PAGE>
NOTE 7. TERMINATION BENEFITS
BGE offered a Voluntary Special Early Retirement Program (the 1992
VSERP) to eligible employees who retired during the period February 1,
1992 through April 1, 1992. In accordance with Statement of Financial
Accounting Standards No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits," the one-time cost of termination benefits associated with the
1992 VSERP, which consisted principally of an enhanced pension benefit,
was recognized in 1992 and reduced net income by $6.6 million, or 5
cents per common share. In April 1993, the PSC authorized BGE to
amortize this charge over a five-year period for ratemaking purposes.
Accordingly, BGE established a regulatory asset and recorded a
corresponding credit to operating expense for this amount. The reversal
of the 1992 VSERP in April 1993 increased net income by $6.6 million, or
5 cents per common share.
BGE offered a second Voluntary Special Early Retirement Program (the
1993 VSERP) to eligible employees who retired as of February 1, 1994.
The one-time cost of the 1993 VSERP consisted of enhanced pension and
postretirement benefits. In addition to the 1993 VSERP, further employee
reductions have been accomplished through the elimination of certain
positions, and various programs have been offered to employees impacted
by the eliminations. In accordance with Statement No. 88, the one-time
cost of termination benefits associated with the 1993 VSERP and various
programs, which totaled $105.5 million, was recognized in 1993. The
$88.3 million portion of 1993 VSERP attributable to regulated activities
was deferred and is being amortized over a five-year period for
ratemaking purposes, beginning in February 1994, consistent with
previous rate actions of the PSC. The $17.2 million remaining cost of
termination benefits was charged to expense in 1993.
NOTE 8. SHORT-TERM BORROWINGS
Information concerning commercial paper notes and lines of credit is
set forth below. In support of the lines of credit, the Company pays
commitment fees. Borrowings under the lines are at the banks' prime
rates, base interest rates, or at various money market rates.
<TABLE>
<CAPTION>
1994 1993 1992
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
BGE'S COMMERCIAL PAPER NOTES
Borrowings outstanding at December 31 $ 63,700 $ - $ 11,900
Weighted average interest rate of notes outstanding
at December 31 6.10% -% 3.62%
Unused lines of credit supporting commercial paper
notes at December 31 $ 148,000 $208,000 $ 203,000
Maximum borrowings during the year 187,500 96,900 393,650
Average daily borrowings during the year (a) 74,001 10,322 98,892
Weighted average interest rate for the year (b) 4.83% 3.28% 4.79%
CONSTELLATION COMPANIES' LINES OF CREDIT
Borrowings outstanding at December 31 $ - $ - $ -
Weighted average interest rate of borrowings
outstanding at December 31 -% -% -%
Unused lines of credit at December 31 $ - $ 20,000 $ -
Maximum borrowings during the year - - 60,670
Average daily borrowings during the year (a) - - 31,773
Weighted average interest rate for the year (b) -% -% 6.01%
<FN>
(A) THE SUM OF DOLLAR DAYS OF OUTSTANDING BORROWINGS DIVIDED BY THE
NUMBER OF DAYS IN THE PERIOD.
(B) TOTAL INTEREST ACCRUED DURING THE PERIOD DIVIDED BY AVERAGE DAILY
BORROWINGS.
</TABLE>
47
<PAGE>
NOTE 9. LONG-TERM DEBT
FIRST REFUNDING MORTGAGE BONDS OF BGE
Substantially all of the principal properties and franchises owned by
BGE, as well as the capital stock of Constellation Holdings, Inc., Safe
Harbor Water Power Corporation, HPS and BNG, Inc., are subject to the
lien of the mortgage under which BGE's outstanding First Refunding
Mortgage Bonds have been issued.
On August 1 of each year, BGE is required to pay to the mortgage
trustee an annual sinking fund payment equal to 1% of the largest
principal amount of Mortgage Bonds outstanding under the mortgage during
the preceding twelve months. Such funds are to be used, as provided in
the mortgage, for the purchase and retirement by the trustee of Mortgage
Bonds of any series other than the 5 1/2% Installment Series of 2002,
the 9 1/8% Series of 1995, the 8.40% Series of 1999, the 5 1/2% Series
of 2000, the 8 3/8% Series of 2001, the 7 1/4% Series of 2002, the 6
1/2% Series of 2003, the 6 1/8% Series of 2003, the 5 1/2% Series of
2004, the 7 1/2% Series of 2007, and the 6 5/8% Series of 2008.
OTHER LONG-TERM DEBT OF BGE
BGE maintains revolving credit agreements that expire at various times
during 1996 and 1997. Under the terms of the agreements, BGE may, at its
option, obtain loans at various interest rates. A commitment fee is paid
on the daily average of the unborrowed portion of the commitment. At
December 31, 1994, BGE had no borrowings under these revolving credit
agreements and had available $125 million of unused capacity under these
agreements.
The Medium-term Notes Series A mature in February 1996. The weighted
average interest rate for notes outstanding at December 31, 1994 is
8.22%.
The Medium-term Notes Series B mature at various dates from July
1998 through September 2006. The weighted average interest rate for
notes outstanding at December 31, 1994 is 8.43%.
The Medium-term Notes Series C mature at various dates from June
1996 through June 2003. The weighted average interest rate for notes
outstanding at December 31, 1994 is 7.16%.
The principal amounts of the 5 1/2% Installment Series Mortgage Bonds
payable each year are as follows:
YEAR
(IN THOUSANDS)
1995 through 1997 $ 605
1998 and 1999 690
2000 and 2001 865
2002 6,725
LONG-TERM DEBT OF CONSTELLATION COMPANIES
The mortgage and construction loans and other collateralized notes have
varying terms. The $116.6 million of variable rate notes require
periodic payment of principal and interest with various maturities from
September 1995 through July 2009. The $13 million, 7.67% mortgage note
requires monthly interest payments and is due October 1, 1995. The $6.2
million, 7.73% mortgage note requires quarterly principal and interest
payments through March 15, 2009.
The unsecured notes outstanding as of December 31, 1994 mature in
accordance with the following schedule:
AMOUNT
(IN THOUSANDS)
8.35%, due August 28, 1995 $ 20,000
8.71%, due August 28, 1996 23,000
6.19%, due September 9, 1996 10,000
8.93%, due August 28, 1997 52,000
6.65%, due September 9, 1997 15,000
8.23%, due October 15, 1997 30,000
7.05%, due April 22, 1998 25,000
7.06%, due September 9, 1998 20,000
8.48%, due October 15, 1998 75,000
7.30%, due April 22, 1999 90,000
8.73%, due October 15, 1999 15,000
7.55%, due April 22, 2000 35,000
7.43%, due September 9, 2000 30,000
Total $440,000
The Constellation Companies entered into an unsecured revolving
credit agreement on December 9, 1994 in the amount of $50 million. This
agreement matures December 9, 1997 and will be used to provide liquidity
for general corporate purposes. As of December 31, 1994, the
Constellation Companies had no borrowings under this agreement.
WEIGHTED AVERAGE INTEREST RATES FOR VARIABLE RATE DEBT
The weighted average interest rates for variable rate debt during 1994
and 1993 were as follows:
1994 1993
BGE
Floating rate series mortgage bonds 4.91% -%
Pollution control loan 2.80 2.39
Port facilities loan 3.02 2.53
Adjustable rate pollution control loan 3.13 3.00
Economic development loan 3.00 2.49
Constellation Companies
Mortgage and construction loans
and other collateralized notes 7.27 6.26
Loans under credit agreements - 5.94
48
<PAGE>
AGGREGATE MATURITIES
The combined aggregate maturities and sinking fund requirements for all
of the Company's long-term borrowings for each of the next five years
are as follows:
Constellation
YEAR BGE Companies
(IN THOUSANDS)
1995 $206,063 $ 56,112
1996 71,997 65,201
1997 80,653 125,389
1998 55,396 134,973
1999 251,467 116,425
NOTE 10. REDEEMABLE PREFERENCE STOCK
The 6.95%, 1987 Series and the 7.80%, 1989 Series are subject to
mandatory redemption in their entirety at par on October 1, 1995 and
July 1, 1997, respectively.
The following series are subject to an annual mandatory redemption
of the number of shares shown below at par beginning in the year shown
below. At BGE's option, an additional number of shares, not to exceed
the same number as are mandatory, may be redeemed at par in any year,
commencing in the same year in which the mandatory redemption begins.
The 8.25%, 1989 Series, the 8.625%, 1990 Series, and the 7.85%, 1991
Series listed below are not redeemable except through operation of a
sinking fund.
Beginning
Series Shares Year
7.50%, 1986 Series 15,000 1992
6.75%, 1987 Series 15,000 1993
8.25%, 1989 Series 100,000 1995
8.625%, 1990 Series 130,000 1996
7.85%, 1991 Series 70,000 1997
The combined aggregate redemption requirements for all series of
redeemable preference stock for each of the next five years are as
follows:
YEAR
(IN THOUSANDS)
1995 $61,500
1996 26,000
1997 83,000
1998 33,000
1999 33,000
With regard to payment of dividends or assets available in the event
of liquidation, preferred stock ranks prior to preference and common
stock; all issues of preference stock, whether subject to mandatory
redemption or not, rank equally; and all preference stock ranks prior to
common stock.
NOTE 11. LEASES
The Company, as lessee, contracts for certain facilities and
equipment under lease agreements with various expiration dates and
renewal options. Consistent with the regulatory treatment, lease
payments for utility operations are charged to expense. Lease expense,
which is comprised primarily of operating leases, totaled $12.7 million,
$13.8 million, and $14.0 million for the years ended 1994, 1993, and
1992, respectively.
The future minimum lease payments at December 31, 1994 for long-term
noncancelable operating leases are as follows:
YEAR
(IN THOUSANDS)
1995 $ 4,185
1996 3,881
1997 3,447
1998 2,971
1999 1,409
Thereafter 5,347
Total minimum lease payments $21,240
Certain of the Constellation Companies, as lessor, have entered into
operating leases for office and retail space. These leases expire over
periods ranging from 1 to 22 years, with options to renew. The net book
value of property under operating leases was $148.8 million at December
31, 1994. The future minimum rentals to be received under operating
leases in effect at December 31, 1994 are as follows:
YEAR
(IN THOUSANDS)
1995 $ 13,143
1996 12,233
1997 11,062
1998 9,718
1999 9,082
Thereafter 73,693
Total minimum rentals $128,931
49
<PAGE>
NOTE 12. TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
Real and personal property $112,492 $107,958 $100,419
Public service company franchise 48,143 48,693 45,654
Social security 35,269 35,724 34,911
Other 10,307 9,836 9,355
Total taxes other than income taxes 206,211 202,211 190,339
Amounts included above charged to accounts other than
taxes (6,478) (7,379) (7,335)
Taxes other than income taxes per Consolidated Statements
of Income $199,733 $194,832 $183,004
</TABLE>
NOTE 13. COMMITMENTS, GUARANTEES, AND CONTINGENCIES
COMMITMENTS
BGE has made substantial commitments in connection with its construction
program for 1995 and subsequent years. In addition, BGE has entered into
two long-term contracts for the purchase of electric generating capacity
and energy. The contracts expire in 2001 and 2013. Total payments under
these contracts were $69.4, $68.7, and $60.6 million during 1994, 1993,
and 1992, respectively. At December 31, 1994, the estimated future
payments for capacity and energy that BGE is obligated to buy under
these contracts are as follows:
YEAR (IN THOUSANDS)
1995 $ 65,249
1996 62,880
1997 60,068
1998 60,699
1999 60,558
Thereafter 272,826
Total payments $582,280
Certain of the Constellation Companies have committed to contribute
additional capital and to make additional loans to certain affiliates,
joint ventures, and partnerships in which they have an interest. As of
December 31, 1994, the total amount of investment requirements committed
to by the Constellation Companies is $43.6 million.
In December, 1994, BGE and HPS entered into agreements with a
financial institution whereby BGE and HPS can sell on an ongoing basis
up to an aggregate of $40 million and $50 million, respectively, of an
undivided interest in a designated pool of customer receivables. Under
the terms of the agreements, BGE and HPS have limited recourse on the
receivables and have recorded a reserve for credit losses. At December
31, 1994, BGE and HPS had sold $30 million and $40 million of
receivables, respectively, under these agreements.
GUARANTEES
BGE has agreed to guarantee two-thirds of certain indebtedness incurred
by Safe Harbor Water Power Corporation. The amount of such indebtedness
totals $35 million, of which $23.3 million represents BGE' s share of
the guarantee. BGE assesses that the risk of material loss on the loans
guaranteed is minimal.
As of December 31, 1994, the total outstanding loans and letters of
credit of certain power generation and real estate projects guaranteed
by the Constellation Companies were $31.2 million. Also, the
Constellation Companies have agreed to guarantee certain other
borrowings of various power generation and real estate projects. The
Company has assessed that the risk of material loss on the loans
guaranteed and performance guarantees is minimal.
ENVIRONMENTAL MATTERS
The Clean Air Act of 1990 (the Act) contains two titles designed to
reduce emissions of sulfur dioxide and nitrogen oxide (NOx) from
electric generating stations. Title IV contains provisions for
compliance in two separate phases. Phase I of Title IV became effective
January 1, 1995, and Phase II of Title IV must be implemented by 2000.
BGE met the requirements of Phase I by installing flue gas
desulfurization systems and fuel switching and through unit retirements.
BGE is currently examining what actions will be required in order to
comply with Phase II of the Act. However, BGE anticipates that
compliance will be attained by some combination of fuel switching, flue
gas desulfurization, unit retirements, or allowance trading.
At this time, plans for complying with NOx control requirements
under Title I of the Act are less certain because all implementation
regulations have not yet been finalized by the government. It is
expected that by the year 1999 these regulations will require additional
50
<PAGE>
NOx controls for ozone attainment at BGE's generating plants and at
other BGE facilities. The controls will result in additional
expenditures that are difficult to predict prior to the issuance of such
regulations. Based on existing and proposed ozone nonattainment
regulations, BGE currently estimates that the NOx controls at BGE's
generating plants will cost approximately $70 million. BGE is currently
unable to predict the cost of compliance with the additional
requirements at other BGE facilities.
BGE has been notified by the Environmental Protection Agency and
several state agencies that it is being considered a potentially
responsible party (PRP) with respect to the cleanup of certain
environmentally contaminated sites owned and operated by third parties.
In addition, a subsidiary of Constellation Holdings, Inc. has been named
as a defendant in a case concerning an alleged environmentally
contaminated site owned and operated by a third party. Cleanup costs for
these sites cannot be estimated, except that BGE's 15.79% share of the
possible cleanup costs at one of these sites, Metal Bank of America, a
metal reclaimer in Philadelphia, could exceed amounts recognized by up
to approximately $14 million based on the highest estimate of costs in
the range of reasonably possible alternatives. Although the cleanup
costs for certain of the remaining sites could be significant, BGE
believes that the resolution of these matters will not have a material
effect on its financial position or results of operations.
Also, BGE is coordinating investigation of several former gas
manufacturing plant sites, including exploration of corrective action
options to remove coal tar. However, no formal legal proceedings have
been instituted against BGE. BGE has recognized estimated environmental
costs at these sites totaling $37.9 million as of December 31, 1994.
These costs, net of accumulated amortization, have been deferred as a
regulatory asset (see Note 5). The technology for cleaning up such sites
is still developing, and potential remedies for these sites have not
been identified. Cleanup costs in excess of the amounts recognized,
which could be significant in total, cannot presently be estimated.
NUCLEAR INSURANCE
An accident or an extended outage at either unit of the Calvert Cliffs
Nuclear Power Plant could have a substantial adverse effect on BGE. The
primary contingencies resulting from an incident at the Calvert Cliffs
plant would involve the physical damage to the plant, the recoverability
of replacement power costs and BGE's liability to third parties for
property damage and bodily injury. BGE maintains various insurance
policies for these contingencies. The costs that could result from a
major accident or an extended outage at either of the Calvert Cliffs
units could exceed the coverage limits.
In addition, in the event of an incident at any commercial nuclear
power plant in the country, BGE could be assessed for a portion of any
third party claims associated with the incident. Under the provisions of
the Price Anderson Act, the limit for third party claims from a nuclear
incident is $8.92 billion. If third party claims relating to such an
incident exceed $200 million (the amount of primary insurance), BGE's
share of the total liability for third party claims could be up to $159
million per incident, that would be payable at a rate of $20 million per
year.
BGE and other operators of commercial nuclear power plants in the
United States are required to purchase insurance to cover claims of
certain nuclear workers. Other non-governmental commercial nuclear
facilities may also purchase such insurance. Coverage of up to $400
million is provided for claims against BGE or others insured by these
policies for radiation injuries. If certain claims were made under these
policies, BGE and all policyholders could be assessed, with BGE' s share
being up to $6.08 million in any one year.
For physical damage to Calvert Cliffs, BGE has $2.75 billion of
property insurance, including $1.4 billion from an industry mutual
insurance company. If accidents at any insured plants cause a shortfall
of funds at the industry mutual, BGE and all policyholders could be
assessed, with BGE's share being up to $14.3 million.
If an outage at Calvert Cliffs is caused by an insured physical
damage loss and lasts more than 21 weeks, BGE has up to $473.2 million
per unit of insurance, provided by the same industry mutual insurance
company for replacement power costs. This amount can be reduced by up to
$94.6 million per unit if an outage to both units at Calvert Cliffs is
caused by a singular insured physical damage loss. If an outage at any
insured plant causes a short-fall of funds at the industry mutual, BGE
and all policyholders could be assessed, with BGE' s share being up to
$9.4 million.
RECOVERABILITY OF ELECTRIC FUEL COSTS
By statute, actual electric fuel costs are recoverable so long as the
PSC finds that BGE demonstrates that, among other things, it has
maintained the productive capacity of its generating plants at a
reasonable level. The PSC and Maryland's highest appellate court have
interpreted this as permitting a subjective evaluation of each unplanned
outage at BGE's generating plants to determine whether or not BGE had
implemented all reasonable and cost effective maintenance and operating
control procedures appropriate for preventing the outage. Effective
January 1, 1987, the PSC authorized the establishment of the Generating
Unit Performance Program (GUPP) to measure, annually, utility compliance
with maintaining the productive capacity of generating plants at
reasonable levels by establishing a system-wide generating performance
target and individual performance targets for each base load generating
unit. In future fuel rate hearings, actual generating performance after
adjustment for planned outages will be compared to the system-wide
target and, if met, should signify that BGE has complied with the
requirements of Maryland law. Failure to meet the system-wide target
will result in review of each unit's adjusted actual generating
performance versus its performance target in determining compliance with
the law and the basis for possibly imposing a penalty on BGE. Parties to
fuel rate hearings may still question the prudence of BGE's actions or
inactions with respect to any given generating plant outage, which could
result in the disallowance of replacement energy costs by the PSC.
Since the two units at BGE's Calvert Cliffs Nuclear Power Plant
utilize BGE's lowest cost fuel, replacement energy costs associated
with outages at these units can be significant. BGE cannot estimate the
amount of replacement energy costs that could be challenged or
disallowed in future fuel rate proceedings, but such amounts could be
material.
51
<PAGE>
In October 1988, BGE filed its first fuel rate application for a
change in its electric fuel rate under the GUPP program. The resultant
case before the PSC covers BGE's operating performance in calendar year
1987, and BGE's filing demonstrated that it met the system-wide and
individual nuclear plant performance targets for 1987. In November 1989,
testimony was filed on behalf of Maryland People's Counsel alleging that
seven outages at the Calvert Cliffs plant in 1987 were due to management
imprudence and that the replacement energy costs associated with those
outages should be disallowed by the Commission. Total replacement energy
costs associated with the 1987 outages were approximately $33 million.
In May 1989, BGE filed its fuel rate case in which 1988 performance
was to be examined. BGE met the system-wide and nuclear plant
performance targets in 1988. People's Counsel alleges that BGE
imprudently managed several outages at Calvert Cliffs, and BGE estimates
that the total replacement energy costs associated with these 1988
outages were approximately $2 million.
On November 14, 1991, a Hearing Examiner at the PSC issued a
proposed Order, which became final on December 17, 1991 and concluded
that no disallowance was warranted. The Hearing Examiner found that BGE
maintained the productive capacity of the Plant at a reasonable level,
noting that it produced a near record amount of power and exceeded the
GUPP standard. Based on this record, the Order concluded there was
sufficient cause to excuse any avoidable failures to maintain productive
capacity at higher levels.
During 1989, 1990, and 1991, BGE experienced extended outages at its
Calvert Cliffs Nuclear Power Plant. In the Spring of 1989, a leak was
discovered around the Unit 2 pressurizer heater sleeves during a
refueling outage. BGE shut down Unit 1 as a precautionary measure on May
6, 1989 to inspect for similar leaks and none were found. However, Unit
1 was out of service for the remainder of 1989 and 285 days of 1990 to
undergo maintenance and modification work to enhance the reliability of
various safety systems, to repair equipment, and to perform required
periodic surveillance tests. Unit 2, which returned to service on May 4,
1991, remained out of service for the remainder of 1989, 1990, and the
first part of 1991 to repair the pressurizer, perform maintenance and
modification work, and complete the refueling. The replacement energy
costs associated with these extended outages for both units at Calvert
Cliffs, concluding with the return to service of Unit 2, is estimated to
be $458 million.
In a December 1990 order issued by the PSC in a BGE base rate
proceeding, the PSC found that certain operations and maintenance
expenses incurred at Calvert Cliffs during the test year should not be
recovered from ratepayers. The PSC found that this work, which was
performed during the 1989-1990 Unit 1 outage and fell within the test
year, was avoidable and caused by BGE actions which were deficient.
The Commission noted in the order that its review and findings on
these issues pertain to the reasonableness of BGE's test-year
operations and maintenance expenses for purposes of setting base rates
and not to the responsibility for replacement power costs associated
with the outages at Calvert Cliffs. The PSC stated that its decision in
the base rate case will have no res judicata (binding) effect in the
fuel rate proceeding examining the 1989-1991 outages. The work
characterized as avoidable significantly increased the duration of the
Unit 1 outage. Despite the PSC's statement regarding no binding effect,
BGE recognizes that the views expressed by the PSC make the full
recovery of all of the replacement energy costs associated with the Unit
1 outage doubtful. Therefore, in December 1990, BGE recorded a provision
of $35 million against the possible disallowance of such costs. BGE
cannot determine whether replacement energy costs may be disallowed in
the present fuel rate proceedings in excess of the provision, but such
amounts could be material.
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying value and fair value of
financial instruments included in the Consolidated Balance Sheets.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets $ 382,776 $ 382,776 $ 496,919 $ 496,919
Investments and other assets 138,978 137,782 125,046 129,752
Current liabilities 768,932 768,932 443,968 443,968
Capitalization 2,864,432 2,699,103 3,165,644 3,303,616
</TABLE>
52
<PAGE>
Financial instruments included in current assets are cash and cash
equivalents, net accounts receivable, trading securities, and
miscellaneous loans receivable of the Constellation Companies. Financial
instruments included in current liabilities represent total current
liabilities from the balance sheet excluding accrued vacation costs. The
carrying amount of current assets and current liabilities approximates
fair value because of the short maturity of these instruments.
Investments and other assets include investments in common and
preferred securities, which are classified as financial investments in
the balance sheet, and the nuclear decommissioning trust fund. The fair
value of investments and other assets is based on quoted market prices
where available. Certain investments with a carrying amount of $70
million at December 31, 1994 and 1993 are excluded from the amounts
shown in investments and other assets because it was not practicable to
determine their fair values. These investments include partnership
investments in public and private equity and debt securities,
partnership investments in solar powered energy production facilities,
and investments in stock trusts.
Financial instruments included in capitalization are long-term debt
and redeemable preference stock. The fair value of fixed-rate long-term
debt and redeemable preference stock is estimated using quoted market
prices where available or by discounting remaining cash flows at the
current market rate. The carrying amount of variable-rate long-term debt
approximates fair value.
BGE and the Constellation Companies have loan guarantees totalling
$23.3 million and $17.0 million, respectively, at December 31, 1994 and
$26.7 and $36.0 million, respectively, at December 31, 1993 for which it
is not practicable to determine fair value. It is not anticipated that
these loan guarantees will need to be funded.
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following data are unaudited but, in the opinion of Management,
include all adjustments necessary for a fair presentation. BGE's
utility business is seasonal in nature with the peak sales periods
generally occurring during the summer and winter months. Accordingly,
comparisons among quarters of a year may not be indicative of overall
trends and changes in operations.
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31 June 30 September 30 December 31 December 31
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues $767,686 $651,152 $753,878 $610,269 $2,782,985
Income from operations 162,559 136,778 232,472 103,450 635,259
Net income 82,145 66,708 126,616 48,148 323,617
Earnings applicable to common stock 72,114 56,687 116,714 38,180 283,695
Earnings per share of common stock 0.49 0.39 0.79 0.26 1.93
1993
Revenues $701,785 $583,812 $793,968 $661,820 $2,741,385
Income from operations 135,429 106,890 287,519 86,554 616,392
Net income 65,796 55,876 157,058 31,136 309,866
Earnings applicable to common stock 55,276 45,300 146,511 20,940 268,027
Earnings per share of common stock 0.38 0.31 1.01 0.14 1.85
</TABLE>
RESULTS FOR THE FIRST QUARTER OF 1994 REFLECT A $10.0 MILLION ONE-TIME
BONUS PAID TO EMPLOYEES IN LIEU OF A GENERAL INCREASE.
RESULTS FOR THE THIRD QUARTER OF 1994 REFLECT THE $15.7 MILLION ($11.0
MILLION AFTER-TAX) WRITE-OFF OF CERTAIN PERRYMAN COSTS (SEE NOTE 1).
RESULTS FOR THE SECOND QUARTER OF 1993 REFLECT THE REVERSAL OF THE COST
OF THE TERMINATION BENEFITS ASSOCIATED WITH THE 1992 VOLUNTARY SPECIAL
EARLY RETIREMENT PROGRAM (SEE NOTE 7).
RESULTS FOR THE THIRD QUARTER OF 1993 REFLECT THE EFFECTS OF THE OMNIBUS
BUDGET RECONCILIATION ACT OF 1993.
RESULTS FOR THE FOURTH QUARTER OF 1993 REFLECT THE COST OF CERTAIN
TERMINATION BENEFITS (SEE NOTE 7).
THE SUM OF THE QUARTERLY EARNINGS PER SHARE AMOUNTS MAY NOT EQUAL THE
TOTAL FOR THE YEAR DUE TO CHANGES IN THE AVERAGE NUMBER OF SHARES
OUTSTANDING THROUGHOUT THE YEAR.
CERTAIN PRIOR-YEAR AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE
CURRENT YEAR'S PRESENTATION.
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors is
set forth on pages 2 through 4 under "Item 1. Election of 14 Directors"
in the Proxy Statement and is incorporated herein by reference.
The information required by this item with respect to executive
officers is, pursuant to instruction 3 of paragraph (b) of Item 401 of
Regulation S-K, set forth in Item 10 of Part I of this Form 10-K under
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth on pages 7
through 13 under "Item 1. Election of 14 Directors -- Compensation of
Executive Officers by the Company" in the Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth on page 6 under
"Item 1. Election of 14 Directors -- Security Ownership of Directors and
Executive Officers" in the Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on page 5 under
"Item 1. Election of 14 Directors -- Certain Relationships and
Transactions" in the Proxy Statement and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements:
Auditors' Report dated January 20, 1995 of Coopers & Lybrand L.L.P.,
Independent Auditors
Consolidated Statements of Income for three years ended December 31,
1994
Consolidated Balance Sheets at December 31, 1994 and December 31,
1993
Consolidated Statements of Cash Flows for three years ended December
31, 1994
Consolidated Statements of Common Shareholders' Equity for three
years ended December 31, 1994
Consolidated Statements of Capitalization at December 31, 1994 and
December 31, 1993
Consolidated Statements of Income Taxes for three years ended
December 31, 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
Schedules other than those listed above are omitted as not
applicable or not required.
3. Exhibits Required by Item 601 of Regulation S-K Including Each
Management Contract or Compensatory Plan or Arrangement
Required to be Filed as an Exhibit.
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C>
*3(a) -- Charter of BGE, restated as of October 13, 1993. (Designated as Exhibit No. 3(b) in Form 10-Q
dated November 12, 1993, File No. 1-1910.)
*3(b) -- By-Laws of BGE, as amended to March 1, 1993. (Designated as Exhibit No. 3(c) in Form 10-K
Annual Report for 1992, File No. 1-1910.)
4(a) -- Indenture and Supplemental Indentures between BGE and Bankers Trust Company, Trustee:
</TABLE>
<TABLE>
<CAPTION>
DESIGNATED IN
EXHIBIT
DATED FILE NO. NUMBER
<S> <C> <C> <C>
*February 1, 1919 2-2640 B-3
*December 1, 1920 2-2640 B-4
*October 1, 1921 2-2640 B-5
*September 1, 1922 2-2640 B-6
*June 1, 1925 2-2640 B-7
*March 1, 1929 2-2640 B-8
*July 1, 1930 2-2640 B-9
*June 1, 1931 2-2640 B-10
*November 1, 1934 2-2640 B-11
*May 1, 1935 2-2640 B-12
*July 1, 1935 2-2640 B-13
*December 1, 1936 2-3708 B-14
*June 15, 1938 1-1910-2 (Form 8-K Report for June 1938) 1
*June 1, 1939 2-4625 B-15
*January 1, 1941 2-6296 B-16
*April 1, 1946 2-7020 7-17
*March 1, 1948 1-1910-2 (Form 8-K Report for March 1948) 1
*December 19, 1949 2-8740 7-19
*December 20, 1949 2-8740 7-20
*June 15, 1950 2-8740 7-21
*January 15, 1951 2-9916 4-30
*June 1, 1953 2-9916 4-33
*July 15, 1954 2-11676 4-3
*December 1, 1955 2-13127 4-3
*March 1, 1958 1-1910-P (Form 8-A dated March 12, 1958) 1-2
*June 1, 1960 1-1910 (Form 8-K for June 1960) 1
*July 15, 1962 1-1910 (Form 8-K for July 1962) 1
*July 15, 1964 2-23763 2-3
*July 26, 1965 2-24800 2-3
*April 15, 1966 2-26278 4-3
*June 16, 1967 2-27005 2-3
*August 1, 1967 1-1910 (Form 10-K Annual Report for 1967) D-1
*December 15, 1968 1-1910 (Form 10-K Annual Report for 1968) D-1
*September 15, 1969 2-35453 2-6
*April 1 1970 1-1910 (Form 8-A dated March 30, 1970) 2(b)
*July 1, 1970 1-1910 (Form 8-A dated June 30, 1970) 2(c)
*September 15, 1970 2-39561 2-4
*April 15, 1971 2-41252 2-4
*September 1, 1971 2-42574 2-4
*January 1, 1972 1-1910 (Form 10-K Annual Report for 1971) A-2
*July 1, 1972 2-45452 2-3
*September 15, 1972 1-1910 (Form 10-K Annual Report for 1972) A-1
*August 15, 1973 1-1910 (Form 8-K Report for August 1973) 3-4
*February 1, 1974 1-1910 (Form 10-K Annual Report for 1973) A-1
*July 1, 1974 1-1910 (Form 8-A dated July 5, 1974) 2(b)
*September 15, 1974 1-1910 (Form 8-A dated September 13,1974) 2(b)
*August 1, 1975 1-1910 (Form 8-A dated August 5, 1975) 2(b)
*September 15, 1976 1-1910 (Form 8-A dated September 24, 1976) 2(b)
*July 15, 1977 2-59772 2-3
(3 Indentures)
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
DESIGNATED IN
EXHIBIT
DATED FILE NO. NUMBER
<S> <C> <C> <C>
*September 15, 1977 1-1910 (Form 8-A dated September 23, 1977) 2(c)
*July 1, 1978 1-1910 (Form 8-A dated June 30, 1978) 2(b)
*September 15, 1979 1-1910 (Form 10-Q dated November 14, 1979) 2-5 and 2-6
(2 Indentures)
*September 15, 1980 1-1910 (Form 8-A dated September 12, 1980) 2(b)
*July 8, 1981 1-1910 (Form 10-Q dated August 17, 1981) 20-2(c)
*October 1, 1981 1-1910 (Form 8-A dated September 29, 1981) 2(b)
*July 15, 1982 1-1910 (Form 8-A dated July 28, 1982) 2(b)
*March 1, 1986 1-1910 (Form 8-A dated February 24, 1986, as amended by 2
Form 8 dated March 3, 1986)
*June 15, 1987 1-1910 (Form 8-K Report for July 29, 1987) 4(a)
*October 15, 1989 1-1910 (Form 10-Q dated November 14, 1989) 4(a)
*October 15, 1990 33-38803 (Form S-3 Registration) 4(a)
*August 15, 1991 33-45259 (Form S-3 Registration) 4(a)(i)
*January 15, 1992 33-45259 (Form S-3 Registration) 4(a)(ii)
*July 1, 1992 1-1910 (Form 8-K Report for January 29, 1993) 4(a)
*February 15, 1993 1-1910 (Form 10-K Annual Report for 1992) 4(a)(i)
*March 1, 1993 1-1910 (Form 10-K Annual Report for 1992) 4(a)(ii)
*March 15, 1993 1-1910 (Form 10-K Annual Report for 1992) 4(a)(iii)
*April 15, 1993 1-1910 (Form 10-Q dated May 13, 1993) 4
*July 1, 1993 1-1910 (Form 10-Q dated August 13, 1993) 4(a)
*July 15, 1993 1-1910 (Form 10-Q dated August 13, 1993) 4(b)
*October 15, 1993 1-1910 (Form 10-Q dated November 12, 1993) 4
*March 15, 1994 1-1910 (Form 10-K Annual Report for 1993) 4(a)
</TABLE>
<TABLE>
<S> <C>
*4(b) -- Indenture dated July 1, 1985, between BGE and Mercantile-Safe Deposit and Trust Company, Trustee.
(Designated in Registration File No. 2-98443 as Exhibit 4(a)); as supplemented by Supplemental
Indentures dated as of October 1, 1987 (Designated in Form 8-K, dated November 13, 1987, File No.
1-1910 as Exhibit 4(a)) and as of January 26, 1993 (Designated in Form 8-K, dated January 29, 1993,
File No. 1-1910 as Exhibit 4(b).)
10(a) -- Baltimore Gas and Electric Company Executive Benefits Plan, as amended and restated.
*10(b) -- Executive Incentive Plan of the Baltimore Gas and Electric Company. (Designated as Exhibit No. 10(b)
to the Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-1910.)
10(c) -- Baltimore Gas and Electric Company 1995 Long-Term Incentive Plan.
*10(d) -- Baltimore Gas and Electric Company Non-qualified Deferred Compensation Plan for Executive Officers.
(Designated as Exhibit No. 10(d) to the Annual Report on Form 10-K for the year ended December 31,
1992, File No. 1-1910.)
*10(e) -- Baltimore and Gas and Electric Company Non-qualified Deferred Compensation Plan for Non-Employee
Directors (formerly Baltimore Gas and Electric Company Deferred Compensation Plan for Non-Employee
Directors). (Designated as Exhibit No. 10(f) to the Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-1910.)
10(f) -- Baltimore Gas and Electric Company Retirement Plan for Non-Employee Directors, as amended and
restated.
*10(g) -- Summary of Baltimore Gas and Electric Company Long Term Performance Program. (Designated as Exhibit
No. 10(h) to the Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-1910.)
10(h) -- Grantor Trust Agreement Dated as of July 31, 1994 between Baltimore Gas and Electric Company and
Citibank, N.A.
10(i) -- Constellation Holdings, Inc., Summary of Amended Executive Benefits Plan.
*10(j) -- Summary of Constellation Holdings, Inc. Annual Incentive Plan. (Designated as Exhibit No. 10(g) to
the Annual Report on Form 10-K for the year ended December 31, 1992, File No. 1-1910.)
*10(k) -- Amended Summary 1992 Long Term Incentive Plan of Constellation Holdings, Inc. (Designated as Exhibit
No. 10(k) to the Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-1910.)
10(l) -- Summary 1994-96 Long Term Incentive Plan of Constellation Holdings, Inc.
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
12 -- Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred and Preference Dividend Requirements.
21 -- Subsidiaries of the Registrant.
23 -- Consent of Coopers & Lybrand L.L.P., Independent Auditors (see page 62 in this Form 10-K).
27 -- Financial Data Schedule.
*99(a) -- Indemnification of Directors and Officers of the Company. (Designated as Exhibit No. 28(a) to the
Annual Report on Form 10-K for the year ended December 31, 1988, File No. 1-1910.)
*99(b) -- Corporations and Associations Article, Section 2-418 of the Annotated Code of Maryland. (Designated
as Exhibit 28(b) to the Annual Report on Form 10-K for the year ended December 31, 1987, File No.
1-1910.)
</TABLE>
*Incorporated by Reference.
(b) Reports on Form 8-K: None
57
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ADDITIONS
BALANCE CHARGED COLUMN E
AT TO BALANCE
BEGINNING COSTS CHARGED TO OTHER COLUMN D AT END
COLUMN A OF AND ACCOUNTS -- (DEDUCTIONS) -- OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Reserves deducted in the Balance Sheet from
the assets to which they apply:
Accumulated Provision for Uncollectibles
1994.................................... $13,957 $20,557 $ - $(19,554)(A) $14,960
1993.................................... 12,484 19,155 - (17,682)(A) 13,957
1992.................................... 11,911 18,910 - (18,337)(A) 12,484
Valuation Allowance --
Net unrealized loss on available for
sale securities
1994.................................... - - 5,609(B) - 5,609
1993.................................... - - - - -
1992.................................... - - - - -
Provision for possible disallowance of
replacement energy costs
1994.................................... 35,000 - - - 35,000
1993.................................... 35,000 - - - 35,000
1992.................................... 35,000 - - - 35,000
Loan loss reserve
1994.................................... 5,123 - - (5,123)(C) -
1993.................................... 4,382 741 - - 5,123
1992.................................... 3,856 526 - - 4,382
Energy project reserves
1994.................................... 1,778 28 - - 1,806
1993.................................... 492 1,286 - - 1,778
1992.................................... 494 - - (2)(D) 492
<FN>
(A) Represents principally net amounts charged off as uncollectible.
(B) Represents net unrealized loss charged to common shareholders' equity.
(C) Represents reversal of loan loss reserve due to reclassification of this
amount as part of the purchase price of certain real estate partnership
interests.
(D) Represents recovery of subsidiary's project development costs previously
reversed as uncollectible.
</TABLE>
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Baltimore Gas and Electric Company, the
Registrant, has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
BALTIMORE GAS AND ELECTRIC COMPANY
(REGISTRANT)
By /s/ C. H. POINDEXTER
Date: March 17, 1995
C. H. POINDEXTER
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of Baltimore Gas and Electric Company, the Registrant, and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Principal executive officer and director:
By /s/ C. H. POINDEXTER Chairman of the Board and Director March 17, 1995
C. H. POINDEXTER
Principal financial and accounting officer:
By /s/ C. W. SHIVERY Vice President and Secretary March 17, 1995
C. W. SHIVERY
Directors:
/s/ B. B. BYRON Director March 17, 1995
B. B. BYRON
/s/ J. O. COLE Director March 17, 1995
J. O. COLE
/s/ D. A. COLUSSY Director March 17, 1995
D. A. COLUSSY
/s/ E. A. CROOKE Director March 17, 1995
E. A. CROOKE
/s/ J. R. CURTISS Director March 17, 1995
J. R. CURTISS
/s/ F. A. HRABOWSKI III Director March 17, 1995
F. A. HRABOWSKI
/s/ N. LAMPTON Director March 17, 1995
N. LAMPTON
/s/ G. V. MCGOWAN Director March 17, 1995
G. V. MCGOWAN
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C>
/s/ G. L. RUSSELL, JR. Director March 17, 1995
G. L. RUSSELL, JR.
/s/ M. D. SULLIVAN Director March 17, 1995
M. D. SULLIVAN
</TABLE>
60
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
<S> <C> <C>
*3(a) -- Charter of BGE, restated as of October 13, 1993. (Designated as Exhibit No. 3(b) in Form 10-Q
dated November 12, 1993, File No. 1-1910.)
*3(b) -- By-Laws of BGE, as amended to March 1, 1993. (Designated as Exhibit No. 3(c) in Form 10-K
Annual Report for 1992, File No. 1-1910.)
4(a) -- Indenture and Supplemental Indentures between BGE and Bankers Trust Company, Trustee:
</TABLE>
<TABLE>
<CAPTION>
DESIGNATED IN
EXHIBIT
DATED FILE NO. NUMBER
<S> <C> <C> <C>
*February 1, 1919 2-2640 B-3
*December 1, 1920 2-2640 B-4
*October 1, 1921 2-2640 B-5
*September 1, 1922 2-2640 B-6
*June 1, 1925 2-2640 B-7
*March 1, 1929 2-2640 B-8
*July 1, 1930 2-2640 B-9
*June 1, 1931 2-2640 B-10
*November 1, 1934 2-2640 B-11
*May 1, 1935 2-2640 B-12
*July 1, 1935 2-2640 B-13
*December 1, 1936 2-3708 B-14
*June 15, 1938 1-1910-2 (Form 8-K Report for June 1938) 1
*June 1, 1939 2-4625 B-15
*January 1, 1941 2-6296 B-16
*April 1, 1946 2-7020 7-17
*March 1, 1948 1-1910-2 (Form 8-K Report for March 1948) 1
*December 19, 1949 2-8740 7-19
*December 20, 1949 2-8740 7-20
*June 15, 1950 2-8740 7-21
*January 15, 1951 2-9916 4-30
*June 1, 1953 2-9916 4-33
*July 15, 1954 2-11676 4-3
*December 1, 1955 2-13127 4-3
*March 1, 1958 1-1910-P (Form 8-A dated March 12, 1958) 1-2
*June 1, 1960 1-1910 (Form 8-K for June 1960) 1
*July 15, 1962 1-1910 (Form 8-K for July 1962) 1
*July 15, 1964 2-23763 2-3
*July 26, 1965 2-24800 2-3
*April 15, 1966 2-26278 4-3
*June 16, 1967 2-27005 2-3
*August 1, 1967 1-1910 (Form 10-K Annual Report for 1967) D-1
*December 15, 1968 1-1910 (Form 10-K Annual Report for 1968) D-1
*September 15, 1969 2-35453 2-6
*April 1 1970 1-1910 (Form 8-A dated March 30, 1970) 2(b)
*July 1, 1970 1-1910 (Form 8-A dated June 30, 1970) 2(c)
*September 15, 1970 2-39561 2-4
*April 15, 1971 2-41252 2-4
*September 1, 1971 2-42574 2-4
*January 1, 1972 1-1910 (Form 10-K Annual Report for 1971) A-2
*July 1, 1972 2-45452 2-3
*September 15, 1972 1-1910 (Form 10-K Annual Report for 1972) A-1
*August 15, 1973 1-1910 (Form 8-K Report for August 1973) 3-4
*February 1, 1974 1-1910 (Form 10-K Annual Report for 1973) A-1
*July 1, 1974 1-1910 (Form 8-A dated July 5, 1974) 2(b)
*September 15, 1974 1-1910 (Form 8-A dated September 13,1974) 2(b)
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
DESIGNATED IN
EXHIBIT PAGE EXHIBIT
NUMBER NUMBER DATED FILE NO. NUMBER
<S> <C> <C> <C>
*August 1, 1975 1-1910 (Form 8-A dated August 5, 1975) 2(b)
*September 15, 1976 1-1910 (Form 8-A dated September 24, 1976) 2(b)
*July 15, 1977 2-59772 2-3
(3 Indentures)
*September 15, 1977 1-1910 (Form 8-A dated September 23, 1977) 2(c)
*July 1, 1978 1-1910 (Form 8-A dated June 30, 1978) 2(b)
*September 15, 1979 1-1910 (Form 10-Q dated November 14, 1979) 2-5 and 2-6
(2 Indentures)
*September 15, 1980 1-1910 (Form 8-A dated September 12, 1980) 2(b)
*July 8, 1981 1-1910 (Form 10-Q dated August 17, 1981) 20-2(c)
*October 1, 1981 1-1910 (Form 8-A dated September 29, 1981) 2(b)
*July 15, 1982 1-1910 (Form 8-A dated July 28, 1982) 2(b)
*March 1, 1986 1-1910 (Form 8-A dated February 24, 1986, as amended 2
by Form 8 dated March 3, 1986)
*June 15, 1987 1-1910 (Form 8-K Report for July 29, 1987) 4(a)
*October 15, 1989 1-1910 (Form 10-Q dated November 14, 1989) 4(a)
*October 15, 1990 33-38803 (Form S-3 Registration) 4(a)
*August 15, 1991 33-45259 (Form S-3 Registration) 4(a)(i)
*January 15, 1992 33-45259 (Form S-3 Registration) 4(a)(ii)
*July 1, 1992 1-1910 (Form 8-K Report for January 29, 1993) 4(a)
*February 15, 1993 1-1910 (Form 10-K Annual Report for 1992) 4(a)(i)
*March 1, 1993 1-1910 (Form 10-K Annual Report for 1992) 4(a)(ii)
*March 15, 1993 1-1910 (Form 10-K Annual Report for 1992) 4(a)(iii)
*April 15, 1993 1-1910 (Form 10-Q dated May 13, 1993) 4
*July 1, 1993 1-1910 (Form 10-Q dated August 13, 1993) 4(a)
*July 15, 1993 1-1910 (Form 10-Q dated August 13, 1993) 4(b)
*October 15, 1993 1-1910 (Form 10-Q dated November 12, 1993) 4
*March 15, 1994 1-1910 (Form 10-K Annual Report for 1993) 4(a)
</TABLE>
<TABLE>
<S> <C> <C>
*4(b) -- Indenture dated July 1, 1985, between BGE and Mercantile-Safe Deposit and Trust Company,
Trustee. (Designated in Registration File No. 2-98443 as Exhibit 4(a)); as supplemented by
Supplemental Indentures dated as of October 1, 1987 (Designated in Form 8-K, dated November
13, 1987, File No. 1-1910 as Exhibit 4(a)) and as of January 26, 1993 (Designated in Form
8-K, dated January 29, 1993, File No. 1-1910 as Exhibit 4(b).)
10(a) -- Baltimore Gas and Electric Company Executive Benefits Plan as amended and restated.
*10(b) -- Executive Incentive Plan of the Baltimore Gas and Electric Company. (Designated as Exhibit
No. 10(b) to the Annual Report on Form 10-K for the year ended December 31, 1992, File No.
1-1910.)
10(c) -- Baltimore Gas and Electric Company 1995 Long-Term Incentive Plan.
*10(d) -- Baltimore Gas and Electric Company Non-qualified Deferred Compensation Plan for Executive
Officers. (Designated as Exhibit No. 10(d) to the Annual Report on Form 10-K for the year
ended December 31, 1992, File No. 1-1910.)
*10(e) -- Baltimore and Gas and Electric Company Non-qualified Deferred Compensation Plan for
Non-Employee Directors (formerly Baltimore Gas and Electric Company Deferred Compensation
Plan for Non-Employee Directors). (Designated as Exhibit No. 10(f) to the Annual Report on
Form 10-K for the year ended December 31, 1993, File No. 1-1910.)
10(f) -- Baltimore Gas and Electric Company Retirement Plan for Non-Employee Directors, as amended
and restated.
*10(g) -- Summary of Baltimore Gas and Electric Company Long Term Performance Program. (Designated as
Exhibit No. 10(h) to the Annual Report on Form 10-K for the year ended December 31, 1993,
File No. 1-1910.)
10(h) -- Grantor Trust Agreement Dated as of July 31, 1994 between Baltimore Gas and Electric
Company and Citibank, N.A.
10(i) -- Constellation Holdings, Inc., Summary of Amended Executive Benefits Plan.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
<S> <C> <C>
*10(j) -- Summary of Constellation Holdings, Inc. Annual Incentive Plan. (Designated as Exhibit No.
10(g) to the Annual Report on Form 10-K for the year ended December 31, 1992, File No.
1-1910.)
*10(k) -- Amended Summary 1992 Long Term Incentive Plan of Constellation Holdings, Inc. (Designated
as Exhibit No. 10(k) to the Annual Report on Form 10-K for the year ended December 31,
1993, File No. 1-1910.)
10(l) -- Summary 1994-96 Long Term Incentive Plan of Constellation Holdings, Inc.
12 -- Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred and Preference Dividend Requirements.
21 -- Subsidiaries of the Registrant.
23 -- Consent of Coopers & Lybrand L.L.P., Independent Auditors (see page 62 in this Form 10-K).
27 -- Financial Data Schedule.
*99(a) -- Indemnification of Directors and Officers of the Company. (Designated as Exhibit No. 28(a)
to the Annual Report on Form 10-K for the year ended December 31, 1988, File No. 1-1910.)
*99(b) -- Corporations and Associations Article, Section 2-418 of the Annotated Code of Maryland.
(Designated as Exhibit 28(b) to the Annual Report on Form 10-K for the year ended December
31, 1987, File No. 1-1910.)
</TABLE>
*Incorporated by Reference.
(b) Reports on Form 10-K: None
63
EXHIBIT 10(a)
BALTIMORE GAS AND ELECTRIC COMPANY
EXECUTIVE BENEFITS PLAN
1. Objective. The objective of this Plan is to enhance the benefits
provided to senior management employees of BGE and its subsidiaries in
order to attract and retain talented executive personnel.
2. Definitions. All words beginning with an initial capital letter
and not otherwise defined herein shall have the meaning set forth in the
Pension Plan. All singular terms defined in this Plan will include the
plural and vice versa. As used herein, the following terms will have the
meaning specified below:
"Annual Base Salary" means an amount determined by adding the monthly
salary amounts earned over the twelve calendar months immediately preceding
the month that includes the date of the computation.
"Average Incentive Award" (or "Average Award") means generally the
product of the percentage equal to an average of the two highest of the
participant s five immediately prior year award percentages under BGE s
Executive Annual Incentive Plan and/or BGE s Manager Annual Incentive Plan
multiplied by the participant s annualized base salary in effect at the end
of the prior year, and is calculated in accordance with procedures approved
by the Committee, that are attached hereto.
"BGE" means Baltimore Gas and Electric Company, a Maryland
corporation, or its successor.
"BGE s Executive Annual Incentive Plan" means such plan or other
incentive plan or arrangement designated in writing by the Plan
Administrator.
"BGE s Manager Annual Incentive Plan" means such plan or other
incentive plan or arrangement designated in writing by the Plan
Administrator.
"Cause" means the participant s (a) failure to comply with BGE policy,
(b) deliberate and continual refusal to satisfactorily perform employment
duties on substantially a full-time basis, (c) deliberate and continual
refusal to act in accordance with any specific instructions of a majority
of BGE s Board of Directors, (d) disclosure, without the consent of a
1
<PAGE>
majority of BGE s Board of Directors, of confidential information or trade
secrets concerning BGE which could be materially damaging to BGE, or (e)
deliberate misconduct which could be materially damaging to BGE without
reasonable good faith belief by the participant that such conduct was in
the best interest of BGE.
"Committee" means the Committee on Management of the Board of
Directors of BGE.
"Demotion" means a transfer to a position with BGE or a subsidiary of
BGE that either (a) is below the substantial equivalent position in which
the participant was employed on the date of transfer, or (b) results in a
substantial reduction in pay when compared to the participant s pay on the
date of the transfer. Whether a position is a substantial equivalent
position shall be determined in the reasonable discretion of the Committee,
with reference to factors including whether the participant retains
principal responsibility for a department or division, and whether the
participant remains eligible for the perquisites enjoyed by the participant
before the position change.
"Interest Rate" means the rate equal to 3.5% plus 65% of yield on the
Lehman Brothers Government/Corporate Bond Index.
"LTD Plan" means the Baltimore Gas and Electric Company Long Term
Disability Plan as may be amended from time to time, or any successor plan.
"Mortality Table" means the mortality table used to value liabilities
for Pension Plan funding purposes.
"Pension Plan" means the Pension Plan of Baltimore Gas and Electric
Company as may be amended from time to time.
"Plan Administrator" means, as set forth in Section 3, the Committee.
"Rabbi Trust" means the trust established by BGE pursuant to the
Grantor Trust Agreement Dated as of July 31, 1994, between BGE and
Citibank, N.A.
"Termination From Employment With BGE" means a participant s
separation from service with BGE or a subsidiary of BGE; however, a
participant s retirement, disability, or transfer of employment to a
subsidiary of BGE shall not constitute a Termination From Employment With
BGE.
2
<PAGE>
3. Plan Administration. The Committee is the Plan Administrator and
has sole authority (except as specified otherwise herein) to interpret the
Plan and, in general, to make all other determinations advisable for the
administration of the Plan to achieve its stated objective. Appeals of
written decisions by the Plan Administrator may be made to the Board of
Directors of BGE. Decisions by the Board shall be final and not subject to
further appeal. The Plan Administrator shall have the power to delegate
all or any part of its duties to one or more designees, and to withdraw
such authority, by written designation.
4. Eligibility. Each member of full-time senior management or key
employee of BGE or its subsidiaries may be designated by the Plan
Administrator as a participant with respect to one or more benefits under
the Plan. Once designated, participation shall continue until such
designation is withdrawn at the discretion and by written order of the
Committee, provided, however, that such withdrawal may not be made for
benefits provided pursuant to Sections 5 and 7 with respect to a
participant who has satisfied the eligibility requirements to retire (as
set forth in Section 5(a)(i)). Notwithstanding the foregoing, any
participant who is disabled under the LTD Plan shall continue to
participate in this Plan while classified as disabled and, for purposes of
the supplemental pension benefit provided by this Plan, while classified as
disabled, shall be deemed to continue to accrue Credited Service until no
later than his/her Normal Retirement Date.
5. Supplemental Pension Benefit
(a) Retirement benefits.
(i) Eligibility for retirement benefits. A participant
shall be eligible to retire under this Plan on or after the participant s
Normal Retirement Date, or on the first day of any month preceding his/her
Normal Retirement Date, if the participant has attained (1) age 55 and has
accumulated at least 20 years of Credited Service; or (2) age 60 and has
accumulated at least one year of Credited Service.
(ii) Computation of retirement benefits. A participant who
is eligible to retire under this Plan will be entitled to supplemental
pension retirement benefits under this Plan, which will be calculated as
set forth below on the participant s Retirement Date:
3
<PAGE>
(1) add the Annual Base Salary and the Average
Incentive Award,
(2) divide the sum by 12,
(3) multiply this dollar amount by the appropriate
percentage, determined as follows: Chairman of the Board and President of
BGE - 60%; all other participants (by completed years of Credited Service)
1 through 9 - 3% per year; 10 through 19 - 40%; 20 through 24 - 45%; 25
through 29 - 50%; and 30 or more - 55%,
(4) multiply this dollar amount by the Early
Retirement Adjustment Factor set forth under the Pension Plan provided,
however, if the participant is age 62 or older and is a member of full-time
senior management or key employee of BGE, other than the Chairman of the
Board or the President of BGE, such factor shall be one (1),
(5) subtract from this dollar amount the charges
relating to coverage for a preretirement survivor annuity in excess of 50%,
and for a post-retirement survivor annuity in excess of 50%, and
(6) subtract from the remainder the net amount payable
to the participant under the Pension Plan.
(iii) Form of payout of retirement benefits. Each
participant entitled to supplemental pension retirement benefits will
receive his/her supplemental pension retirement benefits payout in the form
of a monthly payment, unless the participant makes a valid election to
receive his/her supplemental pension retirement benefits payout in the form
of a lump sum.
A participant may elect to receive his/her supplemental pension
retirement benefits payout in the form of a lump sum by submitting to the
Committee a signed Lump Sum Election Form. The Form must be received by
the Committee before the beginning of the calendar year during which the
participant s Retirement Date occurs. The election may be revoked at any
time before the beginning of the calendar year during which the
participant s Retirement Date occurs, by submitting to the Committee a
signed Lump Sum Revocation Form.
4
<PAGE>
(iv) Amount, timing, and source of monthly retirement
benefit payout. A participant entitled to monthly supplemental pension
retirement benefits will receive monthly payments equal to the amount
determined under paragraph (a)(ii). Such payments shall commence effective
with the participant s Retirement Date. If such participant receives (or
would have received but for the Internal Revenue Code limitations) cost of
living adjustment(s) under the Pension Plan, the monthly payments hereunder
will be automatically increased based on the percentage of, and at the same
time as, such adjustment(s). Monthly payments hereunder shall permanently
cease upon the death of the participant, effective with the monthly payment
for the month following the month of the participant s death. Monthly
payments hereunder shall be made in accordance with the provisions of the
Rabbi Trust and, to the extent not paid under the terms of the Rabbi Trust,
from general corporate assets.
(v) Amount, timing, and source of lump sum retirement benefit
payout. A participant entitled to a lump sum supplemental pension
retirement benefit will receive a lump sum payment. This lump sum payment
will be calculated by a certified actuary and will be equal to the present
value of an immediate annuity including the estimated present value of
post-retirement supplemental survivor annuity benefits described in Section
7, using (1) the supplemental pension retirement benefit amount calculated
under paragraph (a)(ii), which is expressed as a monthly amount, (2) the
Interest Rate computed on the participant s Retirement Date, and (3) the
Mortality Table. Such lump sum payment shall be made within 60 days after
the participant s Retirement Date. The lump sum payment shall be made in
accordance with the provisions of the Rabbi Trust and, to the extent not
paid under the terms of the Rabbi Trust, from general corporate assets. A
participant who receives a lump sum payment shall not be entitled to any
cost of living adjustments or to post-retirement survivor annuity coverage
under the Plan.
(vi) Death of participant entitled to lump sum payout. In the
event of the death of a participant after his/her Retirement Date and
before the participant receives the lump sum payment under paragraph
(a)(v), such lump sum payment shall be made to the participant s surviving
spouse (as defined in Section 7(i)). The lump sum payment shall be the
same amount and made at the same and from the same sources as set forth in
paragraph (a)(v). If there is no surviving spouse at the date of the
participant s death, no payments shall be made pursuant to Sections 5 or 7.
A surviving spouse who receives a lump sum benefit under this paragraph
(a)(vi) shall not be entitled to any cost of living adjustments or to post-
retirement survivor annuity coverage.
5
<PAGE>
(b) Accrued Benefit.
(i) Computation of gross accrued benefit. The computation
of the gross accrued supplemental pension benefit for a participant as of
the date of the computation will be made as follows:
(1) add the Annual Base Salary and the Average
Incentive Award,
(2) divide the sum by 12, and
(3) multiply this dollar amount by the appropriate
percentage, determined as follows: Chairman of the Board and President of
BGE - 60%; all other participants (by completed years of Credited Service
as of the date of the computation) 1 through 9 - 3% per year; 10 through 19
- 40%; 20 through 24 - 45%; 25 through 29 - 50%; and 30 or more - 55%.
(ii) Computation of net accrued benefit. The computation of the
net accrued supplemental pension benefit for a participant as of the date
of the computation will be made by subtracting from the gross accrued
benefit determined under paragraph (b)(i) the amount, computed on the date
a benefit is payable under paragraph (c)(iii), of (1) the participant s
Accrued Gross Pension under the Pension Plan, expressed as a monthly amount
if the participant is not eligible for Normal Retirement, Early Retirement
or Disability Retirement benefits under the Pension Plan, otherwise (2) the
gross amount payable to the participant under the Pension Plan.
(c) Entitlement to benefit upon happening of certain events.
(i) Satisfaction of requirements. A participant who has
satisfied the age and Credited Service requirements set forth in Section
5(a)(i) while eligible as set forth in Section 4, but who does not retire
under the Plan due to Demotion, Termination From Employment With BGE, or
the withdrawal of a participant s eligibility to participate under Section
5, shall be entitled to his/her net accrued supplemental pension benefit.
The effective date of the Demotion, Termination From Employment With BGE,
or eligibility withdrawal event shall be the date of such Demotion,
Termination From Employment With BGE, or eligibility withdrawal.
6
<PAGE>
(ii) Other events. A participant, regardless of his/her age and
years of Credited Service, shall be entitled to his/her net accrued
supplemental pension benefit upon the happening of any of the following
entitlement events, but only if such entitlement event occurs before a
participant retires under this Plan:
(1) Change in control. A change in control, followed
within two years by the participant s Demotion, a participant s Termination
From Employment With BGE, or the withdrawal of the participant s
eligibility to participate under the Plan, is an entitlement event. The
effective date of the entitlement event shall be the date of the Demotion,
Termination From Employment With BGE, or eligibility withdrawal.
A change in control for purposes of this paragraph (c)(i)(1) shall
mean (w) the purchase or acquisition by any person, entity or group of
persons, (within the meaning of section 13(d) or 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), or any comparable successor
provisions), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20 percent or more of either the
outstanding shares of common stock of BGE or the combined voting power of
BGE s then outstanding shares of voting securities entitled to a vote
generally, or (x) the approval by the stockholders of BGE of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were stockholders of BGE immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50 percent of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated entity s then outstanding securities, or (y) a liquidation or
dissolution of BGE or the sale of substantially all of its assets, or (z) a
change of more than one-half of the members of the Board of Directors of
BGE within a 90-day period for reasons other than the death, disability, or
retirement of such members.
(2) Plan amendment. A Plan amendment that has the effect
of reducing a participant s gross accrued supplemental pension benefit is
an entitlement event. In determining whether such a reduction has
occurred, the participant s gross accrued supplemental pension benefit
calculated on the day immediately preceding the effective date of the
amendment shall be compared to the participant s gross accrued supplemental
pension benefit calculated on the effective date of the amendment. An
amendment that has the effect of reducing future benefit accruals is not an
entitlement event. It is intended that an entitlement event under this
7
<PAGE>
paragraph (c)(i)(2) will occur only with respect to those amendments that
are substantially similar to amendments that are prohibited by Internal
Revenue Code section 411(d)(6) with respect to qualified pension plans.
The effective date of the entitlement event shall be the effective date of
the Plan amendment.
(3) Involuntary Demotion, Termination From Employment With
BGE, or eligibility withdrawal without Cause. A participant s involuntary
Demotion or involuntary Termination From Employment With BGE without Cause,
or the withdrawal of a participant s eligibility to participate under
Sections 5 or 7 of the Plan without Cause, is an entitlement event. The
effective date of the entitlement event shall be the effective date of the
participant s involuntary Demotion or involuntary Termination From
Employment With BGE without Cause, or the eligibility withdrawal without
Cause.
(iii) Form of benefit payout. Each participant entitled to a
payout under this paragraph (c) will receive such payout in the form of a
lump sum payment.
(iv) Amount, timing, and source of benefit payout. A
participant entitled to a payout of his/her net accrued benefit, as a
result of the occurrence of an event described in paragraphs (c)(i),
(c)(ii)(1), (2), or (3) will be entitled to a lump sum benefit. This lump
sum benefit will be calculated by a certified actuary as the present value
of an annuity beginning at age 65 (or the participant s actual age, if the
participant is older than age 65 on the date the lump sum benefit is
payable), including the estimated present value of post-retirement survivor
annuity benefits described in Section 7, using (1) the net accrued benefit
amount calculated under paragraph (b)(ii) on the effective date of the
event, which is expressed as a monthly amount, (2) the Early Retirement
Adjustment Factor computed by substituting the date the lump sum benefit is
payable for the Retirement Date, (3) the Interest Rate computed on the date
the lump sum benefit is payable, and (4) the Mortality Table. The lump sum
benefit shall be payable on the date that is the later of the date of the
participant s Termination From Employment With BGE or the date the
participant reaches age 55. The lump sum payment shall be made within 60
days after such date and shall be made in accordance with the provisions of
the Rabbi Trust and, to the extent not paid under the terms of the Rabbi
Trust, from general corporate assets. A participant who receives a lump
sum benefit under this paragraph (c)(iv) shall not be entitled to any cost
of living adjustments or to preretirement or post-retirement survivor
annuity coverage.
8
<PAGE>
(v) Death of participant entitled to lump sum payout. In the
event of the death of a participant after the occurrence of an event
described in paragraphs (c)(i), (c)(ii)(1), (2), or (3) and before the
participant receives the lump sum payment under paragraph (c)(iv), such
lump sum payment shall be made to the participant s surviving spouse (as
defined in Section 7(i)). The lump sum payment will be calculated by a
certified actuary and will be equal to 50% of the present value of an
immediate annuity using (1) the monthly amount under paragraph (c)(iv), (2)
the Early Retirement Adjustment Factor computed using the participant s age
at the date of the participant s death, or if the participant was younger
than age 60 on the date of death, using age 60, (3) the Interest Rate
computed on the date the lump sum benefit is payable, and (4) the Mortality
Table. However, if the participant s death occurred during the 60 day
period described in paragraph (c)(iv), 100% shall be used instead of 50% in
the preceding sentence. The lump sum benefit shall be payable on the date
that is the later of the date that the participant would have reached age
55 or the date of the participant s death. The lump sum payment shall be
made within 60 days after such date, and shall be made in accordance with
the provisions of the Rabbi Trust and, to the extent not paid under the
terms of the Rabbi Trust, from general corporate assets. If there is no
surviving spouse at the date of the participant s death, no payments shall
be made pursuant to Sections 5 or 7. A surviving spouse who receives a
lump sum benefit under this paragraph (c) (v) shall not be entitled to any
cost of living adjustments or to preretirement or post-retirement survivor
annuity coverage.
6. Supplemental Long Term Disability Benefit.
(i) Eligibility for disability benefits. Any participant with
at least one year of Credited Service who is Disabled (as that term is
defined in the LTD Plan) will be entitled to supplemental disability
benefits under this Plan.
(ii) Computation of disability benefits. The amount of such
supplemental disability benefits shall be determined as follows:
(1) multiply the monthly base salary in effect
immediately prior to becoming entitled to benefits under the LTD Plan by
twelve,
(2) add the Average Incentive Award to the product,
(3) divide the sum by 12,
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(4) multiply this monthly dollar amount by the income
replacement percentage applicable under the LTD Plan, and
(5) subtract from the product the gross monthly amount
provided for the participant under the LTD Plan before such amount is
reduced for Offset for Other Income (as that term is defined in the LTD
Plan).
(iii) Form of payment of disability benefits. Each participant
entitled to supplemental disability benefits will receive his/her
supplemental disability benefit payout in the form of a monthly payment.
(iv) Amount, timing, and source of monthly disability benefit
payout. A participant entitled to supplemental disability benefits will
receive a monthly payment equal to the amount determined under (ii) above.
Such payments shall commence effective with the expiration of the
participant s BGE-provided sickness benefits. Monthly payments shall
permanently cease when benefits under the LTD Plan cease.
If a participant receiving payments pursuant to this Section 6
receives cost of living adjustment(s) under the LTD Plan, the payments
hereunder will be automatically increased based on the same percentage of,
and at the same time as, such adjustment(s). Monthly payments shall be
made from BGE s general corporate assets.
7. Supplemental 50% Survivor Annuity Benefit.
(i) Eligibility for survivor annuity benefit. Following
the death of a participant, a supplemental survivor annuity will be paid to
the participant s surviving spouse until the death of that spouse. For
purposes of this Section 7, a participant s surviving spouse is the
individual married to the participant on the date of the participant s
death. If there is no surviving spouse, or if the participant or the
participant s spouse previously received or is entitled to receive a lump
sum payment under Section 5, no supplemental survivor annuity will be
payable.
(ii) Computation of survivor annuity benefit. The amount of
the supplemental survivor annuity will be determined as follows:
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<PAGE>
(1) if the participant had retired prior to the date
of death, begin with the monthly pension benefit (under both the Pension
Plan and Section 5 of this Plan) that the participant was receiving prior
to the date of death. Otherwise, begin with the larger of the Early
Retirement pension benefit (under both the Pension Plan and Section 5 of
this Plan) to which the participant would have been entitled to receive if
the (A) participant had been retired at age 60 on the date of death for
purposes of computing the Early Retirement Adjustment Factor, or B)
participant had retired on the date of death for purposes of computing the
Early Retirement Adjustment Factor,
(2) multiply this dollar amount by .5, and
(3) subtract from the product the net amount, if any,
of the survivor annuity provided on behalf of the participant under the
Pension Plan.
(iii) Form of payout of survivor annuity benefits. Each
surviving spouse entitled to a supplemental survivor annuity benefit will
receive his/her survivor annuity benefit payout in the form of a monthly
payment.
(iv) Amount, timing, and source of monthly survivor annuity
benefit payout. A surviving spouse entitled to monthly supplemental
survivor annuity benefits will receive a monthly payment equal to the
amount determined under (ii) above. Such payments shall commence effective
with the first day of the month following the month of the participant s
death. If such surviving spouse receives (or would have received but for
the Internal Revenue Code limitations) cost of living adjustment(s) under
the Pension Plan, the monthly payments hereunder will be automatically
increased based on the percentage of, and at the same time as, such
adjustment(s). Monthly payments shall permanently cease upon the death of
the surviving spouse, effective with the monthly payment for the month
following the month of the surviving spouse s death. Monthly payments
shall be made in accordance with the provisions of the Rabbi Trust and, to
the extent not paid under the terms of the Rabbi Trust, from general
corporate assets.
8. Death Benefit. BGE shall make arrangements, through its split-
dollar life insurance program or otherwise, for life insurance coverage for
each participant providing that the participant s beneficiary shall
receive, as a pre-rollout death benefit, an amount which is approximately
equal to three times the participant s compensation, and as a post-rollout
benefit, an amount which is approximately equal to two times the
participant s compensation, as set forth in a separate agreement between
BGE and the participant.
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<PAGE>
As determined in the sole discretion of the Plan Administrator, in the
event that either (i) a participant is ineligible to receive the type of
life insurance coverage provided to other participants under this Plan, or
(ii) such coverage is not available on reasonably cost-effective terms as a
result of any penalty for smoking or other factors that are reflected in
the insurance carrier s rates, then BGE shall provide a benefit that, in
the discretion of the Plan Administrator, is substantially equivalent to
the cost of the benefit provided to other participants under this Plan.
9. Dependent Death Benefit. In the event of the death of a
participant s qualified dependent while the participant is an active
employee of BGE, BGE shall make a death benefit payment to the participant,
from general corporate assets. For purposes of this Section 9, qualified
dependent shall have the same meaning as set forth in the Family Life
Insurance Plan. For purposes of this Section 9, the amount of the death
benefit payment shall be the highest amount of insurance that would have
been payable with respect to such qualified dependent if coverage had been
provided under the Family Life Insurance Plan. The dependent death benefit
payment under this Plan shall be grossed-up to provide for income taxes.
10. Sickness Benefit. Each participant, without regard to length of
service, shall be entitled to the greater of the benefits stipulated under
the BGE sick benefit policy for employees or twenty-six (26) weeks of sick
benefits.
11. Vacation Benefit. Each participant, without regard to length of
service, shall be entitled to the greater of the benefits stipulated under
the BGE vacation benefit policy for employees or five weeks of paid
vacation.
12. Planning Benefit. Each participant shall be entitled to certain
personal financial, tax, and estate planning services paid for by BGE but
provided through designated professional firms. This entitlement shall be
subject to any dollar limitation established by the Committee with respect
to all such fees. The services shall be provided to each participant by
the chosen firm(s) on a personalized and confidential basis; and each firm
shall have sole responsibility for quality of the services which it may
render.
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<PAGE>
The services to be provided shall be on an on-going and continuous
basis, but shall be limited to (i) the development and legal documentation
of both career-oriented financial plans and personal estate plans, and (ii)
tax counseling regarding personal tax-return preparation and the most
advantageous structuring, tax-wise, of proposed personal transactions.
Such planning benefit shall continue during the year of retirement
plus the next two calendar years and include the completion of the federal
and state personal tax returns for the second calendar year following
retirement. However, if a retired member of senior management continues to
serve as a member of the Board of Directors of BGE, his/her planning
benefit period shall be extended until he/she no longer serves as a member
of the Board of Directors.
Upon the death of a participant entitled to the planning benefit
provided hereunder, his/her surviving spouse shall be entitled to receive
the following planning benefit: (i) if the deceased was not retired at the
time of death, the surviving spouse shall be entitled to the planning
benefit for the year in which the death occurred plus the next two calendar
years, including completion of the federal and state personal tax returns
for the second calendar year after the year in which the death occurred; or
(ii) if the deceased was retired at the time of death, then the surviving
spouse shall receive a planning benefit equal to that the deceased would
have received if he/she had not died prior to expiration of the planning
benefit. The surviving spouse of a retired member of senior management
whose death occurs while serving as a member of the Board of Directors of
BGE, shall be entitled to a planning benefit as set forth in (i) above.
The planning benefit provided under this Plan shall be grossed-up to
provide for income taxes.
13. Miscellaneous. None of the benefits provided under this Plan
shall be subject to alienation or assignment by any participant or
beneficiary nor shall any of them be subject to attachment or garnishment
or other legal process except (i) to the extent specially mandated and
directed by applicable State or Federal statute; (ii) as requested by the
participant or beneficiary to satisfy income tax withholding or liability;
and (iii) any policy of insurance written by a commercial carrier on a
split-dollar basis shall be assignable.
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<PAGE>
This Plan may be amended from time to time, or suspended or terminated
at any time, provided, however, that no amendment or termination shall
reduce any previously accrued supplemental pension benefit under this Plan
or prejudice the rights of any participant or beneficiary entitled to
receive payment hereunder at the time of such action. All amendments to
this Plan which would increase or decrease the compensation of any Officer
of BGE, either directly or indirectly, must be approved by the Board of
Directors. All other permissible amendments may be made at the written
direction of the Committee.
Participation in this Plan shall not constitute a contract of
employment between BGE and any person and shall not be deemed to be
consideration for, or a condition of, continued employment of any person.
The Plan, notwithstanding the creation of the Rabbi Trust, is intended
to be unfunded for purposes of Title I of the Employee Retirement Security
Act of 1974. BGE shall make contributions to the Rabbi Trust in accordance
with the terms of the Rabbi Trust. Any funds which may be invested and any
assets which may be held to provide benefits under this Plan shall continue
for all purposes to be a part of the general funds and assets of BGE and no
person other than BGE shall by virtue of the provisions of this Plan have
any interest in such funds and assets. To the extent that any person
acquires a right to receive payments from BGE under this Plan, such rights
shall be no greater than the right of any unsecured general creditor of
BGE.
This Plan shall be governed in all respects by Maryland law.
14
<PAGE>
Executive Benefits Plan
Procedures
Computation of Average Incentive Award
Average Incentive Award is the product of the annualized prior year,
year end base salary multiplied by the greater of the following:
(i) a fraction, the numerator of which is expressed as
a percentage and is equal to the sum of the two highest of
the percentages of the applicable annualized year end
base salary awarded to the participant under BGE's Executive
Annual Incentive Plan during the participant's most recent
five calendar years of participation thereunder (or such
shorter period, if applicable, as set forth below), and
the denominator of which is 2 (reduced, if applicable,
as set forth below), or
(ii) a fraction, the numerator of which is expressed as
a percentage and is equal to the sum of the two highest of
the percentages of the applicable annualized base salary
awarded to the participant under either BGE's Executive Annual
Incentive Plan or BGE's Manager Annual Incentive
Plan (collectively referred to as Incentive Plans) during
the participant's most recent five calendar years of
participation thereunder (or such shorter period, if
applicable, as set forth below), and the denominator of
which is 2 (reduced, if applicable, as set forth below),
provided that
- for purposes of (i) and (ii), the year that the participant
separates from service due to retirement, disability,
or other termination of employment with BGE shall be
completely disregarded, therefore, the computation of the
Average Award shall generally be made, except as otherwise
provided herein, by taking into consideration the five
years preceding the year of such separation from service, and
- for purposes of (i) and (ii), no consideration shall be
given, in the numerator and the denominator, to any
year (or for purposes of (ii), part of a year) for which
awards were not made under the applicable Incentive Plans,
and
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<PAGE>
- for purposes of (i) and (ii), consideration shall be given,
in both the numerator and the denominator, to any year
(or for purposes of (ii), part of a year) for which awards
were made to one or more participants under the
applicable Incentive Plans, even though the participant did
not receive an award, and
- for purposes of (i), and for purposes of (ii) except as
provided below, no consideration shall be given, in the
numerator and in the denominator, to any year during which the
participant is deemed to have participated under the
applicable Incentive Plans for less than the full year,
notwithstanding the fact that the participant may have
received a reduced award based upon participation for
some portion of that year, and
- for purposes of (ii), consideration shall be given to a
year during which a participant had participated in
both Incentive Plans, however, the numerator with respect to
such year shall equal the sum of the actual percentage award
under BGE's Executive Annual Incentive Plan (expressed as a
percentage of the applicable annualized year end base salary
as a member of senior management) plus the actual percentage
award under BGE's Manager Annual Incentive Plan (expressed
as a percentage of annualized final base salary as a
manager).
Date: March 17, 1995
16
EXHIBIT 10(c)
Baltimore Gas and Electric Company
1995 Long-Term Incentive Plan
(Plan)
[Subject to Shareholder Approval]
1. Objective. The objective of this Plan is to increase shareholder
value by providing a long-term incentive to reward officers and key
employees of BGE and its Subsidiaries, who are mainly responsible for
the continued growth, development, and financial success of BGE and
its Subsidiaries, for the continued profitable performance of BGE and
its subsidiaries. The Plan is also designed to permit BGE and its
Subsidiaries to retain talented and motivated officers and key
employees and to increase their ownership of BGE common stock.
2. Definitions. All singular terms defined in this Plan will include the
plural and vice versa. As used herein, the following terms will have
the meaning specified below:
"Award" means individually or collectively, Restricted Stock, Options,
Performance Units, Stock Appreciation Rights, or Dividend Equivalents
granted under this Plan.
"BGE" means Baltimore Gas and Electric Company, a Maryland
corporation, or its successor, including any "New Company" as provided
in Section 14I.
"Board" means the Board of Directors of BGE.
"Book Value" means the book value of a share of Stock
determined in accordance with BGE's regular accounting
practices as of the last business day of the month
immediately preceding the month in which a Stock
Appreciation Right is exercised as provided in Section 10.
"Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code will be
deemed to include any amendments or successor provisions to
such section and any regulations promulgated thereunder.
"Committee" means the Committee on Management of the Board,
provided, however, that if such Committee fails to satisfy
the disinterested administration provisions of Section 16b-3
of the 1934 Act, "Committee shall mean a committee of
directors of BGE who satisfy the disinterested person
requirements of such Section.
"Date of Grant" means the date on which the granting of an
Award is authorized by the Committee or such later date as
may be specified by the Committee in such authorization.
"Date of Retirement" means the date of Retirement or Early
Retirement.
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<PAGE>
"Disability" means the determination that a Participant is
"disabled" under the BGE disability plan in effect at that
time.
"Dividend Equivalent" means an award granted under Section
11.
"Early Retirement" means retirement prior to the
Normal Retirement Date.
"Earned Performance Award" means an actual award of a
specified number of Performance Units (or shares of
Restricted Stock, as the context requires) which the
Committee has determined have been earned and are payable
(or, in the case of Restricted Stock, earned and with
respect to which restrictions will lapse) for a particular
Performance Period.
"Eligible Employee" means any person employed by BGE or a
Subsidiary on a regularly scheduled basis who satisfies all
of the requirements of Section 5.
"Exercise Period" means the period or periods during
which a Stock Appreciation Right is exercisable as
described in Section 10.
"Fair Market Value" means the average of the highest and
lowest price at which the Stock was sold regular way on the
New York Stock Exchange-Composite Transactions on a
specified date.
"Incentive Stock Option" means an incentive stock option
within the meaning of Section 422 of the Code.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"Normal Retirement Date" is the retirement date as described
in the Pension Plan or a Subsidiary's retirement or pension
plan.
"Option" or "Stock Option" means either a nonqualified stock
option or an incentive stock option granted under Section 8.
"Option Period" or "Option Periods" means the period or
periods during which an Option is exercisable as
described in Section 8.
"Participant" means an employee of BGE or a Subsidiary
who has been granted an Award under this Plan.
"Pension Plan" means the Pension Plan of Baltimore Gas
and Electric Company as may be amended from time to time.
"Performance-Based" means that in determining the amount of
a Restricted Stock Award payout, the Committee will take
into account the performance of the Participant, BGE, one or
more Subsidiaries, or any combination thereof.
"Performance Period" means a period of time, established
by the Committee at the time an Award is granted, during
which corporate and/or individual performance is
measured.
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<PAGE>
"Performance Unit" means a unit of measurement equivalent to
such amount or measure as defined by the Committee which may
include, but is not limited to, dollars, market value
shares, or book value shares.
"Plan Administrator" means, as set forth in Section 4, the
Committee.
"Restricted Stock" means an Award granted under Section 7.
"Retirement" means retirement on or after the "Normal
Retirement Date" (as such term is defined in the Pension
Plan or a Subsidiary's retirement or pension plan).
"Service-Based" means that in determining the amount of a
Restricted Stock Award payout, the Committee will take into
account only the period of time that the Participant
performed services for BGE or its Subsidiaries since the
Date of Grant.
"Stock" means the common stock, without par value, of BGE.
"Stock Appreciation Right" means an Award granted under
Section 10.
"Subsidiary(ies)" means any corporation of which 20% or more
of its outstanding voting stock or voting power is
beneficially owned, directly or indirectly, by BGE.
"Target Performance Award" means a targeted award of a
specified number of Performance Units (or shares of
Restricted Stock, as the context requires) which may be
earned and payable (or, in the case of Restricted Stock,
earned and with respect to which restrictions will lapse)
based upon the performance objectives for a particular
Performance Period, all as determined by the Committee. The
Target Performance Award will be a factor in the Committee's
ultimate determination of the Earned Performance Award.
"Termination" means resignation or discharge from employment
with BGE or any of its Subsidiaries except in the event of
death, Disability, Retirement or Early Retirement.
3. Effective Date, Duration and Stockholder Approval.
A. Effective Date and Stockholder Approval. Subject to the approval
of the Plan by a majority of the outstanding shares of Stock voted
at the 1995 Annual Meeting of Stockholders, the Plan will be
effective as of January 1, 1995.
B. Period for Grants of Awards. Awards may be made as provided herein
for a period of 10 years after January 1, 1995.
C. Termination. The Plan will continue in effect until all matters
relating to the payment of outstanding Awards and administration of
the Plan have been settled.
4. Plan Administration. The Committee is the Plan Administrator and
has sole authority (except as specified otherwise herein) to
determine all questions of interpretation and application of the
3
<PAGE>
Plan, or of the terms and conditions pursuant to which Awards are
granted, exercised or forfeited under the Plan provisions, and, in
general, to make all determinations advisable for the
administration of the Plan to achieve its stated objective. Such
determinations shall be final and not subject to further appeal.
5. Eligibility. Each officer or key employee of BGE and its
Subsidiaries (including officers or employees who are members of
the Board, but excluding directors who are not officers or
employees) may be designated by the Committee as a Participant,
from time to time, with respect to one or more Awards. No officer
or employee of BGE or its Subsidiaries shall have any right to be
granted an Award under this Plan.
6. Grant of Awards and Limitation of Number of Shares Awarded. The
Committee may, from time to time, grant Awards to one or more
Eligible Employees, provided that (i) subject to any adjustment
pursuant to Section 14H, the aggregate number of shares of Stock
subject to Awards under this Plan may not exceed three million
(3,000,000) shares; (ii) to the extent that an Award lapses or the
rights of the Participant to whom it was granted terminate, any
shares of Stock subject to such Award shall again be available for
the grant of an Award under the Plan; and (iii) shares delivered by
BGE under the Plan may be authorized and unissued Stock, Stock held
in the treasury of BGE, or Stock purchased on the open market
(including private purchases) in accordance with applicable
securities laws.
7. Restricted Stock Awards.
A. Grants of Restricted Shares. One or more shares of Restricted
Stock may be granted to any Eligible Employee. The Restricted Stock
will be issued to the Participant on the Date of Grant without the
payment of consideration by the Participant. The Restricted Stock
will be issued in the name of the Participant and will bear a
restrictive legend prohibiting sale, transfer, pledge or
hypothecation of the Restricted Stock until the expiration of the
restriction period.
The Committee may also impose such other restrictions and
conditions on the Restricted Stock as it deems appropriate, and
will designate the grant as either a Service-Based or
Performance-Based Award.
Upon issuance to the Participant of the Restricted Stock, the
Participant will have the right to vote the Restricted Stock, and
subject to the Committee's discretion, to receive the cash
dividends distributable with respect to such shares, with such
dividends treated as compensation to the Participant. The
Committee, in its sole discretion, may direct the accumulation and
payment of distributable dividends to the Participant at such
times, and in such form and manner, as determined by the Committee.
4
<PAGE>
B. Service-Based Award.
i. Restriction Period. At the time a
Service-Based Restricted Stock Award is granted, the Committee will
establish a restriction period applicable to such Award which will
be not less than one year and not more than ten years. Each
Restricted Stock Award may have a different restriction period, at
the discretion of the Committee.
ii. Forfeiture or Payout of Award. In the event a Participant
ceases employment during a restriction period, a Restricted Stock
Award is subject to forfeiture or payout (i.e., removal of
restrictions) as follows: (a) Termination - the Restricted Stock Award
is completely forfeited; (b) Retirement, Disability or death - payout
of the Restricted Stock Award is prorated for service during the
period; or (c) Early Retirement - if at the Participant's request, the
payout or forfeiture of the Restricted Stock Award is determined at
the discretion of the Committee, or if at BGE's request, payout of the
Restricted Stock Award is prorated for service during the period;
provided, however, that the Committee may modify the above if it
determines at its sole discretion that special circumstances warrant
such modification.
Any shares of Restricted Stock which are forfeited will be
transferred to BGE.
Upon completion of the restriction period, all Award
restrictions will expire and new certificates representing
the Award will be issued (the payout) without the
restrictive legend described in Section 7A.
C. Performance-Based Award.
i. Restriction Period. At the time a Performance-
Based Restricted Stock Award is granted, the Committee will
establish a restriction period applicable to such Award
which will be not less than one year and not more than ten
years. Each Restricted Stock Award may have a different
restriction period, at the discretion of the Committee. The
Committee will also establish a Performance Period.
ii. Performance Objectives. The Committee will
determine, no later than 90 days after the beginning of each
Performance Period, the performance objectives for each
Participant's Target Performance Award and the number of shares of
Restricted Stock for each Target Performance Award that will be
issued on the Date of Grant. Performance objectives may vary from
Participant to Participant and will be based upon such performance
criteria or combination of factors as the Committee deems
appropriate, which may include, but not be limited to, the
performance of the Participant, BGE, one or more Subsidiaries, or
any combination thereof. Performance Periods may overlap and
Participants may participate simultaneously with respect to
Performance-Based Restricted Stock Awards for which different
Performance Periods are prescribed.
5
<PAGE>
If, during the course of a Performance Period significant
events occur as determined in the sole discretion of the
Committee, which the Committee expects to have a substantial
effect on a performance objective during such period, the
Committee may revise such objective.
iii. Forfeiture or Payout of Award. As soon as practicable
after the end of each Performance Period, the Committee will
determine whether the performance objectives and other material
terms of the Award were satisfied. The Committee's determination
of all such matters will be final and conclusive.
As soon as practicable after the later of (i) the date the
Committee makes the above determination, or (ii) the completion of
the restriction period, the Committee will determine the Earned
Performance Award for each Participant. Such determination may
result in forfeiture of all or some shares of Restricted Stock (if
Target Performance Award performance objectives were not attained),
or the issuance of additional shares of Stock (if Target
Performance Award performance objectives were exceeded), and will
be based upon such factors as the Committee determines at its sole
discretion, but including the Target Performance Award performance
objectives.
In the event a Participant ceases employment during a restriction
period, the Restricted Stock Award is subject to forfeiture or
payout (i.e., removal of restrictions) as follows: (a) Termination
- the Restricted Stock Award is completely forfeited; (b)
Retirement, Disability or death - payout of the Restricted Stock
Award is prorated taking into account factors including, but not
limited to, service during the period; and the performance of the
Participant during the portion of the Performance Period before
employment ceased; or (c) Early Retirement - if at the
Participant's request, the payout or forfeiture of the Restricted
Stock Award is determined at the discretion of the Committee, or if
at BGE's request, payout of the Restricted Stock Award is prorated
taking into account factors including, but not limited to, service
during the period and the performance of the Participant during the
portion of the Performance Period before employment ceased;
provided, however, that the Committee may modify the above if it
determines at its sole discretion that special circumstances
warrant such modification.
Any shares of Restricted Stock which are forfeited will be
transferred to BGE.
With respect to shares of Restricted Stock for which restrictions
lapse, new certificates will be issued (the payout) without the
restrictive legend described in Section 7A. New certificates will
also be issued for additional Stock, if any, awarded to the
Participant because Target Performance Award performance objectives
were exceeded.
D. Waiver of Section 83(b) Election. Unless otherwise
directed by the Committee, as a condition of receiving an
Award of Restricted Stock, a Participant must waive in
writing the right to make an election under Section 83(b) of
the Code to report the value of the Restricted Stock as
income on the Date of Grant.
6
<PAGE>
8. Stock Options.
A. Grants of Options. One or more Options may be granted
to any Eligible Employee on the Date of Grant without the
payment of consideration by the Participant.
B. Stock Option Agreement. Each Option granted under the
Plan will be evidenced by a "Stock Option Agreement" between
BGE and the Participant containing provisions determined by
the Committee, including, without limitation, provisions to
qualify Incentive Stock Options as such under Section 422 of
the Code if directed by the Committee at the Date of Grant;
provided, however, that each Incentive Stock Option
Agreement must include the following terms and conditions:
(i) that the Options are exercisable, either in total or in
part, with a partial exercise not affecting the
exercisability of the balance of the Option; (ii) every
share of Stock purchased through the exercise of an Option
will be paid for in full at the time of the exercise; (iii)
each Option will cease to be exercisable, as to any share of
Stock, at the earliest of (a) the Participant's purchase of
the Stock to which the Option relates, (b) the Participant's
exercise of a related Stock Appreciation Right, or (c) the
lapse of the Option; (iv) Options will not be transferable
by the Participant except by Will or the laws of descent and
distribution and will be exercisable during the
Participant's lifetime only by the Participant or by the
Participant's guardian or legal representative; and (v)
notwithstanding any other provision, in the event of a
public tender for all or any portion of the Stock or in the
event that any proposal to merge or consolidate BGE with
another company is submitted to the stockholders of BGE for
a vote, the Committee, in its sole discretion, may declare
any previously granted Option to be immediately exercisable.
C. Option Price. The Option price per share of Stock will
be set by the grant, but will be not less than 100% of the
Fair Market Value at the Date of Grant.
D. Form of Payment. At the time of the exercise of the
Option, the Option price will be payable in cash or in other
shares of Stock or in a combination of cash and other shares
of Stock, in a form and manner as required by the Committee
in its sole discretion. When Stock is used in full or
partial payment of the Option price, it will be valued at
the Fair Market Value on the date the Option is exercised.
E. Other Terms and Conditions. The Option will become
exercisable in such manner and within such Option Period or
Periods, not to exceed 10 years from its Date of Grant, as set
forth in the Stock Option Agreement upon payment in full. Except
as otherwise provided in this Plan or in the Stock Option
Agreement, any Option may be exercised in whole or in part at any
time.
F. Lapse of Option. An Option will lapse upon the earlier
of: (i) 10 years from the Date of Grant, or (ii) at the
expiration of the Option Period set by the grant. If the
Participant ceases employment within the Option Period and
prior to the lapse of the Option, the Option will lapse as
follows: (a) Termination - the Option will lapse on the
effective date of the Termination; or (b) Retirement, Early
7
<PAGE>
Retirement, or Disability - the Option will lapse at the
expiration of the Option Period set by the grant; provided,
however, that the Committee may modify the above if it
determines in its sole discretion that special circumstances
warrant such modification. If the Participant dies within
the Option Period and prior to the lapse of the Option, the
Option will lapse at the expiration of the Option Period set
by the grant unless it is exercised before such time by the
Participant's legal representative(s) or by the person(s)
entitled to do so under the Participant's Will or, if the
Participant fails to make testamentary disposition of the
Option or dies intestate, by the person(s) entitled to
receive the Option under the applicable laws of descent and
distribution.
G. Individual Limitation. In the case of an Incentive
Stock Option, the aggregate Fair Market Value of the Stock
for which Incentive Stock Options (whether under this Plan
or another arrangement) in any calendar year are first
exercisable will not exceed $100,000 with respect to such
calendar year (or such other individual limit as may be in
effect under the Code on the Date of Grant) plus any unused
portion of such limit as the Code may permit to be carried
over.
9. Performance Units.
A. Performance Units. One or more Performance Units may
be earned by an Eligible Employee based on the achievement
of preestablished performance objectives during a
Performance Period.
B. Performance Period and Performance Objectives. The
Committee will determine a Performance Period and will
determine, no later than 90 days after the beginning of each
Performance Period, the performance objectives for each
Participant's Target Performance Award and the number of
Performance Units subject to each Target Performance Award.
Performance objectives may vary from Participant to Participant and
will be based upon such performance criteria or combination of
factors as the Committee deems appropriate, which may include, but
not be limited to, the performance of the Participant, BGE, one or
more Subsidiaries, or any combination thereof. Performance Periods
may overlap and Participants may participate simultaneously with
respect to Performance Units for which different Performance
Periods are prescribed.
If during the course of a Performance Period significant events
occur as determined in the sole discretion of the Committee which
the Committee expects to have a substantial effect on a performance
objective during such period, the Committee may revise such
objective.
C. Forfeiture or Payout of Award. As soon as practicable after
the end of each Performance Period, the Committee will determine
whether the performance objectives and other material terms of the
Award were satisfied. The Committee's determination of all such
matters will be final and conclusive.
As soon as practicable after the date the Committee makes the above
determination, the Committee will determine the Earned Performance
Award for each Participant. Such determination may result in an
increase or decrease in the number of Performance Units payable
8
<PAGE>
based upon such Participant's Target Performance Award, and will be
based upon such factors as the Committee determines in its sole
discretion, but including the Target Performance Award performance
objectives.
In the event a Participant ceases employment during a Performance
Period, the Performance Unit Award is subject to forfeiture or
payout as follows: (a) Termination - the Performance Unit Award is
completely forfeited; (b) Retirement, Disability or death - payout
of the Performance Unit Award is prorated taking into account
factors including, but not limited to, service and the performance
of the Participant during the portion of the Performance Period
before employment ceased; or (c) Early Retirement - if at the
Participant's request, the payout or forfeiture of the Performance
Unit Award is determined at the discretion of the Committee, or if
at BGE's request, payout of the Performance Unit Award is prorated
taking into account factors including, but not limited to, service
and the performance of the Participant during the portion of the
Performance Period before employment ceased; provided, however,
that the Committee may modify the above if it determines in its
sole discretion that special circumstances warrant such
modification.
D. Form and Timing of Payment. Each Performance Unit is payable
in cash or shares of Stock or in a combination of cash and Stock,
as determined by the Committee in its sole discretion. Such
payment will be made as soon as practicable after the Earned
Performance Award is determined.
10. Stock Appreciation Rights.
A. Grants of Stock Appreciation Rights. Stock Appreciation
Rights may be granted under the Plan in conjunction with an Option
either at the Date of Grant or by amendment or may be separately
granted. Stock Appreciation Rights will be subject to such terms
and conditions not inconsistent with the Plan as the Committee may
impose.
B. Right to Exercise; Exercise Period. A Stock Appreciation Right
issued pursuant to an Option will be exercisable to the extent the
Option is exercisable; both such Stock Appreciation Right and the
Option to which it relates will not be exercisable during the six
months following their respective Dates of Grant except in the
event of the Participant's Disability or death. A Stock
Appreciation Right issued independent of an Option will be
exercisable pursuant to such terms and conditions established in
the grant. Notwithstanding such terms and conditions, in the event
of a public tender for all or any portion of the Stock or in the
event that any proposal to merge or consolidate BGE with another
company is submitted to the stockholders of BGE for a vote, the
Committee, in its sole discretion, may declare any previously
granted Stock Appreciation Right immediately exercisable.
C. Failure to Exercise. If on the last day of the Option Period,
in the case of a Stock Appreciation Right granted pursuant to an
Option, or the specified Exercise Period, in the case of a Stock
Appreciation Right issued independent of an Option, the Participant
has not exercised a Stock Appreciation Right, then such Stock
Appreciation Right will be deemed to have been exercised by the
Participant on the last day of the Option Period or Exercise
Period.
9
<PAGE>
D. Payment. An exercisable Stock Appreciation Right granted
pursuant to an Option will entitle the Participant to surrender
unexercised the Option or any portion thereof to which the Stock
Appreciation Right is attached, and to receive in exchange for the
Stock Appreciation Right payment (in cash or Stock or a combination
thereof as described below) equal to either of the following
amounts, determined in the sole discretion of the Committee at the
Date of Grant: (1) the excess of the Fair Market Value of one share
of Stock at the date of exercise over the Option price, times the
number of shares called for by the Stock Appreciation Right (or
portion thereof) which is so surrendered, or (2) the excess of the
Book Value of one share of Stock at the date of exercise over the
Book Value of one share of Stock at the Date of Grant of the
related Option, times the number of shares called for by the Stock
Appreciation Right. Upon exercise of a Stock Appreciation Right
not granted pursuant to an Option, the Participant will receive for
each Stock Appreciation Right payment (in cash or Stock or a
combination thereof as described below) equal to either of the
following amounts, determined in the sole discretion of the
Committee at the Date of Grant: (1) the excess of the Fair Market
Value of one share of Stock at the date of exercise over the Fair
Market Value of one share of Stock at the Date of Grant of the
Stock Appreciation Right, times the number of shares called for by
the Stock Appreciation Right, or (2) the excess of the Book Value
of one share of Stock at the date of exercise of the Stock
Appreciation Right over the Book Value of one share of Stock at the
Date of Grant of the Stock Appreciation Right, times the number of
shares called for by the Stock Appreciation Right.
The Committee may direct the payment in settlement of the Stock
Appreciation Right to be in cash or Stock or a combination thereof.
Alternatively, the Committee may permit the Participant to elect to
receive cash in full or partial settlement of the Stock
Appreciation Right, provided that (i) the Committee must consent to
or disapprove such election and (ii) unless the Committee directs
otherwise, the election and the exercise must be made during the
period beginning on the 3rd business day following the date of
public release of quarterly or year-end earnings and ending on the
12th business day following the date of public release of quarterly
or year-end earnings. The value of the Stock to be received upon
exercise of a Stock Appreciation Right shall be the Fair Market
Value of the Stock on the trading day preceding the date on which
the Stock Appreciation Right is exercised. To the extent that a
Stock Appreciation Right issued pursuant to an Option is exercised,
such Option shall be deemed to have been exercised, and shall not
be deemed to have lapsed.
E. Nontransferable. A Stock Appreciation Right will not be
transferable by the Participant except by Will or the laws of
descent and distribution and will be exercisable during the
Participant's lifetime only by the Participant or by the
Participant's guardian or legal representative.
F. Lapse of a Stock Appreciation Right. A Stock Appreciation
Right will lapse upon the earlier of: (i) 10 years from the Date
of Grant; or (ii) at the expiration of the Exercise Period as set
10
<PAGE>
by the grant. If the Participant ceases employment within the
Exercise Period and prior to the lapse of the Stock Appreciation
Right, the Stock Appreciation Right will lapse as follows: (a)
Termination - the Stock Appreciation Right will lapse on the
effective date of the Termination; or (b) Retirement, Early
Retirement, or Disability - the Stock Appreciation Right will lapse
at the expiration of the Exercise Period set by the grant;
provided, however, that the Committee may modify the above if it
determines in its sole discretion that special circumstances
warrant such modification. If the Participant dies within the
Exercise Period and prior to the lapse of the Stock Appreciation
Right, the Stock Appreciation Right will lapse at the expiration of
the Exercise Period set by the grant unless it is exercised before
such time by the Participant's legal representative(s) or by the
person(s) entitled to do so under the Participant's Will or, if the
Participant fails to make testamentary disposition of the Stock
Appreciation Right or dies intestate, by the person(s) entitled to
receive the Stock Appreciation Right under the applicable laws of
descent and distribution.
11. Dividend Equivalents.
A. Grants of Dividend Equivalents. Dividend Equivalents may be
granted under the Plan in conjunction with an Option or a
separately awarded Stock Appreciation Right, at the Date of Grant
or by amendment, without consideration by the Participant.
Dividend Equivalents may also be granted under the Plan in
conjunction with Performance Units, at any time during the
Performance Period, without consideration by the Participant.
Dividend Equivalents will be granted under a Performance-Based
Restricted Stock Award in conjunction with additional shares of
Stock issued if Target Performance Award performance objectives are
exceeded.
B. Payment. Each Dividend Equivalent will entitle the
Participant to receive an amount equal to the dividend
actually paid with respect to a share of Stock on each
dividend payment date from the Date of Grant to the date the
Dividend Equivalent lapses as set forth in Section 11D. The
Committee, in its sole discretion, may direct the payment of
such amount at such times and in such form and manner as
determined by the Committee.
C. Nontransferable. A Dividend Equivalent will not be
transferable by the Participant.
D. Lapse of a Dividend Equivalent. Each Dividend
Equivalent will lapse on the earlier of (i) the date of the
lapse of the related Option or Stock Appreciation Right;
(ii) the date of the exercise of the related Option or Stock
Appreciation Right; (iii) the end of the Performance Period
(or if earlier, the date the Participant ceases employment)
of the related Performance Units or Performance-Based
Restricted Stock Award; or (iv) the lapse date established
by the Committee on the Date of Grant of the Dividend
Equivalent.
11
<PAGE>
12. Accelerated Award Payout/Exercise.
A. Change in Control. Notwithstanding anything in this Plan
document to the contrary, a Participant is entitled to an accelerated
payout or accelerated Option or Exercise Period (as set forth in
Section 12B) with respect to any previously granted Award, upon the
happening of a change in control.
A change in control for purposes of this Section 12 means (i) the
purchase or acquisition by any person, entity or group of persons,
(within the meaning of section 13(d) or 14(d) of the 1934 Act, or any
comparable successor provisions), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of 20 percent or
more of either the outstanding shares of common stock of BGE or the
combined voting power of BGE's then outstanding shares of voting
securities entitled to a vote generally, or (ii) the approval by the
stockholders of BGE of a reorganization, merger, or consolidation, in
each case, with respect to which persons who were stockholders of BGE
immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50 percent of the combined
voting power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated entity's then outstanding
securities, or (iii) a liquidation or dissolution of BGE or the sale
of substantially all of its assets, or (iv) a change of more than one-
half of the members of the Board within a 90-day period for reasons
other than the death, disability, or retirement of such members.
B. Amount of Award Subject to Accelerated Payout/Option
Period/Exercise Period. The amount of a Participant's
previously granted Award that will be paid or exercisable
upon the happening of a change in control will be determined
as follows:
Restricted Stock Awards. The Participant will be entitled
to an accelerated Award payout, and the amount of the payout
will be based on the number of shares of Restricted Stock
that were issued on the Date of Grant, prorated based on the
number of months of the restriction period that have elapsed
as of the payout date. Also, with respect to Performance-
Based Restricted Stock Awards, in determining the amount of
the payout, maximum performance achievement will be assumed.
Stock Option Awards and Stock Appreciation Rights. Any
previously granted Stock Option Awards or Stock Appreciation
Rights will be immediately exercisable.
Performance Units. The Participant will be entitled to an
accelerated Award payout, and the amount of the payout will
be based on the number of Performance Units subject to the Target
Performance Award as established on the Date of Grant, prorated
based on the number of months of the Performance Period that have
elapsed as of the payout date, and assuming that maximum
performance was achieved.
12
<PAGE>
C. Timing of Accelerated Payout/Option Period/Exercise Period.
The accelerated payout set forth in Section 12B will be made in
cash within 30 days after the date of the change in control. The
accelerated Option Period/Exercise Period set forth in Section 12B
will begin on the date of the change in control, and applicable
payments will be in cash. When Stock is related to the Award, the
amount of cash will be determined based on the Fair Market Value of
Stock on the payout or exercise date, whichever is applicable.
13. Amendment of Plan.
The Committee may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part, except (i) no
such action may be taken without stockholder approval which
materially increases the benefits accruing to Participants pursuant
to the Plan, materially increases the number of securities which
may be issued pursuant to the Plan (except as provided in Section
14H), extends the period for granting Options under the Plan or
materially modifies the requirements as to eligibility for
participation in the Plan; and (ii) no such action may be taken
without the consent of the Participant to whom any Award was
previously granted, which adversely affects the rights of such
Participant concerning such Award, except as such termination or
amendment of the Plan is required by statute, or rules and
regulations promulgated thereunder. Notwithstanding the foregoing,
the Committee may amend the Plan as desirable at the discretion of
the Committee to address any issues concerning (i) Section 162(m)
of the Code, or (ii) maintaining an exemption under rule 16b-3 of
the 1934 Act.
14. Miscellaneous Provisions.
A. Nontransferability. No benefit provided under this
Plan shall be subject to alienation or assignment by a
Participant (or by any person entitled to such benefit
pursuant to the terms of this Plan), nor shall it be subject to
attachment or other legal process except (i) to the extent
specifically mandated and directed by applicable state or federal
statute, and (ii) as requested by the Participant (or by any person
entitled to such benefit pursuant to the terms of this Plan), and
approved by the Committee, to satisfy income tax withholding.
B. No Employment Right. Participation in this Plan shall
not constitute a contract of employment between BGE or any
Subsidiary and any person and shall not be deemed to be
consideration for, or a condition of, continued employment
of any person.
C. Tax Withholding. BGE or a Subsidiary may withhold any
applicable federal, state or local taxes at such time and
upon such terms and conditions as required by law or
determined by BGE or a Subsidiary. Subject to compliance
with any requirements of applicable law, the Committee may
permit or require a Participant to have any portion of any
withholding or other taxes payable in respect to a
distribution of Stock satisfied through the payment of cash
by the Participant to BGE or a Subsidiary, the retention by
BGE or a Subsidiary of shares of Stock, or delivery of
previously owned shares of the Participant's Stock, having a
Fair Market Value equal to the withholding amount.
13
<PAGE>
D. Fractional Shares. Any fractional shares concerning
Awards shall be eliminated at the time of payment or payout
by rounding down for fractions of less than one-half and
rounding up for fractions of equal to or more than one-half.
No cash settlements shall be made with respect to fractional
shares eliminated by rounding.
E. Government and Other Regulations. The obligation of
BGE to make payment of Awards in Stock or otherwise shall be
subject to all applicable laws, rules, and regulations, and
to such approvals by any government agencies as may be
required. BGE shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act"), any of the
shares of Stock issued, delivered or paid in settlement
under the Plan. If Stock awarded under the Plan may in
certain circumstances be exempt from registration under the
Act, BGE may restrict its transfer in such manner as it
deems advisable to ensure such exempt status.
F. Indemnification. Each person who is or at any time
serves as a member of the Committee (and each person or
Committee to whom the Committee or any member thereof has
delegated any of its authority or power under this Plan)
shall be indemnified and held harmless by BGE against and
from (i) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such person in
connection with or resulting from any claim, action, suit,
or proceeding to which such person may be a party or in
which such person may be involved by reason of any action or
failure to act under the Plan; and (ii) any and all amounts
paid by such person in satisfaction of judgment in any such
action, suit, or proceeding relating to the Plan. Each
person covered by this indemnification shall give BGE an
opportunity, at its own expense, to handle and defend the
same before such person undertakes to handle and defend it
on such person's own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights
of indemnification to which such persons may be entitled
under the Charter or By-Laws of BGE or any of its
Subsidiaries, as a matter of law, or otherwise, or any power
that BGE may have to indemnify such person or hold such
person harmless.
G. Reliance on Reports. Each member of the Committee (and
each person or Committee to whom the Committee or any member
thereof has delegated any of its authority or power under
this Plan) shall be fully justified in relying or acting in
good faith upon any report made by the independent public
accountants of BGE and its Subsidiaries and upon any other
information furnished in connection with the Plan. In no
event shall any person who is or shall have been a member of
the Committee be liable for any determination made or other
action taken or any omission to act in reliance upon any
such report or information or for any action taken,
including the furnishing of information, or failure to act,
if in good faith.
14
<PAGE>
H. Changes in Capital Structure. In the event of any
change in the outstanding shares of Stock by reason of any
stock dividend or split, recapitalization, combination or
exchange of shares or other similar changes in the Stock,
then appropriate adjustments shall be made in the shares of
Stock theretofore awarded to the Participants and in the
aggregate number of shares of Stock which may be awarded
pursuant to the Plan. Such adjustments shall be conclusive
and binding for all purposes. Additional shares of Stock
issued to a Participant as the result of any such change
shall bear the same restrictions as the shares of Stock to
which they relate.
I. BGE Successors. In the event BGE becomes a party to a
merger, consolidation, sale of substantially all of its
assets or any other corporate reorganization in which BGE
will not be the surviving corporation or in which the
holders of the Stock will receive securities of another
corporation (in any such case, the "New Company"), then the
New Company shall assume the rights and obligations of BGE
under this Plan.
J. Governing Law. All matters relating to the Plan or to
Awards granted hereunder shall be governed by the laws of
the State of Maryland, without regard to the principles of
conflict of laws.
K. Relationship to Other Benefits. Any Awards under this
Plan are not considered compensation for purposes of
determining benefits under any pension, profit sharing, or
other retirement or welfare plan, or for any other general
employee benefit program.
L. Expenses. The expenses of administering the Plan shall
be borne by BGE and its Subsidiaries.
M. Titles and Headings. The titles and headings of the sections in
the Plan are for convenience of reference only, and in the event of
any conflict, the text of the Plan, rather than such titles or
headings, shall control.
15
EXHIBIT 10(f)
BALTIMORE GAS AND ELECTRIC COMPANY
RETIREMENT PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Objective. The objective of this Plan is to provide Non-Employee
Directors of BGE with retirement benefits in recognition of their
service on the Board of Directors of BGE, and to assist BGE in
attracting and retaining individuals who are highly qualified to serve
on the Board of Directors of BGE.
2. Definitions. As used herein, the following terms will have the
meaning specified below:
"Annual Retainer" means the amount payable by BGE to a Director as
annual compensation for performance of services as a Director at the
time of the Non-Employee Director's Retirement. All other amounts
(including without limitation board/committee meeting fees, committee
chair retainers, and expense reimbursements) shall be excluded in
calculating the amount of the Annual Retainer.
"BGE" means Baltimore Gas and Electric Company, a Maryland
corporation, or its successor.
"Director" means a member of the Board of Directors of BGE.
"Non-Employee Director" means a Director who is not, and will never
be, eligible to receive employee retirement benefits from BGE or any
affiliated company.
"Plan" means the BGE Retirement Plan for Non-Employee Directors.
"Retires", "Retired" or "Retirement" means ceases membership on the
Board of Directors of BGE.
3. Plan Administration. The Plan is administered by the Vice President-
Management Services of BGE, who has sole authority (except as
1
<PAGE>
specified otherwise herein) to interpret the Plan, and, in general, to
make all other determinations advisable for the administration of the
Plan to achieve its stated objective. The Plan Administrator shall
have the power to delegate all or any part of his/her duties to one or
more designees, and to withdraw such authority, by written
designation.
4. Eligibility and Participation. A Non-Employee Director is eligible to
participate in the Plan if he/she has served as a Director of BGE for
at least five years prior to Retirement.
5. Amount and Timing of Plan Benefit Payout. An eligible participant is
entitled to an annual benefit amount equal to the Annual Retainer.
The Annual Retainer is payable in cash each year for life; however, no
payments shall be made after a participant's death.
Effective for Directors who Retire on or after December 31, 1994,
payment of the Annual Retainer shall be made within the first sixty
days of the applicable calendar year, beginning with the calendar year
after the later to occur of his/her (1) 65th birthday, or (2)
Retirement.
The Plan Administrator may, in his/her sole discretion, vary the
manner and timing of payments to participant.
6. Copies of Plan Available. Copies of the Plan and any and all
amendments thereto shall be made available to all participants during
normal business hours at the office of the Plan Administrator.
7. Amendment; Termination. This Plan may be amended from time to time
or suspended or terminated at any time, at the written direction of
the Board of Directors. However, amendments required to keep the Plan
in compliance with applicable laws and regulations (including tax
rules) may be made by the Plan Administrator, on advice of counsel.
No amendment to or termination of this Plan shall prejudice the rights
of any participant entitled to receive payment hereunder at the time
of such action.
8. Miscellaneous. With respect to Plan benefits, a participant has the
status of a general unsecured creditor of BGE, and the Plan
2
<PAGE>
constitutes a mere promise by BGE to make benefit payments in the
future. It is the intention of BGE and each participant that the Plan
be unfunded for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974.
A participant's Plan benefits shall not be subject to alienation or
assignment by any participant nor shall any of them be subject to
attachment or garnishment or other legal process except to the extent
specially mandated and directed by applicable state or federal
statute.
Participation in this Plan shall not constitute a contract of
employment between BGE and any person and shall not be deemed to be
consideration for, or a condition of, any person's employment by, or
continual service as a Director of, BGE or any affiliated company.
This Plan shall be governed in all respects by Maryland law.
3
EXHIBIT 10(h)
GRANTOR TRUST AGREEMENT
Dated as of July 31, 1994
between
BALTIMORE GAS AND ELECTRIC COMPANY
and
CITIBANK, N.A.
GRANTOR TRUST AGREEMENT
CONTENTS
Page
SECTION 1 ESTABLISHMENT OF TRUST 2
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 Board can discontinue contributions after 5 years.
1.7 Discretionary contributions.
1.8 Eligibility for Trust benefits.
1.9 Definition of "Required Contribution."
1.10 Responsibility for Required Contribution calculation.
1.11 Notification upon failure to made Required Contribution.
SECTION 2 PAYMENTS TO PLAN PARTICIPANTS AND THEIR
SURVIVING SPOUSES 8
2.1 BGE required to provide Payment Schedule to Trustee.
2.2 Failure by BGE to provide Payment Schedule.
2.3 Tax withholding.
2.4 Determination entitlement to benefits.
2.5 Payment of benefits directly by BGE.
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 BGE IS INSOLVENT 17
3.1 Payments cease when BGE is Insolvent.
3.2 Assets subject to claims of creditors.
3.2(a) Duty to inform Trustee of BGE'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.
i
<PAGE>
SECTION 4 PAYMENTS TO BGE 20
4.1 Return or diversion of Trust assets.
4.2 Distribution of excess Trust assets to BGE.
4.3 Distribution of excess Trust assets following a
Change of Control.
SECTION 5 INVESTMENT AUTHORITY 21
5.1 No investment in BGE stock.
5.2 Acknowledgement of investment guidelines.
5.3 BGE may appoint investment advisor.
5.4 BGE may transfer life insurance to Trust.
SECTION 6 DISPOSITION OF INCOME 23
SECTION 7 ACCOUNTING BY TRUSTEE 24
7.1 Trustee provides monthly accounting to BGE.
7.2 Deemed approval of accounting by BGE.
7.3 Tax returns.
7.4 Right of Trustee to judicial settlement of accounts.
SECTION 8 RESPONSIBILITY OF TRUSTEE 26
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 30
9.1 Trustee's fees.
9.2 Taxes on Trust income.
SECTION 10 RESIGNATION AND REMOVAL OF TRUSTEE 31
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 32
11.1 Appointment of successor after removal or resignation of
Trustee.
ii
<PAGE>
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 34
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 35
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 BGE.
SECTION 14 EFFECTIVE DATE 40
EXHIBIT A PAYMENT SCHEDULE
iii
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GRANTOR TRUST AGREEMENT
Dated as of July 31, 1994
between
Baltimore Gas and Electric Company
and
Citibank, N.A.
THIS AGREEMENT dated as of July 31, 1994, by and between Baltimore Gas
and Electric Company, a Maryland corporation, or its successor ("BGE") and
Citibank, N. A., a national banking association as trustee for the trust
created hereby ("Trustee").
WITNESSETH THAT:
WHEREAS, BGE has adopted the Baltimore Gas and Electric Company
Executive Benefits Plan ("Plan"); and
WHEREAS, BGE has incurred or expects to incur liability under the
terms of such Plan for nonqualified supplemental pension retirement
benefits with respect to the individuals participating in such Plan; and
WHEREAS, BGE wishes to establish a trust ("Trust") and to contribute
to the Trust assets that shall be held therein, subject to the claims of
BGE's creditors in the event of BGE's Insolvency, as defined in Section 3.1
hereof, until paid to Plan participants and their surviving spouses, as
defined in Section 7 of the Plan, in such manner and at such times as
specified in the Plan; and
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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
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 BGE to make contributions to the Trust
to provide a source of funds to assist in meeting BGE's liabilities under
the Plan;
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 BGE hereby 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"), 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.
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1.2 The Trust hereby established shall be irrevocable.
1.3 The Trust is intended to be a grantor trust, of which BGE 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 BGE and shall be used exclusively for the uses and purposes of
Plan participants, their surviving spouses, and BGE'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 Plan and this Trust Agreement shall
be mere unsecured contractual rights of Plan participants and their
surviving spouses against BGE. Any Trust assets will be subject to the
claims of BGE'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 shall be 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-
2002, unless otherwise directed by the Board of Directors of BGE pursuant
to Section 1.6 hereof, BGE shall be required to irrevocably contribute
additional cash or other property to the Trust in an amount equal to 100%
of the Required Contribution.
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1.6 Prior to the end of the 1998 Plan year, the Board of Directors of
BGE may by resolution amend the contribution requirements of Section 1.5
hereof such that BGE will not be required to make additional contributions
of cash or other property to the Trust under the terms of Section 1.5 after
the Required Contribution is made in 1998 with respect to the 1997 Plan
year. If Section 1.5 is so amended, additional contributions of cash or
other property to the Trust with respect to Plan years after 1997 will be
in the sole discretion of BGE pursuant to Section 1.7 hereof.
1.7 BGE, 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.
1.8 Plan participants or their surviving spouses shall be eligible to
receive benefits under this Trust Agreement only if the Plan participant
was a BGE employee as well as a Plan participant as of the end of any Plan
year for which a contribution was required pursuant to Sections 1.5 and 1.6
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hereof, or as of the end of any Plan year for which a contribution was made
by BGE, in its sole discretion pursuant to Section 1.7, 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 a BGE employee as well as a Plan participant as of the
first day of 1993.
1.9 "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 1.8 hereof, who were also BGE employees
as of the end of the Plan year for which the contribution is required
(except BGE employees entitled to lump sum payments as indicated under
Section 1.9(4) hereof) and who were not eligible for early retirement under
the Plan 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 Plan commencing effective with the month in which the
participant becomes age 65 using (i) the net accrued benefit as computed
under the Plan (without regard to age and Credited Service eligibility
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requirements), expressed as a monthly amount, (ii) an interest rate equal
to the lesser of 8% or 95% of the Interest Rate under the Plan, and (iii)
the Mortality Table.
(2) For Plan participants eligible to receive benefits under this
Trust Agreement pursuant to Section 1.8 hereof, who were also BGE employees
as of the end of the Plan year for which the contribution is required
(except BGE employees entitled to lump sum payments as indicated under
Section 1.9(4) hereof) and who were eligible for early retirement under the
Plan 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
Plan 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 Plan, expressed as a monthly amount, (ii) an interest
rate equal to the lesser of 8% or 95% of the Interest Rate under the Plan,
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 1.8
hereof who were also receiving a retirement benefit under the Plan 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%.
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(4) For all Plan participants eligible to receive benefits under this
Trust Agreement pursuant to Section 1.8 hereof who are also entitled under
Section 5(c) of the Plan 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 participants and their surviving spouses, less the
aggregate amount of any payments made to Plan participants and their
surviving spouses by BGE in lieu of such payments, plus interest computed
pursuant to Section 2.9 hereof on the net aggregate amount.
1.10 BGE 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 Baltimore
Gas and Electric Company. 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 BGE
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 BGE.
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1.11 In the event BGE fails to make the Required Contribution to the
Trust by the dates specified in Section 1.5 hereof, Trustee shall notify
BGE of such failure by the 15th day of the month following the month in
which the contribution was required. Such notification shall stipulate
that BGE 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 BGE to Trustee, in the event BGE
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 August 31 of the year following the 1993 Plan year and by
April 30 of the year following each Plan year thereafter 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, BGE shall deliver
to Trustee a schedule, substantially in the format of Exhibit A hereof, and
any other necessary documentation (such schedule and other documentation
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<PAGE>
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 Plan), 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 Plan), 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 1.9 (1), (2), (3),
and (4) hereof, and the Required Contribution computed pursuant to Section
1.9 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 1.8 hereof only to the extent contributions
to the Trust were required under Sections 1.5 or 1.6 hereof, or for which a
contribution was made by BGE to the Trust pursuant to Section 1.7 hereof.
A modified Payment Schedule shall be delivered by BGE 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 Plan, requiring a
modification of the Payment Schedule or a modified Payment Schedule.
BGE shall cause the Payment Schedule which BGE shall provide to
Trustee to be prepared by the actuary for the Pension Plan of Baltimore Gas
and Electric Company.
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<PAGE>
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 Plan or to inquire into
the right or power of BGE to direct or not direct any such payment and
shall be authorized to rely on the Payment Schedule most recently provided
to Trustee by BGE.
2.2 In the event BGE fails to deliver the Payment Schedule to Trustee
by the date specified in Section 2.1 hereof, Trustee shall notify BGE 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 BGE 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 BGE to
Trustee in the event BGE 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. Notwithstanding the foregoing, in the event BGE fails to
deliver the Payment Schedule to Trustee for the 1993 Plan year by the
Payment Schedule correction date, Trustee shall not be required to notify
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<PAGE>
Plan participants or their surviving spouses under Sections 1.11, 2.2 and
2.8 hereof or make payments to Plan participants and their surviving
spouses as provided in Section 2 hereof, until such time as an initial
Payment Schedule has been delivered by BGE to Trustee. If BGE 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 BGE. Within a reasonable period of time after BGE 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 BGE 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 Plan 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 BGE, provided, however,
that BGE shall be required to provide Trustee with all information
reasonably necessary for Trustee to perform such withholding.
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2.4 The entitlement of Plan participants and their surviving spouses
to benefits under the Plan shall be determined by BGE 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. 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 BGE 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 BGE to Trustee. BGE 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 BGE to Trustee
pursuant to Section 2.1 or by separate written notification. BGE 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 BGE to
Trustee. If such documentation is not provided, Trustee is authorized to
make such payments directly to Plan participants and their surviving
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<PAGE>
spouses. In addition, if the Trust assets are insufficient to make
payments of benefits in accordance with the most recent Payment Schedule
provided by BGE 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, BGE shall pay
the balance of each such payment to the Plan participant or their surviving
spouse as it falls due. Trustee shall notify BGE 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 BGE 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 BGE 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
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<PAGE>
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 BGE 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 property held by the Trust and the
denominator of which shall be the aggregate present value of all benefits
under the Plan 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
BGE of such insufficiency by May 15 (by September 15 for an insufficiency
related to Plan year 1993) of the year following the Plan year with respect
to which the insufficiency has been determined. Such notification shall
stipulate that BGE may correct the insufficiency by May 31 (by September 31
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for an insufficiency related to Plan year 1993) 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 BGE to Trustee in the event BGE fails to correct the insufficiency by
the insufficiency correction date. Trustee shall make such notification no
later that 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 BGE 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
15
<PAGE>
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 Plan
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 Plan of those participants and their
surviving spouses on whose behalf such payments are made. It shall be the
responsibility of BGE to determine or cause to be determined by the actuary
for the Pension Plan of Baltimore Gas and Electric Company 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 BGE under this Section 2.11.
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SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN BGE IS INSOLVENT.
3.1 Trustee shall cease payment of benefits to Plan participants and
their surviving spouses if BGE is Insolvent. BGE shall be considered
Insolvent for purposes of this Trust Agreement if (i) BGE makes a voluntary
filing under the United States Bankruptcy Code, or (ii) BGE 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 BGE under federal and state law as set forth below.
3.2(a) The Board of Directors of BGE and the Chief Executive
Officer of BGE shall have the duty to inform Trustee in writing of BGE's
Insolvency. If a person claiming to be a creditor of BGE alleges in
writing to Trustee that BGE has become Insolvent, Trustee shall determine
whether BGE is Insolvent and, pending such determination, Trustee shall
discontinue payment of benefits to Plan participants and their surviving
spouses.
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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
BGE's general 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 BGE's Insolvency, or
has received notice from BGE or a person claiming to be a creditor alleging
that BGE is Insolvent, Trustee shall have no duty to inquire whether BGE is
Insolvent. Trustee may in all events rely on such evidence concerning
BGE's solvency as may be furnished to Trustee and that provides Trustee
with a reasonable basis for making a determination concerning BGE's
solvency.
3.2(d) If at any time Trustee has determined that BGE is Insolvent,
Trustee shall discontinue payments to Plan participants and their surviving
spouses and shall hold the Trust assets for the benefit of BGE'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 BGE with respect to benefits due under the
Plan or otherwise.
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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 BGE is not
Insolvent (or is no longer Insolvent). Where BGE 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
BGE 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 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 Plan to the
first day of the month in which such net aggregate amount was paid. BGE
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shall cause to be determined and calculated by the actuary of the Pension
Plan of Baltimore Gas and Electric Company such net aggregate amount, which
determination shall be conclusive for BGE, Trustee, and all Plan
participants and their surviving spouses.
SECTION 4. PAYMENTS TO BGE.
4.1 Except as provided in Sections 3.2 and 4.2 hereof, BGE shall have
no right or power to direct Trustee to return to BGE 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 BGE 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 BGE may, in its sole discretion, direct Trustee in writing to
distribute such excess Trust assets, in whole or in part, to BGE provided
such distribution does not contravene any provision of law. Trustee shall
have no responsibility to determine the propriety of any such direction.
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4.3 Notwithstanding Section 4.2 hereof, BGE 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 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 rest with Plan participants and
their surviving spouses; provided that BGE may at any time, upon delivery
of written notice to Trustee, terminate Trustee's authority over the Trust
assets.
5.2 BGE 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 BGE and only
in accordance with the investment guidelines most recently acknowledged by
Trustee. BGE 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 BGE 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
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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 BGE, or 2)
the investment guidelines as acknowledged by Trustee.
5.3 BGE 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 BGE and shall be entitled to rely on
such direction until revoked in writing by BGE. 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 BGE 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.
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5.4 BGE 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 BGE'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 BGE or to review the form of any policies or contracts or the
selection of the issuer thereof, or to make suggestions to BGE 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.
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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 BGE 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 BGE 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 BGE written accounts under this Section 7.1 containing all
valuations except such insurance valuations. As soon as practicable
following the receipt of the market valuations from the carrier or the
broker, Trustee shall provide BGE with written accounts containing such
insurance valuations.
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7.2 Unless BGE 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, BGE shall
be deemed to have approved such statement or account, and in such case or
upon the written approval by BGE 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 BGE or persons having any beneficial interest in the Trust were
parties.
7.3 BGE 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 BGE such information, to the extent not already provided
through written accounts delivered to BGE pursuant to Section 7.1, as is
necessary for BGE to prepare and file such tax returns and other reports.
7.4 Nothing contained in this Trust Agreement or in the Plan shall
deprive Trustee of the right to have a judicial settlement of its accounts.
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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 BGE. 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 BGE, 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 BGE (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 BGE.
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 BGE unless such litigation,
26
<PAGE>
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 BGE 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, BGE 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 BGE.
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
27
<PAGE>
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.
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 BGE, 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 BGE, to act as agent for BGE to
perform multiple services for the Plan, its participants and beneficiaries
and to receive and withdraw from the Trust assets reasonable compensation
therefor;
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<PAGE>
(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
29
<PAGE>
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 BGE
(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 BGE 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 BGE 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.
30
<PAGE>
9.2 BGE 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 BGE,
which shall be effective 30 days after receipt of such notice unless BGE
and Trustee agree otherwise in writing.
10.2 Accept as provided in Section 10.3, Trustee may be removed
by BGE 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 BGE 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
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<PAGE>
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 BGE 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, BGE 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
BGE 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.
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<PAGE>
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 BGE 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.
33
<PAGE>
11.4 In the event of such removal or resignation, Trustee shall
duly file with BGE 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 BGE.
Notwithstanding the foregoing, no such amendment shall conflict with the
terms of the Plan 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 BGE.
12.3 Upon written approval of all Plan participants and surviving
spouses entitled to payment of benefits pursuant to the terms of the Plan
and this Trust Agreement, BGE 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 BGE.
12.4 This Trust Agreement may not be amended by BGE for 2 years
following a Change of Control, unless such amendment is by written
agreement between BGE 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 Plan on the date a
Change of Control is deemed to occur.
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<PAGE>
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 Plan. All
singular terms defined in this Trust will include the plural and vice
versa.
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<PAGE>
13.5 For purposes of this Trust Agreement, Change of Control
shall mean (a) the purchase or acquisition by any person, entity or group
of persons (within the meaning of section 13(d) or 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), or any comparable successor
provisions) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20 percent or more of either the
outstanding shares of common stock of BGE or the combined voting power of
BGE's then outstanding shares of voting securities entitled to a vote
generally, or (b) the approval by the stockholders of BGE of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were stockholders of BGE immediately prior to such
reorganization, merger, or consolidation do not, immediately thereafter,
own more than 50 percent of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated entity's then outstanding securities, or (c) a liquidation or
dissolution of BGE or the sale of substantially all of its assets, or (d) a
change of more than one-half of the members of the Board of Directors of
BGE within a 90-day period for reasons other than death, disability, or
retirement of such members.
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<PAGE>
13.6 BGE shall certify to Trustee the name or names of any person
or persons authorized to act for BGE under this Trust Agreement. Such
certification shall be signed by a Vice President of BGE. Until BGE
notifies Trustee, in a similarly signed notice or certification, that any
such person is no longer authorized to act for BGE, Trustee may continue to
rely upon the authority of such person.
Trustee may rely upon any certificate, schedule, notice or direction
of BGE which Trustee in good faith believes to be genuine, executed and
delivered by a duly authorized officer or agent of BGE. Trustee shall have
no duty to verify any calculations provided by BGE 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 BGE shall be sent in writing to BGE's principal
offices at the address specified in Section 13.9 hereof or to such other
address as BGE may specify in writing. No communication shall be binding
upon BGE until it is received by BGE and unless it is in writing and signed
by Trustee.
13.7 BGE 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,
37
<PAGE>
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 BGE or
any failure to act on the part of Trustee in the absence of directions or
instructions by BGE), 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 BGE 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 BGE, 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 BGE and shall have
those responsibilities only as expressly set forth herein.
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<PAGE>
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.
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 BGE:
Constellation Investments, Inc.
250 West Pratt Street
Baltimore, Maryland 21201
Attention: Steven D. Kesler
If to Trustee:
Citibank, N. A.
Client Services Division
111 Wall Street, 14th Floor
New York, NY 10005
Attention: Michael Sanfilippo
If to a participant or to a participant's surviving
spouse:
To the address shown on the most recent Payment
Schedule provided by BGE to Trustee.
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<PAGE>
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, BGE and
Trustee sign and seal this Trust Agreement the day and year first above
written.
WITNESS: CITIBANK, N. A.:
/s/ By: /s/ (Seal)
Name: John A. Lang
Title: Vice President
WITNESS: BALTIMORE GAS AND ELECTRIC COMPANY:
/s/ By: /s/ (Seal)
Name: Jon M. Files
Title: Vice President -
Management Services
40
EXHIBIT 10(I)
CONSTELLATION HOLDINGS, INC.
SUMMARY OF AMENDED EXECUTIVE BENEFITS PLAN
The objective of the Plan is to enhance the benefits provided to high-
level, senior management employees of Constellation Holdings, Inc. and
certain of its subsidiaries in order to attract and retain talented
executive personnel.
SUPPLEMENTAL PENSION BENEFIT.
Those who are participants at the time of retirement will generally be
entitled to a supplemental pension benefit under this Plan, which will be
calculated as follows:
- add the Annual Base Salary and the Average Incentive Award,
- divide the sum by 12,
- multiply this dollar amount by the appropriate percentage,
determined as follows: President of Constellation Holdings, Inc. - 60%;
all other participants (by completed years of Credited Service) 1 though
9 - 3% per year; 10 though 19 - 40%; 20 through 24 - 45%; 25 through 29 -
50%; and 30 or more - 55%,
- multiply this dollar amount by the Early Retirement Adjustment
Factor under the Pension Plan,
- subtract from this dollar amount the charges relating to coverage
for a preretirement survivor annuity in excess of 50%, and for a post-
retirement survivor annuity in excess of 50%, and
- subtract from the remainder the net amount received by the
participant under the Pension Plan.
The supplemental pension benefit is payable either in the form of a
lump sum or in monthly installments at the election of the participant, and
is payable from a funded trust. If a participant receives (or would have
received but for the Internal Revenue Code limitations) cost of living
adjustment(s) under the Pension Plan, the payments hereunder will be
automatically increased based on the percentage of, and at the same time
as, such adjustment(s).
A participant is eligible to retire under this Plan on the first day
of any month preceding his/her Normal Retirement Date, if the participant
has attained (i) age 55 and has accumulated at least 20 years of Credited
Service; or (ii) age 60 and has accumulated at least one year of Credited
Service.
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In addition, the gross supplemental pension benefit amounts will be
accrued, and participants will be entitled to the accrued benefit when any
of the following events occur before retirement: termination, demotion or
loss of benefit eligibility without cause; a change in control of Baltimore
Gas and Electric Company followed within two (2) years by the participant's
demotion, termination or loss of benefit eligibility; or reduction of
previously accrued benefits. As a result of the occurrence of any such
event, the participant is entitled to a lump sum payout of the accrued
benefit amount from a funded trust at the later of age 55 or employment
termination.
SUPPLEMENTAL LONG-TERM DISABILITY BENEFIT.
Any participant with at least one year of Credited Service who, as
determined by the Manager, Safety and Medical Services Department of BGE,
is disabled, is entitled to a supplemental disability benefit under this
Plan. The amount of such supplemental disability benefit shall be
determined as follows:
- multiply the monthly base salary by twelve,
- add the Average Incentive Award to the product,
- divide the sum by 12,
- multiply this monthly dollar amount by 60%, and
- subtract from the product the gross amounts provided for the
participant under the LTD plan before such amounts are reduced for Offset
for Other Income (as that term is defined in the LTD Plan).
The monthly disability benefit will continue until the Normal
Retirement Date or until 60 monthly payments have been made, whichever
produces a larger net benefit to the participant.
If a participant receives cost of living adjustment(s) under the LTD
Plan, the payments hereunder will be automatically increased based on the
same percentage of, and at the same time as, such adjustment(s).
SUPPLEMENTAL 50% SURVIVOR ANNUITY BENEFIT.
Following the death of a participant, a supplemental survivor annuity
will be paid to the participant's surviving spouse until the death of that
spouse. For purposes of this benefit, a participant's surviving spouse is
the individual married to the participant on the date of the participant's
death.
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<PAGE>
If there is no surviving spouse, no supplemental survivor annuity will
be payable.
The amount of the supplemental survivor annuity will generally be
determined as follows:
- if the participant had retired prior to the date of death, begin
with the pension benefit that the participant was receiving prior to the
date of death. Otherwise, begin with the larger of the Early Retirement
pension benefit to which the participant would have been entitled to
receive if the (i) participant had been retired at age 60 on the date of
death for purposes of computing the Early Retirement Adjustment Factor, or
(ii) participant had retired on the date of death for purposes of computing
the Early Retirement Adjustment Factor,
- multiply by .5, and
- subtract from the product the net amount, if any, of the Survivor
Annuity provided on behalf of the participant under the Pension Plan.
If a surviving spouse receives cost of living adjustment(s) under the
Pension Plan, the payments hereunder will be automatically increased based
on the percentage of, and at the same time as, such adjustment(s).
DEATH BENEFIT.
The Company shall make arrangements, for whole life insurance coverage
for each participant providing that the participant's beneficiary shall
receive, as a pre-rollout death benefit, an amount which is approximately
equal to three times the participant's compensation, and as a post-rollout
benefit, an amount which is approximately equal to two times the
participant's compensation, as set forth in a separate agreement between
the Company and the participant.
In the event that either (i) a participant is ineligible to receive
the type of whole life insurance coverage provided to other participants
under this Plan, or (ii) such coverage is not available on reasonably cost-
effective terms, then the Company shall pay the cost of his/her receiving a
benefit that, in the discretion of the Company, is determined to be
substantially equivalent to the value provided to other participants under
this Plan.
DEPENDENT DEATH BENEFIT.
In the event of the death of a participant's qualified dependent while
the participant is an active employee of the Company, the Company shall
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<PAGE>
make a death benefit payment to the participant. Qualified dependent shall
have the same meaning as set forth in BGE's Family Life Insurance Plan.
The amount of the death benefit payment shall generally be the highest
amount of insurance that would have been payable with respect to such
qualified dependent if coverage had been provided under BGE's Family Life
Insurance Plan. The dependent death benefit payment under this Plan shall
be grossed-up to provide for income taxes.
SICKNESS BENEFIT.
Each participant shall generally be entitled to a minimum of twenty-
six (26) weeks of sick benefits under the Company's Sick Benefit Plan
without regard to length of Service.
VACATION BENEFIT.
Each participant shall generally be entitled to a minimum of five
weeks of paid vacation under the Company's Vacation Benefits Plan without
regard to length of service.
PLANNING BENEFIT.
Each participant shall generally be entitled to certain personal
financial, tax, and estate planning services paid for by the Company but
provided through designated professional firms. This entitlement shall be
subject to any dollar limitation established by the Plan Administrator with
respect to all such fees. The services shall be provided to each
participant by the chosen firm(s) on a personalized and confidential basis;
and each firm shall have sole responsibility for quality of the services
which it may render.
The services to be provided shall be on an on-going and continuous
basis, but shall be limited to (i) the development and legal documentation
of both career-oriented financial plans and estate plans, and (ii) tax
counseling regarding personal tax-return preparation and the most
advantageous structuring, tax-wise, of proposed personal transactions.
Such planning benefit shall continue during the year of retirement
plus the next two calendar years and include the completion of the federal
and state personal tax returns for the second calendar year following
retirement. However, if a retired member of senior management continues to
serve as a member of the Board of Directors of the Company, his/her
planning benefit period shall be extended until he/she no longer serves as
a member of the Board of Directors.
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Upon the death of a participant entitled to the planning benefit
provided hereunder at the time of death, his/her surviving spouse shall be
entitled to receive the following planning benefit: (i) if the deceased
was not retired at the time of death, the surviving spouse shall be
entitled to the planning benefit for the year in which the death occurred
plus the next two (2) calendar years, including completion of the federal
and state personal tax returns for the second calendar year after the year
in which the death occurred; or (ii) if the deceased was retired at the
time of death, then the surviving spouse shall receive a planning benefit
equal to that the deceased would have received if he/she had not died prior
to expiration of the planning benefit. The surviving spouse of a retired
member of senior management whose death occurs while serving as a member of
the Board of Director of the Company shall be entitled to a planning
benefit as set forth in (i) above.
The planning benefit provided under this Plan shall be grossed-up to
provide for income taxes.
5
EXHIBIT 10(l)
SUMMARY
1994-96 LONG TERM INCENTIVE PLAN
PURPOSE
The purpose of this plan is to provide a compensation vehicle to motivate
and reward key senior executives of the Constellation Companies for the
achievement of long-term business objectives.
PERFORMANCE MEASUREMENT
This is a three (3) year plan based on Constellation Holdings, Inc. having
achieved at the end of the three (3) year period, certain levels of net
income.
An award equal to one hundred percent (100%) of the target award may be
made if the Company's cumulative net income during the three (3) year
period is at least $68.3 million, and up to two hundred percent (200%) of
target if such cumulative net income is at least $82 million.
OTHER PLAN FEATURES
The total award will be forfeited if employment termination occurs during
the performance period except for reason of death, disability or
retirement. Senior executives hired after the beginning of the first
performance year, but prior to the end of the last performance year, may be
eligible to participate on a prorated basis.
At the end of the performance period the value of the award, which is
subject to Board approval, will be made in either cash or, if certain
required approvals are obtained, in BGE common stock.
All awards will be subject to tax withholding.
Participation in the Plan does not constitute a contractual agreement
regarding future employment or a contractual right to receive an award.
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
12 MONTHS ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Net Income........................................... $323,617 $309,866 $264,347 $233,681 $175,446
Taxes on Income...................................... 156,702 140,833 105,994 88,041 22,818
Adjusted Net Income.................................. $480,319 $450,699 $370,341 $321,722 $198,264
Fixed Charges:
Interest and Amortization of Debt Discount and
Expense and Premium on all Indebtedness......... $204,206 $199,415 $200,848 $213,616 $194,656
Capitalized Interest............................... 12,427 16,167 13,800 20,953 25,748
Interest Factor in Rentals......................... 2,010 2,144 2,033 1,801 1,840
Total Fixed Charges................................ $218,643 $217,726 $216,681 $236,370 $222,244
Preferred and Preference Dividend
Requirements: (1)
Preferred and Preference Dividends.............. $ 39,922 $ 41,839 $ 42,247 $ 42,746 $ 40,261
Income Tax Required............................. 19,074 18,763 16,729 15,916 5,166
Total Preferred and Preference Dividend
Requirements.................................. $ 58,996 $ 60,602 $ 58,976 $ 58,662 $ 45,427
Total Fixed Charges and Preferred and Preference
Dividend Requirements.............................. $277,639 $278,328 $275,657 $295,032 $267,671
Earnings (2)......................................... $686,535 $652,258 $573,222 $537,139 $394,760
Ratio of Earnings to Fixed Charges................... 3.14 3.00 2.65 2.27 1.78
Ratio of Earnings to Combined Fixed Charges and
Preferred and Preference Dividend Requirements..... 2.47 2.34 2.08 1.82 1.47
<FN>
(1) Preferred and preference dividend requirements consist of an amount equal to
the pre-tax earnings which would be required to meet dividend requirements
on preferred stock and preference stock.
(2) Earnings are deemed to consist of net income which includes earnings of
BGE's consolidated subsidiaries, equity in the net income of BGE's
unconsolidated subsidiary, income taxes (including deferred income taxes and
investment tax credit adjustments), and fixed charges other than capitalized
interest.
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT*
<TABLE>
<CAPTION>
JURISDICTION
OF
INCORPORATION
<S> <C>
Constellation Holdings, Inc. ..................................................................... Maryland
BNG, Inc. ........................................................................................ Delaware
Safe Harbor Water Power Corporation............................................................... Pennsylvania
BGE Home Products & Services, Inc................................................................. Maryland
</TABLE>
*The names of certain directly owned subsidiaries have been omitted because,
considered in the aggregate as a single subsidiary, they would not constitute a
significant subsidiary.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Prospectuses prepared
in accordance with the requirements of Form S-8 (File No. 33-56084) and Forms
S-3 (File Nos. 33-49801, 33-45260, 33-33559, 33-57658, 33-57704, 33-50329,
33-45258, and 33-50331) of our report dated January 20, 1995, which contains
explanatory paragraphs related to the recoverability of replacement energy costs
and changes in accounting methods, accompanying the consolidated financial
statements and the consolidated financial statement schedules of Baltimore Gas
and Electric Company as of December 31, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994, included in this Annual Report on
Form 10-K of Baltimore Gas and Electric Company.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 17, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,416,825
<OTHER-PROPERTY-AND-INVEST> 1,179,158
<TOTAL-CURRENT-ASSETS> 678,435
<TOTAL-DEFERRED-CHARGES> 869,120
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,143,538
<COMMON> 1,425,378
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,312,655
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,717,866
279,500
209,185
<LONG-TERM-DEBT-NET> 2,584,932
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 63,700
<LONG-TERM-DEBT-CURRENT-PORT> 262,175
61,500
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,964,680
<TOT-CAPITALIZATION-AND-LIAB> 8,143,538
<GROSS-OPERATING-REVENUE> 2,782,985
<INCOME-TAX-EXPENSE> 153,853
<OTHER-OPERATING-EXPENSES> 2,147,726
<TOTAL-OPERATING-EXPENSES> 2,301,579
<OPERATING-INCOME-LOSS> 481,406
<OTHER-INCOME-NET> 32,365
<INCOME-BEFORE-INTEREST-EXPEN> 513,771
<TOTAL-INTEREST-EXPENSE> 190,154
<NET-INCOME> 323,617
39,922
<EARNINGS-AVAILABLE-FOR-COMM> 283,695
<COMMON-STOCK-DIVIDENDS> 222,180
<TOTAL-INTEREST-ON-BONDS> 214,347
<CASH-FLOW-OPERATIONS> 646,314
<EPS-PRIMARY> $1.93
<EPS-DILUTED> $1.93
</TABLE>
