UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
----------------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1999
Commission file Exact name of registrant IRS Employer
number as specified in its charter Identification No.
------ --------------------------- ------------------
1-12869 CONSTELLATION ENERGY GROUP, INC. 52-1964611
1-1910 BALTIMORE GAS AND ELECTRIC COMPANY 52-0280210
Maryland
-----------------------------------
(State of Incorporation)
39 W. Lexington Street Baltimore, Maryland 21201
---------------------- ------------------- -----
(Address of principal executive offices) (Zip Code)
410-783-5920
(Registrants' telephone number, including area code)
Not Applicable
(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days.
Yes X No
Common Stock, without par value 149,556,416 shares outstanding of Constellation
Energy Group, Inc. on October 31, 1999.
1
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information Page
Item 1. Financial Statements
Constellation Energy Group, Inc. and Subsidiaries
Consolidated Statements of Income...................................................... 3
Consolidated Statements of Comprehensive Income........................................ 3
Consolidated Balance Sheets............................................................ 4
Consolidated Statements of Cash Flows.................................................. 6
Baltimore Gas and Electric Company and Subsidiaries
Consolidated Statements of Income...................................................... 7
Consolidated Statements of Comprehensive Income........................................ 7
Consolidated Balance Sheets............................................................ 8
Consolidated Statements of Cash Flows.................................................. 10
Notes to Consolidated Financial Statements.................................................. 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction........................................................................... 16
Deregulation and Strategy.............................................................. 16
Results of Operations.................................................................. 17
Financial Condition.................................................................... 29
Capital Resources...................................................................... 29
Other Matters.......................................................................... 32
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 36
Part II. Other Information
Item 1. Legal Proceedings........................................................................... 37
Item 5. Other Information........................................................................... 38
Item 6. Exhibits and Reports on Form 8-K............................................................ 38
Signature............................................................................................ 39
Exhibit Index........................................................................................ 40
Constellation Energy Group, Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges.. 41
Baltimore Gas and Electric Company and Subsidiaries Computation of Ratio of Earnings to Fixed
Charges and Computation of Ratio of Earnings to Combined Fixed Charges and Preferred and
Preference Dividend Requirements................................................................. 42
</TABLE>
2
<PAGE>
CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ----------- ----------
(In Millions, Except Per-Share Amounts)
Revenues
<S> <C> <C> <C> <C>
Electric $ 691.2 $ 722.5 $ 1,737.2 $ 1,746.8
Gas 60.1 62.1 332.7 324.7
Diversified businesses 219.1 149.4 652.7 496.2
---------- ---------- ----------- ----------
Total revenues 970.4 934.0 2,722.6 2,567.7
Expenses Other Than Fixed Charges and Income Taxes
Electric fuel and purchased energy 115.8 149.4 356.9 391.5
Gas purchased for resale 21.3 21.6 156.4 152.0
Operations 127.1 129.4 397.5 395.3
Maintenance 40.9 38.7 143.4 130.8
Diversified businesses - selling, general, and administrative 229.6 122.9 577.6 393.8
Depreciation and amortization 92.9 89.6 274.0 275.6
Taxes other than income taxes 65.1 62.0 177.2 168.6
---------- ---------- ----------- ----------
Total expenses other than fixed charges and income taxes 692.7 613.6 2,083.0 1,907.6
---------- ---------- ----------- ----------
Income From Operations 277.7 320.4 639.6 660.1
Other Income 1.2 3.5 5.7 6.2
---------- ---------- ----------- ----------
Income Before Fixed Charges and Income Taxes 278.9 323.9 645.3 666.3
Fixed Charges
Interest expense (net) 61.7 62.4 181.1 180.9
BGE preference stock dividends 3.4 6.8 10.2 18.3
---------- ---------- ----------- ----------
Total fixed charges 65.1 69.2 191.3 199.2
---------- ---------- ----------- ----------
Income Before Income Taxes 213.8 254.7 454.0 467.1
Income Taxes
Current 76.7 72.4 152.6 160.5
Deferred 3.2 23.2 20.9 19.4
Investment tax credit adjustments (2.2) (1.8) (6.4) (5.5)
---------- ---------- ----------- ----------
Total income taxes 77.7 93.8 167.1 174.4
---------- ---------- ----------- ----------
Net Income $ 136.1 $ 160.9 $ 286.9 $ 292.7
========== ========== =========== ==========
Earnings Applicable to Common Stock $ 136.1 $ 160.9 $ 286.9 $ 292.7
========== ========== =========== ==========
Average Shares of Common Stock Outstanding 149.6 148.7 149.6 148.3
Earnings Per Common Share and
Earnings Per Common Share - Assuming Dilution $0.91 $1.08 $1.92 $1.97
Dividends Declared Per Common Share $0.42 $0.42 $1.26 $1.25
Consolidated Statements of Comprehensive Income (Unaudited)
Net Income $ 136.1 $ 160.9 $ 286.9 $ 292.7
Other comprehensive income (loss), net of taxes 5.0 (0.5) (6.5) (0.6)
---------- ---------- ----------- ----------
Comprehensive Income $ 141.1 $ 160.4 $ 280.4 $ 292.1
========== ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform with the current
period's presentation.
3
<PAGE>
CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999* 1998
-------------- --------------
(In Millions)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 56.4 $ 173.7
Accounts receivable (net of allowance for uncollectibles
of $20.6 and $20.3 respectively) 675.0 401.8
Trading securities 128.4 119.7
Fuel stocks 86.3 85.4
Materials and supplies 149.1 145.1
Prepaid taxes other than income taxes 101.7 68.8
Assets from energy trading activities 431.3 160.2
Other 24.6 21.4
-------------- --------------
Total current assets 1,652.8 1,176.1
-------------- --------------
Investments and Other Assets
Real estate projects and investments 313.3 353.9
Power projects 686.0 656.8
Financial investments 148.8 198.0
Nuclear decommissioning trust fund 205.5 181.4
Net pension asset 97.2 108.0
Other 381.7 243.3
-------------- --------------
Total investments and other assets 1,832.5 1,741.4
-------------- --------------
Utility Plant
Plant in service
Electric 7,053.1 6,890.3
Gas 958.7 921.3
Common 567.7 552.8
-------------- --------------
Total plant in service 8,579.5 8,364.4
Accumulated depreciation (3,256.4) (3,087.5)
-------------- --------------
Net plant in service 5,323.1 5,276.9
Construction work in progress 177.8 223.0
Nuclear fuel (net of amortization) 143.1 132.5
Plant held for future use 12.9 24.3
-------------- --------------
Net utility plant 5,656.9 5,656.7
-------------- --------------
Deferred Charges
Regulatory assets (net) 572.2 565.7
Other 57.3 55.1
-------------- --------------
Total deferred charges 629.5 620.8
-------------- --------------
TOTAL ASSETS $ 9,771.7 $ 9,195.0
============== ==============
</TABLE>
* Unaudited
See Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform with the current
period's presentation.
4
<PAGE>
CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999* 1998
-------------- --------------
(In Millions)
LIABILITIES AND CAPITALIZATION
Current Liabilities
<S> <C> <C>
Short-term borrowings $ 143.1 $ -
Current portions of long-term debt and preference stock 964.5 541.7
Accounts payable 364.5 249.6
Customer deposits 39.8 35.5
Accrued taxes 52.0 6.5
Accrued interest 62.7 58.6
Dividends declared 66.1 66.1
Accrued vacation costs 34.6 34.7
Liabilities from energy trading activities 310.9 126.2
Other 48.9 45.3
-------------- --------------
Total current liabilities 2,087.1 1,164.2
-------------- --------------
Deferred Credits and Other Liabilities
Deferred income taxes 1,318.1 1,309.1
Postretirement and postemployment benefits 238.0 217.0
Deferred investment tax credits 111.6 118.0
Decommissioning of federal uranium enrichment facilities 30.8 30.8
Other 125.8 56.3
-------------- --------------
Total deferred credits and other liabilities 1,824.3 1,731.2
-------------- --------------
Long-term Debt
BGE first refunding mortgage bonds 1,412.8 1,554.2
BGE other long-term debt 1,135.8 1,000.8
BGE obligated mandatorily redeemable
trust preferred securities 250.0 250.0
Diversified businesses long-term debt 765.5 870.2
Unamortized discount and premium (11.2) (12.4)
Current portion of long-term debt (964.5) (534.7)
-------------- --------------
Total long-term debt 2,588.4 3,128.1
-------------- --------------
BGE Redeemable Preference Stock - 7.0
Current portion of BGE redeemable preference stock - (7.0)
-------------- --------------
Total BGE redeemable preference stock - -
-------------- --------------
BGE Preference Stock Not Subject to Mandatory Redemption 190.0 190.0
-------------- --------------
Common Shareholders' Equity
Common stock 1,493.6 1,485.1
Retained earnings 1,588.7 1,490.3
Accumulated other comprehensive (loss) income (0.4) 6.1
-------------- --------------
Total common shareholders' equity 3,081.9 2,981.5
-------------- --------------
Total capitalization 5,860.3 6,299.6
-------------- --------------
TOTAL LIABILITIES AND CAPITALIZATION $ 9,771.7 $ 9,195.0
============== ==============
</TABLE>
* Unaudited
See Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform with the current
period's presentation.
5
<PAGE>
CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
------------- --------------
(In Millions)
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 286.9 $ 292.7
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization 316.2 312.8
Deferred income taxes 20.9 19.4
Investment tax credit adjustments (6.4) (5.5)
Deferred fuel costs (51.2) 1.9
Accrued pension and postemployment benefits 35.5 18.4
Write-down of real estate investment 7.0 -
Write-down of financial investment 26.3 -
Write-off of power project 10.2 -
Equity in earnings of affiliates and joint ventures (net) 22.4 (47.7)
Changes in assets from energy trading activities (271.1) (51.2)
Changes in liabilities from energy trading activities 184.7 49.2
Changes in other current assets (334.6) (47.8)
Changes in other current liabilities 213.9 115.4
Other 22.8 (2.8)
------------- --------------
Net cash provided by operating activities 483.5 654.8
------------- --------------
Cash Flows From Investing Activities
Utility capital expenditures (286.8) (274.9)
Contributions to nuclear decommissioning trust fund (13.2) (13.2)
Purchases of marketable equity securities (17.2) (26.8)
Sales of marketable equity securities 12.5 26.2
Other financial investments 15.1 14.1
Real estate projects and investments 46.2 7.8
Power projects (150.3) (87.6)
Other (48.1) (60.7)
------------- --------------
Net cash used in investing activities (441.8) (415.1)
------------- --------------
Cash Flows From Financing Activities
Proceeds from issuance of
Short-term borrowings 1,761.8 1,962.2
Long-term debt 289.7 447.4
Common stock 9.5 32.5
Repayments of short-term borrowings (1,618.7) (2,154.5)
Reacquisition of long-term debt (399.6) (166.0)
Redemption of preference stock (7.0) (124.9)
Common stock dividends paid (188.3) (183.5)
Other (6.4) (0.4)
------------- --------------
Net cash used in financing activities (159.0) (187.2)
------------- --------------
Net (Decrease) Increase in Cash and Cash Equivalents (117.3) 52.5
Cash and Cash Equivalents at Beginning of Period 173.7 162.6
------------- --------------
Cash and Cash Equivalents at End of Period $ 56.4 $ 215.1
============= ==============
Other Cash Flow Information:
Interest paid (net of amounts capitalized) $ 174.9 $ 170.7
Income taxes paid $ 102.2 $ 108.5
</TABLE>
See Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform with the current
period's presentation.
6
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
----------- ----------- ---------- -----------
(In Millions, Except Per-Share Amounts)
Revenues
<S> <C> <C> <C> <C>
Electric $ 691.4 $ 722.5 $ 1,737.5 $ 1,746.8
Gas 62.9 62.1 337.3 324.7
Diversified businesses 1.7 149.4 282.7 496.2
----------- ----------- ---------- -----------
Total revenues 756.0 934.0 2,357.5 2,567.7
Expenses Other Than Interest and Income Taxes
Electric fuel and purchased energy 129.9 149.4 375.3 391.5
Gas purchased for resale 21.3 21.6 156.4 152.0
Operations 126.4 129.4 396.7 395.3
Maintenance 40.7 38.7 142.5 130.8
Diversified businesses - selling, general, and administrative 1.2 122.9 221.3 393.8
Depreciation and amortization 89.0 89.6 267.5 275.6
Taxes other than income taxes 64.2 62.0 175.6 168.6
----------- ----------- ---------- -----------
Total expenses other than interest and income taxes 472.7 613.6 1,735.3 1,907.6
----------- ----------- ---------- -----------
Income From Operations 283.3 320.4 622.2 660.1
Other Income
Allowance for equity funds used during construction 1.5 1.8 5.2 5.0
Equity in earnings of Safe Harbor Water Power Corporation 1.2 1.2 3.8 3.7
Net other income and (deductions) (0.5) 0.5 (3.6) (2.5)
----------- ----------- ---------- -----------
Total other income 2.2 3.5 5.4 6.2
----------- ----------- ---------- -----------
Income Before Interest and Income Taxes 285.5 323.9 627.6 666.3
Interest Expense
Interest charges 48.1 64.1 162.3 186.3
Capitalized interest - (0.7) (0.4) (2.7)
Allowance for borrowed funds used during construction (0.8) (1.0) (2.8) (2.7)
----------- ----------- ---------- -----------
Net interest expense 47.3 62.4 159.1 180.9
------------- ----------- ---------- -----------
Income Before Income Taxes 238.2 261.5 468.5 485.4
Income Taxes
Current 80.5 72.4 169.1 160.5
Deferred 4.9 23.2 3.5 19.4
Investment tax credit adjustments (2.1) (1.8) (6.4) (5.5)
----------- ----------- ---------- -----------
Total income taxes 83.3 93.8 166.2 174.4
----------- ----------- ---------- -----------
Net Income 154.9 167.7 302.3 311.0
Preference Stock Dividends 3.4 6.8 10.2 18.3
----------- ----------- ---------- -----------
Earnings Applicable to Common Stock $ 151.5 $ 160.9 $ 292.1 $ 292.7
=========== =========== ========== ===========
Consolidated Statements of Comprehensive Income (Unaudited)
Net Income $ 154.9 $ 167.7 $ 302.3 $ 311.0
Other comprehensive loss, net of taxes - (0.5) (3.4) (0.6)
----------- ----------- ---------- -----------
Comprehensive Income $ 154.9 $ 167.2 $ 298.9 $ 310.4
=========== =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform with the current
period's presentation.
7
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31,
1999* 1998
-------------- --------------
(In Millions)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 15.5 $ 173.7
Accounts receivable (net of allowance for uncollectibles
of $13.0 and $20.3 respectively) 352.8 401.8
Trading securities - 119.7
Fuel stocks 86.3 85.4
Materials and supplies 141.0 145.1
Prepaid taxes other than income taxes 101.7 68.8
Assets from energy trading activities - 160.2
Other 10.1 21.4
-------------- --------------
Total current assets 707.4 1,176.1
-------------- --------------
Investments and Other Assets
Real estate projects and investments - 353.9
Power projects - 656.8
Financial investments - 198.0
Nuclear decommissioning trust fund 205.5 181.4
Net pension asset 97.3 108.0
Safe Harbor Water Power Corporation 34.5 34.4
Senior living facilities - 93.5
Other 59.7 115.4
-------------- --------------
Total investments and other assets 397.0 1,741.4
-------------- --------------
Utility Plant
Plant in service
Electric 7,053.1 6,890.3
Gas 958.7 921.3
Common 567.7 552.8
-------------- --------------
Total plant in service 8,579.5 8,364.4
Accumulated depreciation (3,256.4) (3,087.5)
-------------- --------------
Net plant in service 5,323.1 5,276.9
Construction work in progress 177.8 223.0
Nuclear fuel (net of amortization) 143.1 132.5
Plant held for future use 12.9 24.3
-------------- --------------
Net utility plant 5,656.9 5,656.7
-------------- --------------
Deferred Charges
Regulatory assets (net) 572.2 565.7
Other 47.0 55.1
-------------- --------------
Total deferred charges 619.2 620.8
-------------- --------------
TOTAL ASSETS $ 7,380.5 $ 9,195.0
============== ==============
</TABLE>
* Unaudited
See Notes to Consolidated Financial Statements.
8
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999* 1998
-------------- --------------
(In Millions)
LIABILITIES AND CAPITALIZATION
Current Liabilities
<S> <C> <C>
Short-term borrowings $ 22.5 $ -
Current portions of long-term debt and preference stock 615.0 541.7
Accounts payable 189.8 249.6
Customer deposits 39.8 35.5
Accrued taxes 54.5 6.5
Accrued interest 47.9 58.6
Dividends declared 3.3 66.1
Accrued vacation costs 34.9 34.7
Liabilities from energy trading activities - 126.2
Other 23.3 45.3
-------------- --------------
Total current liabilities 1,031.0 1,164.2
-------------- --------------
Deferred Credits and Other Liabilities
Deferred income taxes 1,062.7 1,309.1
Postretirement and postemployment benefits 229.2 217.0
Deferred investment tax credits 111.6 118.0
Decommissioning of federal uranium enrichment facilities 30.8 30.8
Other 57.6 56.3
-------------- --------------
Total deferred credits and other liabilities 1,491.9 1,731.2
-------------- --------------
Long-term Debt
First refunding mortgage bonds of BGE 1,412.8 1,554.2
Other long-term debt of BGE 1,135.8 1,000.8
Company obligated mandatorily redeemable
trust preferred securities 250.0 250.0
Long-term debt of diversified businesses 33.0 870.2
Unamortized discount and premium (11.2) (12.4)
Current portion of long-term debt (614.9) (534.7)
-------------- --------------
Total long-term debt 2,205.5 3,128.1
-------------- --------------
Redeemable Preference Stock - 7.0
Current portion of redeemable preference stock - (7.0)
-------------- --------------
Total redeemable preference stock - -
-------------- --------------
Preference Stock Not Subject to Mandatory Redemption 190.0 190.0
-------------- --------------
Common Shareholder's Equity
Common stock 1,493.6 1,485.1
Retained earnings 968.5 1,490.3
Accumulated other comprehensive income - 6.1
-------------- --------------
Total common shareholder's equity 2,462.1 2,981.5
-------------- --------------
Total capitalization 4,857.6 6,299.6
-------------- --------------
TOTAL LIABILITIES AND CAPITALIZATION $ 7,380.5 $ 9,195.0
============== ==============
</TABLE>
* Unaudited
See Notes to Consolidated Financial Statements.
9
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
------------ ------------
(In Millions)
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 302.3 $ 311.0
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization 307.6 312.8
Deferred income taxes 3.6 19.4
Investment tax credit adjustments (6.4) (5.5)
Deferred fuel costs (51.2) 1.9
Accrued pension and postemployment benefits 35.0 18.4
Allowance for equity funds used during construction (5.2) (5.0)
Equity in earnings of affiliates and joint ventures (net) 29.0 (47.7)
Changes in assets from energy trading activities (120.1) (51.2)
Changes in liabilities from energy trading activities 76.3 49.2
Changes in other current assets (73.2) (47.8)
Changes in other current liabilities 41.9 115.4
Other 32.5 1.5
------------ ------------
Net cash provided by operating activities 572.1 672.4
------------ ------------
Cash Flows From Investing Activities
Utility construction expenditures (including AFC) (246.1) (215.7)
Allowance for equity funds used during construction 5.2 5.0
Nuclear fuel expenditures (45.0) (49.0)
Deferred energy conservation expenditures (0.9) (15.2)
Contributions to nuclear decommissioning trust fund (13.2) (13.2)
Purchases of marketable equity securities (9.2) (26.8)
Sales of marketable equity securities 6.0 26.2
Other financial investments 6.7 14.1
Real estate projects and investments 22.0 7.8
Power projects (17.9) (87.6)
Other (16.7) (60.7)
------------ ------------
Net cash used in investing activities (309.1) (415.1)
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of
Short-term borrowings 1,608.3 1,962.2
Long-term debt 257.2 447.4
Common stock 9.5 32.5
Repayments of short-term borrowings (1,585.8) (2,154.5)
Reacquisition of long-term debt (375.3) (166.0)
Redemption of preference stock (7.0) (124.9)
Common stock dividends paid (188.3) (183.5)
Preference stock dividends paid (10.3) (17.6)
Distribution of cash to Constellation Energy (128.2) -
Other (1.3) (0.4)
------------ ------------
Net cash used in financing activities (421.2) (204.8)
------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (158.2) 52.5
Cash and Cash Equivalents at Beginning of Period 173.7 162.6
------------ ------------
Cash and Cash Equivalents at End of Period $ 15.5 $ 215.1
============ ============
Other Cash Flow Information:
Interest paid (net of amounts capitalized) $ 155.0 $ 170.7
Income taxes paid $ 99.4 $ 108.5
</TABLE>
See Notes to Consolidated Financial Statements.
Certain prior period amounts have been reclassified to conform with the current
period's presentation.
10
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------
Weather conditions can have a great impact on our results for interim
periods. This means that results for interim periods do not necessarily
represent results to be expected for the year.
Our interim financial statements on the previous pages reflect all
adjustments which Management believes are necessary for the fair presentation of
the financial position and results of operations for the interim periods
presented. These adjustments are of a normal recurring nature.
Holding Company Formation
- -------------------------
On April 30, 1999, Constellation Energy Group, Inc. (Constellation Energy)
became the holding company for Baltimore Gas and Electric Company (BGE) and
BGE's former subsidiary Constellation Enterprises, Inc. BGE's outstanding common
stock automatically became shares of common stock of Constellation Energy. BGE's
debt securities, BGE obligated mandatorily redeemable trust preferred
securities, and preference stock remain securities of BGE.
Basis of Presentation
- ---------------------
This Quarterly Report on Form 10-Q is a combined report of Constellation
Energy and BGE. The consolidated financial statements of Constellation Energy
include the accounts of Constellation Energy, BGE and its subsidiaries,
Constellation Enterprises, Inc. and its subsidiaries, and Constellation Nuclear
Services, Inc. The consolidated financial statements of BGE include the accounts
of BGE, District Chilled Water General Partnership (ComfortLink), and BGE
Capital Trust I. As Constellation Enterprises and its subsidiaries were
subsidiaries of BGE prior to April 30, 1999, they are included in the
consolidated financial statements of BGE through that date.
References in this report to "we" and "our" are to Constellation Energy and
its subsidiaries, collectively. Reference in this report to the "utility
business" is to BGE.
Deregulation of Electric Generation
- -----------------------------------
On November 10, 1999, the Maryland PSC issued a Restructuring Order that
resolves the major issues surrounding electric restructuring. See the
"Competition and Response to Regulatory Change" section on page 20 for a
detailed discussion of the Restructuring Order.
Information by Operating Segment
- --------------------------------
<TABLE>
<CAPTION>
Energy Other Unallocated
Electric Gas Services Diversified Corporate
Business Business Businesses Businesses Items (a) Eliminations Consolidated
------------ ------------ ------------- --------------- -------------- ------------- ---------------
For the three months ended September 30, (in millions)
1999
<S> <C> <C> <C> <C> <C> <C> <C>
Unaffiliated revenues $ 691.2 $ 60.1 $ 222.6 $ (3.5) $ - $ - $ 970.4
Intersegment revenues 0.2 2.8 14.7 (0.2) - (17.5) -
----------- ------------ ------------- --------------- -------------- ------------- ---------------
Total revenues 691.4 62.9 237.3 (3.7) - (17.5) 970.4
Net income (loss) 152.3 (0.7) 7.2 (22.2) (0.5) - 136.1
Segment assets 6,409.0 928.5 1,720.6 736.9 (16.5) (6.8) 9,771.7
1998
Unaffiliated revenues $ 722.5 $ 62.1 $ 130.9 $ 18.5 $ - $ - $ 934.0
Intersegment revenues 1.2 - 10.3 (0.9) - (10.6) -
----------- ------------ ------------- --------------- -------------- ------------- ---------------
Total revenues 723.7 62.1 141.2 17.6 - (10.6) 934.0
Net income (loss) 155.6 (1.8) 18.1 (11.1) 0.1 - 160.9
Segment assets 6,467.0 932.7 1,057.0 827.7 (29.2) (111.2) 9,144.0
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Energy Other Unallocated
Electric Gas Services Diversified Corporate
Business Business Businesses Businesses Items (a) Eliminations Consolidated
------------ ------------ ------------- --------------- -------------- ------------- ---------------
For the nine months ended September 30, (in millions)
1999
<S> <C> <C> <C> <C> <C> <C> <C>
Unaffiliated revenues $ 1,737.2 $ 332.7 $ 581.3 $ 71.4 $ - $ - $ 2,722.6
Intersegment revenues 0.7 7.4 27.0 (0.4) - (34.7) -
----------- ------------ ------------- --------------- -------------- ------------- ---------------
Total revenues 1,737.9 340.1 608.3 71.0 - (34.7) 2,722.6
Net income (loss) 253.4 21.5 42.2 (28.9) (1.3) - 286.9
Segment assets 6,409.0 928.5 1,720.6 736.9 (16.5) (6.8) 9,771.7
1998
Unaffiliated revenues $ 1,746.8 $ 324.7 $ 365.8 $ 130.4 $ - $ - $ 2,567.7
Intersegment revenues 1.3 - 10.8 (0.6) - (11.5) -
----------- ------------ ------------- --------------- -------------- ------------- ---------------
Total revenues 1,748.1 324.7 376.6 129.8 - (11.5) 2,567.7
Net income (loss) 249.0 15.6 36.6 (8.6) 0.1 - 292.7
Segment assets 6,467.0 932.7 1,057.0 827.7 (29.2) (111.2) 9,144.0
</TABLE>
(a) A holding company for our diversified businesses does not allocate the
items presented in the table to our Energy Services and Other Diversified
businesses.
- --------------------------------------------------------------------------------
Financing Activity
- ------------------
Constellation Energy
- --------------------
As discussed on page 11, effective April 30, 1999, BGE's outstanding common
stock automatically became shares of common stock of Constellation Energy.
During the period from January 1, 1999 through the date of this report, we
issued a total of 310,775 shares of common stock, without par value, under the
Shareholder Investment Plan. Net proceeds were about $9.5 million.
In June 1999, Constellation Energy arranged a $135 million revolving credit
agreement for short-term financial needs, including letters of credit. This
facility replaced a similar facility at one of Constellation Energy's
diversified businesses. As of the date of this report, letters of credit
totaling $23.7 million were issued under this facility.
As of the date of this report, Constellation Energy has issued guarantees in
an amount up to $49.7 million to support the contractual performance of certain
of its diversified subsidiaries.
BGE
- ---
BGE issued the following medium-term notes during the period from January 1,
1999 through the date of this report:
Date Net
Principal Issued Proceeds
--------- ------ --------
(In millions)
Series G
- --------
Floating rate, due 2001 $60.0 3/99 $59.9
Series H
- --------
Floating rate, due 2001 27.0 3/99 26.9
Floating rate, due 2000 150.0 9/99 149.8
In the future, BGE may purchase some of its long-term debt or preference
stock in the market. This will depend on market conditions and BGE's capital
structure, including the mix of secured and unsecured debt.
Diversified Businesses
- ----------------------
Please refer to the "Capital Requirements of our Diversified Businesses"
section of Management's Discussion and Analysis on page 31 for information about
the debt of our diversified businesses.
12
<PAGE>
Commitments
- -----------
In 1998, Constellation Power Source, Inc., our power marketing and trading
business, and Goldman, Sachs Capital Partners II L.P., an affiliate of Goldman,
Sachs & Co., formed Orion Power Holdings, Inc. to acquire electric generating
plants in the United States and Canada. Constellation Power Source owns a
minority interest in Orion, and has committed to contribute up to $175 million
in equity to fund its investment in Orion. To date, Constellation Power Source
has funded $104 million of this commitment.
Environmental Matters
- ---------------------
The Clean Air Act of 1990 contains two titles designed to reduce emissions
of sulfur dioxide and nitrogen oxide (NOx) from electric generating stations -
Title IV and Title I.
Title IV addresses emissions of sulfur dioxide. Compliance is required in
two phases:
o Phase I became effective January 1, 1995. We met the requirements of
this phase by installing flue gas desulfurization systems, switching
fuels, and retiring some units.
o Phase II must be implemented by January 1, 2000. We will meet the
compliance requirements through a combination of switching fuels and
allowance trading.
Title I addresses NOx emissions. The Maryland Department of the Environment
(MDE) issued NOx regulations effective June 1, 1998. The MDE regulations require
major NOx sources to reduce NOx emissions up to 65% by May 1, 2000. We are
currently negotiating with the MDE to settle issues regarding the May 1, 2000
compliance date. In the meantime, we are taking steps to control NOx emissions
at our generating plants.
The Environmental Protection Agency (EPA) issued a final rule in September
1998 that requires the reduction of NOx emissions up to 85% by 22 states
including Maryland and Pennsylvania. This rule was appealed by several groups
including utilities and states. A final decision on the appeal is expected in
early 2000.
Based on the MDE and EPA regulations, we currently estimate that the
additional controls needed at our generating plants to meet MDE's 65% NOx
emission reduction requirements will cost approximately $135 million. Through
the date of this report, we have spent approximately $38 million to meet MDE's
65% reduction requirements. We estimate the additional cost for EPA's 85%
reduction requirements to be approximately $35 million.
In July 1997, the EPA published new National Ambient Air Quality Standards
for very fine particulates and revised standards for ozone attainment. These
standards may require increased controls at our fossil generating plants in the
future. We cannot estimate the cost of these increased controls at this time
because the states, including Maryland, still need to determine what reductions
in pollutants will be necessary to meet the federal standards.
The EPA and several state agencies have notified us that we are considered a
potentially responsible party with respect to the cleanup of certain
environmentally contaminated sites owned and operated by others. We cannot
estimate the cleanup costs for all of these sites.
We can, however, estimate that our current 15.43% share of the reasonably
possible cleanup costs at one of these sites, Metal Bank of America (a metal
reclaimer in Philadelphia), could be as much as $4.9 million higher than amounts
we have recorded as a liability on our Consolidated Balance Sheets. This
estimate is based on a Record of Decision issued by the EPA.
On July 12, 1999, the EPA notified us, along with nineteen other entities,
that we may be a potentially responsible party at the 68th Street Dump Site,
also known as the Robb Tyler Dump located in Baltimore, Maryland. The EPA
indicated that it is proceeding with plans to conduct a remedial investigation
and feasibility study. This site was proposed for listing on the federal
Superfund list in January 1999, but the list has not been finalized. Although
our potential liability cannot be estimated, we do not expect such liability to
be material based on our records showing that we did not send waste to the site.
We discuss this site further in BGE's 1998 Annual Report on Form 10-K.
We do not expect the cleanup costs of the remaining sites to have a material
effect on our financial position or results of operations.
Also, we are coordinating investigation of several sites where gas was
manufactured in the past. The investigation of these sites includes reviewing
possible actions to remove coal tar. In late December 1996, we signed a consent
order with the MDE that requires us to implement remedial action plans for
contamination at and around the Spring Gardens site, located in Baltimore,
Maryland. We submitted the required remedial action plans and they were approved
by MDE. Based on the remedial action plans, the costs we consider to be probable
to remedy the contamination are estimated to total $47 million in nominal
dollars (including inflation). We have recorded these costs as a liability on
our Consolidated Balance Sheets and have
13
<PAGE>
deferred these costs, net of accumulated amortization and amounts recovered from
insurance companies, as a regulatory asset. We discuss this further in Note 4 of
BGE's 1998 Annual Report on Form 10-K. Through the date of this report, we have
spent approximately $33 million for remediation at this site.
We are also required by accounting rules to disclose additional costs we
consider to be less likely than probable costs, but still "reasonably possible"
of being incurred at these sites. Because of the results of studies at these
sites, it is reasonably possible that these additional costs could exceed the
amount we recognized by approximately $14 million in nominal dollars ($7 million
in current dollars, plus the impact of inflation at 3.1% over a period of up to
36 years).
Our potential environmental liabilities and pending environmental actions
are described further in BGE's 1998 Annual Report on Form 10-K under "Item 1.
Business - Environmental Matters."
Nuclear Insurance
- -----------------
If there were an accident or an extended outage at either unit of the
Calvert Cliffs Nuclear Power Plant (Calvert Cliffs), it could have a substantial
adverse financial effect on us. The primary contingencies that would result from
an incident at Calvert Cliffs could include:
o physical damage to the plant,
o recoverability of replacement power costs, and
o our liability to third parties for property damage and bodily injury.
We have insurance policies that cover these contingencies, but the policies
have certain industry standard exclusions. Furthermore, the costs that could
result from a covered major accident or a covered extended outage at either of
the Calvert Cliffs units could exceed our insurance coverage limits.
Insurance for Calvert Cliffs and Third Party Claims
- ---------------------------------------------------
For physical damage to Calvert Cliffs, we have $2.75 billion of property
insurance from an industry mutual insurance company. If an outage at either of
the two units at Calvert Cliffs is caused by an insured physical damage loss and
lasts more than 12 weeks, we have insurance coverage for replacement power costs
up to $490.0 million per unit, provided by an industry mutual insurance company.
This amount can be reduced by up to $98.0 million per unit if an outage at both
units of the plant is caused by a single insured physical damage loss. If
accidents at any insured plants cause a shortfall of funds at the industry
mutual insurance company, all policyholders could be assessed, with our share
being up to $21.7 million.
In addition we, as well as others, could be charged for a portion of any
third party claims associated with a nuclear incident at any commercial nuclear
power plant in the country. At the date of this report, the limit for third
party claims from a nuclear incident is $9.71 billion under the provisions of
the Price Anderson Act. If third party claims exceed $200 million (the amount of
primary insurance), our share of the total liability for third party claims
could be up to $176.2 million per incident. That amount would be payable at a
rate of $20 million per year.
Insurance for Worker Radiation Claims
- -------------------------------------
As an operator of a commercial nuclear power plant in the United States, we
are required to purchase insurance to cover radiation injury claims of certain
nuclear workers. On January 1, 1998, a new insurance policy became effective for
all operators requiring coverage for current operations. Waiving the right to
make additional claims under the old policy was a condition for acceptance under
the new policy. We describe both the old and new policies below.
o BGE nuclear worker claims reported on or after January 1, 1998 are
covered by a new insurance policy with an annual industry aggregate
limit of $200 million for radiation injury claims against all those
insured by this policy.
o All nuclear worker claims reported prior to January 1, 1998 are still
covered by the old insurance policies. Insureds under the old policies,
with no current operations, are not required to purchase the new policy
described above, and may still make claims against the old policies for
the next nine years. If radiation injury claims under these old policies
exceed the policy reserves, all policyholders could be assessed, with
our share being up to $6.3 million.
If claims under these polices exceed the coverage limits, the provisions of
the Price Anderson Act (discussed in this section) would apply.
14
<PAGE>
Recoverability of Electric Fuel Costs
- -------------------------------------
Historically and until July 1, 2000, we are allowed to recover our cost of
electric fuel if the Maryland Public Service Commission (Maryland PSC) finds
that, among other things, we have kept the productive capacity of our generating
plants at a reasonable level. To do this, the Maryland PSC will evaluate the
performance of our generating plants, and will determine if we used all
reasonable and cost-effective maintenance and operating control procedures.
The Maryland PSC, under the Generating Unit Performance Program, measures
annually whether we have maintained the productive capacity of our generating
plants at reasonable levels. To do this, the program uses a system-wide
generating performance target and an individual performance target for each base
load generating unit. In fuel rate hearings, actual generating performance
adjusted for planned outages will be compared first to the system-wide target.
If that target is met, it should mean that the requirements of Maryland law
have been met. If the system-wide target is not met, each unit's adjusted actual
generating performance will be compared to its individual performance target to
determine if the requirements of Maryland law have been met and, if not, to
determine the basis for possibly imposing a penalty on BGE. Even if we meet
these targets, parties to fuel rate hearings may still question whether we used
all reasonable and cost-effective procedures to try to prevent an outage. If the
Maryland PSC decides we were deficient in some way, the Maryland PSC may not
allow us to recover the cost of replacement energy.
The two units at Calvert Cliffs use the cheapest fuel. As a result, the
costs of replacement energy associated with outages at these units can be
significant. We 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. We discuss significant disallowances in prior years
related to past outages at Calvert Cliffs in BGE's 1998 Annual Report on Form
10-K.
Under the terms of the Restructuring Order, BGE's electric fuel rate clause
will be discontinued effective July 1, 2000. After that date, earnings will be
affected by changes in the cost of fuel and energy. We discuss competition and
its impact on BGE's generation business further in the "Competition and Response
to Regulatory Change" section of Management's Discussion and Analysis on page
20. The discontinuance of BGE's electric fuel rate clause is discussed further
in the "Regulation by the Maryland PSC" section in Management's Discussion and
Analysis on page 18.
California Power Purchase Agreements
- ------------------------------------
Constellation Power, Inc. and subsidiaries and Constellation Investments,
Inc. (whose power projects are managed by Constellation Power) have $308.2
million invested in 14 projects that sell electricity in California under power
purchase agreements called "Interim Standard Offer No. 4" agreements. Under
these agreements, the projects supply electricity to utility companies at:
o a fixed rate for capacity and energy for the first 10 years of the
agreements, and
o a fixed rate for capacity plus a variable rate for energy based on the
utilities' avoided cost for the remaining term of the agreements.
Generally, a "capacity rate" is paid to a power plant for its availability
to supply electricity, and an "energy rate" is paid for the electricity actually
generated. "Avoided cost" generally is the cost of a utility's cheapest
next-available source of generation to service the demands on its system.
We use the term "transition period" to describe the time frame when the
10-year periods for fixed energy rates expire for these 14 power generation
projects and they begin supplying electricity at variable rates. The transition
period for some of the projects began in 1996 and will continue for the
remaining projects through 2000.
The projects that have already transitioned to variable rates have had lower
revenues under variable rates than they did under fixed rates. When the
remaining projects transition to variable rates, we expect the revenues from
those projects also to be lower than they are under fixed rates.
We discuss the earnings for these projects in the "Diversified Businesses"
section beginning on page 26.
Other Diversified Businesses
- ----------------------------
We discuss our other diversified businesses' activities further in the
"Diversified Businesses" section beginning on page 26.
15
<PAGE>
Item 2. Management's Discussion
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Introduction
- ------------
On April 30, 1999, Constellation Energy(R) Group, Inc. (Constellation
Energy) became the holding company for Baltimore Gas and Electric Company
(BGE(R)) and Constellation(R) Enterprises, Inc. Constellation Enterprises was
previously owned by BGE.
BGE is an electric and gas public utility company with a service territory
in the City of Baltimore and in all or part of ten counties in Central Maryland.
Constellation Enterprises is a holding company for several diversified
businesses engaged primarily in energy services.
Our energy services businesses are:
o Constellation Power Source,(TM) Inc. -- our wholesale power marketing
and trading business,
o Constellation Power, Inc.,(TM) and Subsidiaries -- our power projects
business,
o Constellation Energy Source,(TM) Inc. -- our energy products and
services business,
o Constellation Nuclear Services, (TM) Inc. -- our nuclear consulting
services business,
o BGE Home Products & Services,(TM) Inc. and Subsidiaries -- our home
products, commercial building systems, and residential and small
commercial gas retail marketing business, and
o District Chilled Water General Partnership (ComfortLink(R)) -- a general
partnership in which BGE is a partner that provides cooling services for
commercial customers in Baltimore.
Constellation Enterprises, Inc. also has two other subsidiaries:
o Constellation Investments,(TM) Inc. -- our financial investments
business, and
o Constellation Real Estate Group,(TM) Inc. -- our real estate and
senior-living facilities business.
This Quarterly Report on Form 10-Q is a combined report of Constellation
Energy and BGE. The consolidated financial statements of Constellation Energy
include the accounts of Constellation Energy, BGE and its subsidiaries,
Constellation Enterprises, Inc. and its subsidiaries, and Constellation Nuclear
Services, Inc. The consolidated financial statements of BGE include the accounts
of BGE, ComfortLink, and BGE Capital Trust I. As Constellation Enterprises and
its subsidiaries were subsidiaries of BGE prior to April 30, 1999, they are
included in the consolidated financial statements of BGE through that date.
References in this report to "we" and "our" are to Constellation Energy and
its subsidiaries, collectively. Reference in this report to the "utility
business" is to BGE.
Deregulation and Strategy
- -------------------------
The electric utility industry is undergoing rapid and substantial change. On
April 8, 1999, Maryland enacted legislation authorizing customer choice and
competition among electric suppliers. In addition, on June 29, 1999, BGE and a
majority of the active parties involved in the electric restructuring proceeding
filed a proposed settlement agreement with the Maryland Public Service
Commission (Maryland PSC) that addresses the major issues surrounding electric
restructuring. On November 10, 1999, the Maryland PSC issued a Restructuring
Order that approved the proposed settlement agreement.
All electric customers, except a few commercial and industrial companies
that have signed contracts with BGE, will be able to choose suppliers on July 1,
2000. Also, upon receipt of all regulatory approvals, on July 1, 2000, all of
BGE's generation assets will be moved to nonregulated subsidiaries of
Constellation Energy. These assets represent about 6,240 megawatts of generation
capacity. These matters are discussed further in the "Competition and Response
to Regulatory Change" section on page 20.
In Maryland, all gas customers were able to choose suppliers beginning
November 1, 1999.
This change toward customer choice will significantly impact our business
going forward. In response to this change, we regularly evaluate our strategies
with two goals in mind: to improve our competitive position, and to anticipate
and adapt to regulatory change. We will continue to invest in the growth of our
nonregulated businesses, especially our power projects and power marketing and
trading businesses, with the objective of providing new sources of earnings in
anticipation of lower electric utility revenues. In addition, we might consider
one or more of the following strategies:
16
<PAGE>
o the complete or partial separation of our transmission and distribution
functions,
o the construction, purchase or sale of generation assets,
o mergers or acquisitions of utility or non-utility businesses,
o spin-off or sale of one or more businesses, and
o growth of earnings from other nonregulated businesses.
We cannot predict whether any of the strategies described above may actually
occur, or what their effect on our financial condition or competitive position
might be. However, with the shift toward customer choice, competition, and the
growth of our nonregulated subsidiaries, various factors will affect our results
of operations and financial condition in the future. These factors include, but
are not limited to, the loss of customers, higher volatility of earnings and
cash flows, and increased financial requirements of our nonregulated
subsidiaries. Please refer to the "Forward Looking Statements" section on page
38. Additional detail on competition is included in BGE's 1998 Annual Report on
Form 10-K under the heading "Electric Regulatory Matters and Competition."
In this discussion and analysis, we explain the general financial condition
and the results of operations for Constellation Energy including:
o what factors affect our business,
o what our earnings and costs were in the periods presented,
o why earnings and costs changed between periods,
o where our earnings came from,
o how all of this affects our overall financial condition,
o what our expenditures for capital projects were in the current period
and what we expect them to be in the future, and
o where we expect to get cash for future capital expenditures.
As you read this discussion and analysis, refer to our Consolidated
Statements of Income on page 3, which present the results of our operations for
the quarters and nine months ended September 30, 1999 and 1998. We analyze and
explain the differences between periods in the specific line items of the
Consolidated Statements of Income. Our analysis is important in making decisions
about your investments in Constellation Energy.
Also, this discussion and analysis is based on the operation of the
electric generation portion of our utility business under current rate
regulation. Our electric business will change significantly beginning July 1,
2000 as we enter into the transition to full retail customer choice for electric
generation. Accordingly, the results of operations and financial condition
described in this discussion and analysis are not necessarily indicative of
future performance.
- -------------------------------------------------------------------------------
Results of Operations for the Quarter and Nine Months Ended September 30, 1999
Compared With the Same Periods of 1998
- -------------------------------------------------------------------------------
In this section, we discuss our earnings and the factors affecting them. We
begin with a general overview, then separately discuss earnings for our utility
business and for our diversified businesses.
Overview
- --------
Total Earnings per Share of Common Stock
- ----------------------------------------
Quarter Ended Nine Months Ended
September 30 September 30
--------------- ----------------
1999 1998 1999 1998
------- ------- -------- -------
Utility business...... $1.02 $1.03 $1.84 $1.78
Diversified businesses (.11) .05 .08 .19
---- --- --- ---
Total earnings
per share.......... $ .91 $1.08 $1.92 $1.97
====== ===== ===== =====
Quarter Ended September 30, 1999
- --------------------------------
Our total earnings for the quarter ended September 30, 1999 decreased $24.8
million, or $.17 per share, compared to the same period of 1998.
In the third quarter of 1999, we had lower utility earnings compared to the
same period of 1998 mostly because we deferred $37.5 million of electric
revenues to reflect certain terms of the proposed settlement agreement with the
Maryland PSC, and we incurred costs associated with Hurricane Floyd. This
decrease in utility earnings compared to 1998 was partially offset by the
settlement of a capacity contract with PECO Energy Company (PECO) in the third
quarter of 1998. We discuss our utility earnings in more detail in the "Utility
Business" section on page 18.
17
<PAGE>
In the third quarter of 1999, diversified business earnings decreased
compared to the same period of 1998 mostly because of lower earnings from our
power projects and financial investments businesses. This decline was partially
offset by higher earnings from our power marketing and trading business. We
discuss our diversified business earnings further in the "Diversified
Businesses" section beginning on page 26.
Nine Months Ended September 30, 1999
- ------------------------------------
Our total earnings for the nine months ended September 30, 1999 decreased
$5.8 million, or $.05 per share, compared to the same period of 1998.
In the nine months ended September 30, 1999, we had higher utility earnings
compared to the same period of 1998 mostly because we sold more electricity and
gas this year and we settled a capacity contract with PECO in 1998. The increase
in utility earnings was partially offset by the deferral of $37.5 million of
electric revenues as discussed above, and higher operations and maintenance
expenses mostly due to Hurricane Floyd and a major winter ice storm. We discuss
our utility earnings in more detail in the "Utility Business" section below.
In the nine months ended September 30, 1999, diversified business earnings
decreased compared to the same period of 1998 mostly because of lower earnings
from our power projects and financial investments businesses. This decline was
partially offset by higher earnings from our power marketing and trading
business. We discuss our diversified business earnings further in the
"Diversified Businesses" section beginning on page 26.
Utility Business
- ----------------
Before we go into the details of our electric and gas operations, we believe
it is important to discuss four factors that have a strong influence on our
utility business performance: regulation, the weather, other factors including
the condition of the economy in our service territory, and competition.
Regulation by the Maryland PSC
- ------------------------------
The Maryland PSC determines the rates we can charge our customers. Our rates
consist of a "base rate" and a "fuel rate." The base rate is the rate the
Maryland PSC allows us to charge our customers for the cost of providing them
service, plus a profit. We have both an electric base rate and a gas base rate.
Higher electric base rates apply during the summer when the demand for
electricity is the highest. Gas base rates are not affected by seasonal changes.
From time to time, when necessary to cover increased costs, we ask the
Maryland PSC for base rate increases. Similarly, other parties may petition the
Maryland PSC to lower BGE's base rates. The Maryland PSC holds hearings to
determine what changes, if any, should be made to base rates. The Maryland PSC
has historically allowed us to increase base rates to recover increased utility
plant asset costs, plus a profit, beginning at the time of replacement.
Generally, rate increases improve our utility earnings because they allow us to
collect more revenue. However, rate increases are normally granted based on
historical data and those increases may not always keep pace with increasing
costs. Under the Restructuring Order, BGE's electric base rates are frozen at
the current levels until July 1, 2000. At that time, electric residential
customer choice begins and residential base rates will decrease by about $54
million per year. Those reduced rates will be frozen until June 30, 2006.
The Maryland PSC allows us to include in base rates a component to recover
money spent on conservation programs. This component is called a "conservation
surcharge." However, under this surcharge the Maryland PSC limits what our
profit can be. If, at the end of the year, we have exceeded our allowed profit,
we defer (include as a liability in our Consolidated Balance Sheets and exclude
from our Consolidated Statements of Income) the excess in that year and we lower
the amount of future surcharges to our customers to correct the amount of
overage, plus interest. Under the Restructuring Order, the electric conservation
surcharge and associated profit limitation will be discontinued effective July
1, 2000.
In addition, we charge our electric customers separately for the fuel we use
to generate electricity (nuclear fuel, coal, gas, or oil) and for the net cost
of purchases and sales of electricity (primarily with other utilities). We
charge the actual cost of these items to the customer with no profit to us. If
these fuel costs go up, the Maryland PSC permits us to increase the fuel rate.
If these costs go down, our customers benefit from a reduction in the fuel rate.
The fuel rate is impacted most by the amount of electricity generated at our
Calvert Cliffs Nuclear Power Plant (Calvert Cliffs) because the cost of nuclear
fuel is cheaper than coal, gas, or oil.
18
<PAGE>
We discuss this in more detail in Note 1 of BGE's 1998 Annual Report on Form
10-K.
Changes in the fuel rate normally do not affect earnings. However, if the
Maryland PSC disallows recovery of any part of the fuel costs, our earnings are
reduced. We discuss this in the "Recoverability of Electric Fuel Costs" section
of the Notes to Consolidated Financial Statements on page 15.
Under the Restructuring Order, BGE's electric fuel rate clause will be
discontinued effective July 1, 2000. After that date, earnings will be affected
by the changes in the cost of fuel and energy. In addition, any accumulated
difference between our actual costs of fuel and energy and the amounts collected
from customers under the electric fuel rate clause will be refunded to or
collected from our customers over a period to be determined by the Maryland PSC.
At September 30, 1999, BGE's actual costs of fuel and energy were $66.1 million
higher than the electric fuel rate revenues collected from customers.
We also charge our gas customers separately for the natural gas they
purchase from us. The price we charge for the natural gas is based on a market
based rates incentive mechanism approved by the Maryland PSC. We discuss market
based rates in more detail in the "Gas Cost Adjustments" section on page 24.
Please refer to the "Competition and Response to Regulatory Change" section
on page 20 for a detailed discussion of the Restructuring Order.
Weather
- -------
Weather affects the demand for electricity and gas. Very hot summers and
very cold winters increase demand. Mild weather reduces demand. Weather impacts
residential sales more than commercial and industrial sales, which are mostly
affected by business needs for electricity and gas.
We measure the weather's effect using "degree days." A degree day is the
difference between the average daily actual temperature and a baseline
temperature of 65 degrees. Cooling degree days result when the average daily
actual temperature exceeds the 65 degree baseline. Heating degree days result
when the average daily actual temperature is less than the baseline.
During the cooling season, hotter weather is measured by more cooling degree
days and results in greater demand for electricity to operate cooling systems.
During the heating season, colder weather is measured by more heating degree
days and results in greater demand for electricity and gas to operate heating
systems.
Effective March 1, 1998, the Maryland PSC allowed us to implement a monthly
adjustment to our gas business revenues to eliminate the effect of abnormal
weather patterns. We discuss this further in the "Weather Normalization" section
on page 24.
We show the number of heating and cooling degree days in the quarters and
nine months ended September 30, 1999 and 1998 and the percentage change in the
number of degree days between these periods in the following table:
Quarter Ended Nine Months Ended
September 30 September 30
--------------- ------------------
1999 1998 1999 1998
-------- ------ -------- --------
Heating degree days... 75 74 2,981 2,559
Percent change
compared to prior period 1.4% 16.5%
Cooling degree days... 629 625 832 904
Percent change
compared to prior period 0.6% (8.0)%
Other Factors
- -------------
Other factors, aside from weather, impact the demand for electricity and
gas. These factors include the "number of customers" and "usage per customer"
during a given period. We use these terms later in our discussions of electric
and gas operations. In those sections, we discuss how these and other factors
affected electric and gas sales during the periods presented.
The number of customers in a given period is affected by new home and
apartment construction and by the number of businesses in our service territory.
Usage per customer refers to all other items impacting customer sales that
cannot be separately measured. These factors include the strength of the economy
in our service territory. When the economy is healthy and expanding, customers
tend to consume more electricity and gas. Conversely, during an economic
downtrend, our customers tend to consume less electricity and gas.
19
<PAGE>
Competition and Response to Regulatory Change
- ---------------------------------------------
Our electric and gas businesses are also affected by competition as
discussed below.
Electric Business
- -----------------
Electric utilities are facing competition on various fronts, including:
o the construction of generating units to meet increased demand for
electricity,
o the sale of electricity in bulk power markets,
o competing with alternative energy suppliers, and
o electric sales to retail customers.
On April 8, 1999, Maryland enacted the Electric Customer Choice and
Competition Act of 1999 (the "Act") and accompanying tax legislation that will
significantly restructure Maryland's electric utility industry and modify the
industry's tax structure. Major elements of the Act and the accompanying tax
legislation are discussed in detail in our June 30, 1999 Quarterly Report on
Form 10-Q.
On June 29, 1999, BGE and a majority of the active parties involved in the
electric restructuring proceeding filed a proposed settlement agreement with the
Maryland PSC. On November 10, 1999, the Maryland PSC issued a Restructuring
Order that approved the proposed settlement agreement. The Restructuring Order
resolves the electric restructuring proceeding (transition costs, customer price
protections, and unbundled rates for electric services) and the petition filed
in September 1998 by the Office of People's Counsel (OPC) to lower our electric
base rates. In addition, the Restructuring Order accelerates the timetable for
customer choice and addresses certain other provisions of the Act. There is a
30-day period to file an appeal to the Restructuring Order. We cannot predict
whether an appeal will be filed. The electric restructuring proceeding and the
petition filed by the OPC are discussed in BGE's 1998 Annual Report on Form
10-K. The major provisions of the Restructuring Order are:
o All customers, except a few commercial and industrial companies that
have signed contracts with BGE, will be able to choose their electric
energy supplier beginning July 1, 2000. BGE will provide a standard
offer service for customers that do not select an alternative supplier.
In either case, BGE will continue to deliver electricity to all
customers in areas traditionally served by BGE.
o BGE will reduce residential base rates by approximately 6.5%, on average
about $54 million a year, beginning July 1, 2000. These rates will not
change before July 2006.
o Commercial and industrial customers will have up to four service options
that will fix electric energy rates and transition charges for a period
that generally ranges from four to six years.
o Electric delivery service rates will be frozen for a four-year period
for commercial and industrial customers. The generation and transmission
components of rates will be frozen for different time periods depending
on the service options selected by those customers.
o BGE will be allowed to recover $528 million of its potentially stranded
investments and utility restructuring costs through a competitive
transition charge on customers' bills. Residential customers will pay
this charge for six years. Commercial and industrial customers will pay
in a lump sum or over the four to six-year period, depending on the
service option selected by each customer.
o Generation-related regulatory assets and nuclear decommissioning costs
will be included in delivery service rates effective July 1, 2000 and
will be recovered on a basis approximating their existing amortization
schedules.
o Starting July 1, 2000, BGE will unbundle rates to show separate
components for delivery service, transition charges, standard offer
services (generation), transmission, universal service, and taxes.
o On July 1, 2000, BGE will transfer, at book value, its ten
Maryland-based fossil and nuclear power plants and its partial ownership
interest in two coal plants and a hydroelectric plant in Pennsylvania to
nonregulated subsidiaries of Constellation Energy.
o BGE will reduce its generation assets, as described later in this
section, by $150 million (pre-tax) during the period July 1, 1999 - June
30, 2000 to mitigate a portion of BGE's potentially stranded
investments.
o Universal service is provided for low-income customers without
increasing their bills. BGE will provide its share of a statewide fund
totaling $34 million.
We believe that the Restructuring Order provides sufficient details of the
transition plan to competition for BGE's electric generation business to require
BGE to discontinue the application of Statement of Financial Accounting
Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of
Regulation for that portion of our business. Accordingly, in the fourth quarter
of 1999, we will adopt the provisions of SFAS No. 101, Regulated
20
<PAGE>
Enterprises - Accounting for the Discontinuation of FASB Statement No. 71 and
Emerging Issues Task Force Consensus (EITF) No. 97-4, Deregulation of the
Pricing of Electricity - Issues Related to the Application of FASB Statements
No. 71 and 101 for BGE's electric generation business. BGE's transmission and
distribution business continues to meet the requirements of SFAS No. 71 as that
business remains regulated. We describe the effect of applying these accounting
requirements in the following discussion.
SFAS No. 101 requires the elimination of the effects of rate regulation that
have been recognized as regulatory assets and liabilities pursuant to SFAS No.
71. Under the Restructuring Order, BGE's generation-related net regulatory
assets will be effectively recovered through BGE's regulated transmission and
distribution business. We expect that there will be no net impact on BGE's or
Constellation Energy's earnings associated with the recovery of the
generation-related net regulatory assets.
Pursuant to SFAS No. 101, the book value of property, plant, and equipment
may not be adjusted unless those assets are impaired under the provisions of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of. The process of evaluating and measuring
impairment under the provisions of SFAS No. 121 involves two steps. First, we
must compare the net book value of each generating plant to the estimated
undiscounted future net operating cash flows from that plant. An electric
generating plant is considered impaired when its undiscounted future net
operating cash flows are less than its net book value. Second, we compute the
fair value of each plant that is determined to be impaired based on the present
value of that plant's estimated future net operating cash flows discounted using
an interest rate that considers the risk of operating that facility in a
competitive environment. To the extent that the net book value of each impaired
electric generation plant exceeds its fair value, we must record a write-down.
Under the Restructuring Order, BGE will recover $528 million of its
potentially stranded investments and utility restructuring costs through the
competitive transition charge component of its customer rates beginning July 1,
2000. This recovery mostly relates to the stranded costs associated with BGE's
Calvert Cliffs Nuclear Power Plant, whose book value is substantially higher
than its estimated fair value. However, Calvert Cliffs is not considered
impaired under the provisions of SFAS No. 121 since its estimated future
undiscounted cash flows exceed its book value. Accordingly, BGE will not record
any impairment write-down related to Calvert Cliffs. We will, however, recognize
impairment losses associated with certain of our fossil plants under the
provisions of SFAS No. 121.
BGE has contracts to purchase electric capacity and energy that are expected
to be uneconomic upon the deregulation of electric generation. Therefore, we
must record a charge based on the net present value of the excess of estimated
contract costs over the market-based revenues to recover these costs over the
remaining terms of the contracts. In addition, BGE has deferred certain energy
conservation expenditures that will not be recovered through its transmission
and distribution business under the Restructuring Order. Accordingly, we must
record a charge to eliminate the regulatory asset previously established for
these deferred expenditures.
At the date of this report, we estimate that the total charge for BGE's
electric generating plants that are impaired, losses on uneconomic purchased
capacity and energy contracts, and deferred energy conservation expenditures is
approximately $150 million to $175 million (after-tax). The actual charge will
be recorded in the fourth quarter of 1999.
BGE will record approximately $95 million of this charge on its balance
sheet. This will consist of establishing a $150 million regulatory asset of its
regulated transmission and distribution business, net of approximately $55
million of associated deferred income taxes. The regulatory asset will be
amortized as it is recovered from ratepayers through June 30, 2000. This will
accomplish the $150 million reduction of its generation plants required by the
Restructuring Order.
We will record an after-tax, extraordinary charge against earnings for the
approximately $55 million to $80 million remaining portion of the $150 million
to $175 million described above that will not be recovered under the
Restructuring Order.
As a condition of the Maryland PSC's consolidation of the September 3, 1998
Office of People's Counsel petition to lower electric base rates with BGE's
electric restructuring transition proposal, we agreed to make our rates subject
to refund effective July 1, 1999. Therefore, BGE deferred $37.5 million of
revenues it collected during the third quarter pending the Maryland PSC's
approval of the proposed settlement. However, with the issuance of the
Restructuring Order, these deferred revenues will be reversed in the fourth
quarter, as our current rates will be frozen through June 30, 2000. In the
fourth quarter, BGE will also record $75 million in amortization expense or
one-half of the $150 million reduction of generation plants provided for in the
Restructuring Order as discussed above.
21
<PAGE>
Gas Business
- ------------
Currently, no regulation exists for the wholesale price of natural gas as a
commodity, and the regulation of interstate transmission at the federal level
has been reduced. All BGE industrial and commercial gas customers, and effective
November 1, 1999, all BGE residential customers, have the option to purchase gas
from other suppliers.
Utility Business Earnings per Share of Common Stock
- ---------------------------------------------------
Quarter Ended Nine Months Ended
September 30 September 30
--------------- ------------------
1999 1998 1999 1998
-------- ------- -------- -------
Electric business... $1.02 $1.04 $1.70 $1.67
Gas business........ - (.01) .14 .11
---- ---- --- ---
Total utility
earnings per share $1.02 $1.03 $1.84 $1.78
===== ===== ===== =====
Our utility earnings for the quarter ended September 30, 1999 decreased $2.0
million, or $.01 per share compared to the same period of 1998. Our utility
earnings for the nine months ended September 30, 1999, increased $10.3 million,
or $.06 per share compared to the same period of 1998. We discuss the factors
affecting utility earnings below.
The discussion below reflects the operations of the electric generation
portion of our utility business under current rate regulation by the Maryland
PSC. Our electric business will change significantly beginning July 1, 2000 as
we enter into the transition to full retail customer choice for electric
generation. Also, upon receipt of all regulatory approvals, on July 1, 2000, all
of BGE's generation assets will be moved to nonregulated subsidiaries of
Constellation Energy. These assets represent about 6,240 megawatts of generation
capacity. We have not determined the impact of transferring all of BGE's
generation assets to nonregulated subsidiaries on BGE's assets, revenues and net
income. However, such amounts could be material. We discuss this further in the
"Deregulation and Strategy" section on page 16.
Electric Operations
- -------------------
Electric Revenues
- -----------------
The changes in electric revenues in 1999 compared to 1998 were caused by:
Quarter Ended Nine Months Ended
September 30 September 30
1999 vs. 1998 1999 vs. 1998
--------------- ------------------
(In millions)
Electric system
sales volumes....... $ 7.7 $ 25.7
Base rates............ 10.8 10.3
Fuel rates............ (1.0) 0.9
---- ---
Total change in electric
revenues from electric
system sales........ 17.5 36.9
Interchange and
other sales......... (11.7) (10.6)
Other................. (37.1) (35.9)
----- -----
Total change in
electric revenues... $(31.3) $ (9.6)
====== ======
Electric System Sales Volumes
- -----------------------------
"Electric system sales volumes" are sales to customers in our service
territory at rates set by the Maryland PSC. These sales do not include
interchange sales and sales to others.
The percentage changes in our electric system sales volumes, by type of
customer, in 1999 compared to 1998 were:
Quarter Ended Nine Months Ended
September 30 September 30
1999 vs. 1998 1999 vs. 1998
--------------- --------------------
Residential.......... 3.5% 4.3%
Commercial........... 0.2 1.4
Industrial........... (11.9) (7.3)
During the quarter ended September 30, 1999, we sold more electricity to
residential customers due to higher usage per customer and warmer weather. We
sold about the same amount of electricity to commercial customers as we did
during the same period of 1998. We sold less electricity to industrial customers
mostly because usage by Bethlehem Steel (our largest customer) and other
industrial customers decreased. Usage decreased at Bethlehem Steel as a result
of a shut down from June to August for a planned upgrade to their facilities
that temporarily reduced their electricity consumption.
22
<PAGE>
During the nine months ended September 30, 1999, we sold more electricity to
residential customers due to higher usage per customer, colder winter weather,
and an increased number of customers. The increase in sales to residential
customers was partially offset by milder spring and early summer weather. We
sold more electricity to commercial customers mostly due to colder winter
weather and an increased number of customers. We sold less electricity to
industrial customers mostly because usage by Bethlehem Steel and other
industrial customers decreased.
Base Rates
- ----------
During the quarter and nine months ended September 30, 1999, base rate
revenues increased compared to the same periods of 1998 mostly because we had
higher conservation surcharge revenues.
Fuel Rates
- ----------
During the quarter and nine months ended September 30, 1999, fuel rate
revenues were about the same compared to the same periods of 1998.
Interchange and Other Sales
- ---------------------------
"Interchange and other sales" are sales in the PJM (Pennsylvania-New
Jersey-Maryland) Interconnection energy market and to others. The PJM is a
regional power pool with members that include many wholesale market
participants, as well as BGE and six other utility companies. We sell energy to
PJM members and to others after we have satisfied the demand for electricity in
our own system.
During the quarter and nine months ended September 30, 1999, we had lower
interchange and other sales compared to the same periods of 1998 mostly because
the increased demand for system sales reduced the amount of energy we had
available for off-system sales.
Other
- -----
During the quarter and nine months ended September 30, 1999, other revenues
decreased compared to the same periods of 1998 mostly because BGE deferred $37.5
million of electric revenues that it collected during the third quarter of 1999
on the basis that as of September 30, 1999 this amount was subject to refund
pending the Maryland PSC's approval of the proposed settlement agreement. We
discuss the revenue deferral further in the "Competition and Response to
Regulatory Change" section on page 20.
Electric Fuel and Purchased Energy Expenses
- -------------------------------------------
Quarter Ended Nine Months Ended
September 30 September 30
----------------- ------------------
1999 1998 1999 1998
-------- ------- ------- ---------
(In millions)
Actual costs......... $177.6 $169.9 $435.4 $408.6
Net deferral of costs
under electric fuel
rate clause (see
Note 1 of BGE's
1998 Form 10-K).... (61.8) (20.5) (78.5) (17.1)
----- ----- ----- -----
Total electric fuel and
purchased energy
expenses........... $115.8 $149.4 $356.9 $391.5
====== ====== ====== ======
Actual Costs
- ------------
During the quarter and nine months ended September 30, 1999, our actual
costs of fuel to generate electricity (nuclear fuel, coal, gas, or oil) and
electricity we bought from others was higher compared to the same periods of
1998 mostly because the price of electricity we bought from others was higher.
The price of electricity changes based on market conditions, complex pricing
formulas for PJM transactions, and contract terms. The increase in actual costs
was partially offset by our settlement of a capacity contract with PECO in 1998.
Electric Fuel Rate Clause
- -------------------------
Under the electric fuel rate clause, we defer (include as an asset or
liability on the Consolidated Balance Sheets and exclude from the Consolidated
Statements of Income) the difference between our actual costs of fuel and energy
and what we collect from customers under the fuel rate in a given period. We
either bill or refund our customers that difference in the future.
During the quarter and nine months ended September 30, 1999, our actual
costs of fuel and energy were higher than the fuel rate revenues we collected
from our customers.
23
<PAGE>
Gas Operations
- --------------
Gas Revenues
- ------------
The changes in gas revenues in 1999 compared to 1998 were caused by:
Quarter Ended Nine Months Ended
September 30 September 30
1999 vs. 1998 1999 vs. 1998
--------------- ------------------
(In millions)
Gas system
sales volumes....... $ 1.0 $ 7.3
Base rates............ (0.3) 2.0
Weather normalization. 0.6 4.1
Gas cost adjustments.. 2.2 15.0
--- ----
Total change in gas
revenues from gas
system sales........ 3.5 28.4
Off-system sales...... (5.8) (20.9)
Other................. 0.3 0.5
--- ---
Total change in
gas revenues........ $(2.0) $ 8.0
===== =====
Gas System Sales Volumes
- ------------------------
The percentage changes in our gas system sales volumes, by type of customer,
in 1999 compared to 1998 were:
Quarter Ended Nine Months Ended
September 30 September 30
1999 vs. 1998 1999 vs. 1998
--------------- ------------------
Residential........ 0.7% 9.1%
Commercial......... 8.5 12.7
Industrial......... (10.6) (6.3)
During the quarter ended September 30, 1999, we sold about the same amount
of gas to residential customers as we did during the same period of 1998. We
sold more gas to commercial customers due to higher usage per customer and an
increased number of customers. We sold less gas to industrial customers mostly
because usage by Bethlehem Steel and other industrial customers decreased. Usage
by Bethlehem Steel decreased due to a shut down from June to August for a
planned upgrade to their facilities.
During the nine months ended September 30, 1999, we sold more gas to
residential customers mostly because of two factors: colder winter weather and
the number of customers increased. This was partially offset by lower usage per
customer. We sold more gas to commercial customers mostly because of colder
winter weather, increased usage per customer, and an increased number of
customers. We sold less gas to industrial customers mostly because usage by
Bethlehem Steel and other industrial customers decreased.
Base Rates
- ----------
During the quarter ended September 30, 1999, base rate revenues were about
the same compared to the same period of 1998.
During the nine months ended September 30, 1999, base rate revenues were
higher than they were during the same period of 1998. Effective March 1, 1998,
the Maryland PSC allowed us to increase our base rates which increased our base
rate revenues over the twelve-month period March 1998 through February 1999 by
approximately $16 million.
Weather Normalization
- ---------------------
Effective March 1, 1998, the Maryland PSC allowed us to implement a monthly
adjustment to our gas revenues to eliminate the effect of abnormal weather
patterns on our gas system sales volumes. This means our monthly gas revenues
will be based on weather that is considered "normal" for the month and,
therefore, will not be affected by actual weather conditions.
Gas Cost Adjustments
- --------------------
We charge our gas customers for the natural gas they purchase from us using
gas cost adjustment clauses set by the Maryland PSC which include a market based
rate incentive mechanism. These clauses operate similar to the electric fuel
rate clause described in the "Electric Fuel Rate Clause" section on page 23.
However, under market based rates, our actual cost of gas is compared to a
market index (a measure of the market price of gas in a given period). The
difference between our actual cost and the market index is shared equally
between shareholders and customers, and does not significantly impact earnings.
Delivery service customers, including Bethlehem Steel, are not subject to
the gas cost adjustment clauses because we are not selling gas to them. We
charge these customers fees to recover the fixed costs for the transportation
service we provide. These fees are the same as the base rate charged for gas
sales and are included in gas system sales volumes.
During the quarter ended September 30, 1999, gas cost adjustment revenues
increased compared to the same period of 1998 mostly because we sold gas at a
higher price.
24
<PAGE>
During the nine months ended September 30, 1999, gas cost adjustment
revenues increased compared to the same period of 1998 mostly because we sold
more gas at a higher price.
Off-System Sales
- ----------------
Off-system gas sales are low-margin direct sales of gas to wholesale
suppliers of natural gas outside our service territory. Off-system gas sales,
which occur after we have satisfied our customers' demand, are not subject to
gas cost adjustments. The Maryland PSC approved an arrangement for part of the
margin from off-system sales to benefit customers (through reduced costs) and
the remainder to be retained by BGE (which benefits shareholders).
During the quarter and nine months ended September 30, 1999, revenues from
off-system gas sales decreased compared to the same periods of 1998 mostly
because we sold less gas off-system.
Gas Purchased For Resale Expenses
- ---------------------------------
Quarter Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1999 1998 1999 1998
-------- -------- ------- --------
(In millions)
Actual costs........ $ 19.1 $ 19.4 $142.1 $148.5
Net recovery of
costs under gas
adjustment clauses 2.2 2.2 14.3 3.5
-------- -------- -------- ---------
Total gas
purchased for
resale expenses.. $ 21.3 $ 21.6 $156.4 $152.0
======== ======== ======= ========
Actual Costs
- ------------
Actual costs include the cost of gas purchased for resale to our customers
and for off-system sales. Actual costs do not include the cost of gas purchased
by delivery service customers. During the quarter and nine months ended
September 30, 1999, actual gas costs decreased compared to the same periods of
1998 mostly because we bought less gas for off-system sales.
Gas Adjustment Clauses
- ----------------------
We charge customers for the cost of gas sold through gas adjustment clauses
(determined by the Maryland PSC), as discussed under "Gas Cost Adjustments"
earlier in this section.
During the quarter and nine months ended September 30, 1999, our actual gas
costs were lower than the fuel rate revenues we collected from our customers.
Other Operating Expenses
- ------------------------
Operations and Maintenance Expenses
- -----------------------------------
During the quarter ended September 30, 1999, operations and maintenance
expenses were about the same compared to the same period of 1998. In 1999,
operations and maintenance expenses include approximately $7.5 million of costs
associated with Hurricane Floyd. This was offset by higher operations and
maintenance expenses in the third quarter of 1998 associated with the annual
refueling outage at Calvert Cliffs.
During the nine months ended September 30, 1999, operations and maintenance
expenses increased $14.8 million compared to the same period of 1998 mostly
because of costs related to Hurricane Floyd and a major winter ice storm during
1999. This increase was partially offset by the $6.5 million write-off of
contributions to a third party for a low-level radiation waste facility that was
never completed, which we recorded in 1998.
Depreciation and Amortization Expenses
- --------------------------------------
During the quarter and nine months ended September 30, 1999, depreciation
and amortization expenses were about the same compared to the same periods of
1998.
Taxes Other Than Income Taxes
- -----------------------------
During the quarter ended September 30, 1999, taxes other than income taxes
increased $3.1 million compared to the same period of 1998 mostly because of
higher property taxes.
During the nine months ended September 30, 1999, taxes other than income
taxes increased $8.6 million compared to the same period of 1998 mostly because
of two factors: higher property taxes and higher payroll taxes associated with
increased labor costs.
Interest Expense
- ----------------
During the quarter and nine months ended September 30, 1999, interest
expense was about the same compared to the same periods of 1998.
25
<PAGE>
Income Taxes
- ------------
During the quarter ended September 30, 1999, our total income taxes
decreased $16.1 million compared to the same period of 1998 mostly because we
had lower taxable income from our diversified businesses.
During the nine months ended September 30, 1999, our total income taxes
decreased $7.3 million compared to the same period of 1998 mostly because we had
lower taxable income from our diversified businesses partially offset by higher
taxable income from our utility operations.
Diversified Businesses
- ----------------------
Our diversified businesses engage primarily in energy services. We list each
of our diversified businesses in the "Introduction" section on page 16. We
describe our diversified businesses in more detail in BGE's 1998 Annual Report
on Form 10-K under "Item 1. Business -- Diversified Businesses."
Constellation Enterprises and its subsidiaries were subsidiaries of BGE
prior to April 30, 1999 and are included in the consolidated financial
statements of BGE through that date.
Diversified Business Earnings per Share of Common Stock
- -------------------------------------------------------
Quarter Ended Nine Months Ended
September 30 September 30
----------------- -----------------
1999 1998 1999 1998
-------- ------- ------- -------
Energy services
Power marketing
and trading... $ .06 $ (.01) $ .19 $ -
Power projects. .03 .13 .13 .25
Other.......... (.04) - (.04) -
-------- -------- -------- --------
Total energy
services earnings
per share..... .05 .12 .28 .25
Other diversified
businesses
earnings per
share.......... (.16) (.07) (.20) (.06)
---- ---- ---- ----
Total earnings
per share...... $(.11) $.05 $.08 $.19
======== ======== ======== ========
Our total diversified business earnings for the quarter ended September 30,
1999 decreased $22.8 million, or $.16 per share, compared to the same period of
1998. Our total diversified business earnings for the nine months ended
September 30, 1999 decreased $16.1 million, or $.11 per share, compared to the
same period of 1998.
We discuss the factors affecting the earnings of our diversified businesses
below.
Energy Services
- ---------------
Power Marketing and Trading
- ---------------------------
During the quarter and nine months ended September 30, 1999, earnings from
our power marketing and trading business increased compared to the same periods
of 1998 mostly because of increased transaction margins and volume.
Constellation Power Source uses the mark-to-market method of accounting for
its trading activities. We discuss the mark-to-market method of accounting and
Constellation Power Source's trading activities in more detail in BGE's 1998
Annual Report on Form 10-K.
As a result of the nature of its trading activities, Constellation Power
Source's revenue and earnings will fluctuate. We cannot predict these
fluctuations, but the effect on our revenues and earnings could be material. The
primary factors that cause these fluctuations are:
o the number and size of new transactions,
o the magnitude and volatility of changes in commodity prices and interest
rates, and
o the number and size of open commodity and derivative positions
Constellation Power Source holds or sells.
Constellation Power Source's management uses its best estimates to determine
the fair value of commodity and derivative positions it holds and sells. These
estimates consider various factors including closing exchange and
over-the-counter price quotations, time value, volatility factors, and credit
exposure. However, it is possible that future market prices could vary from
those used in recording assets and liabilities from trading activities, and such
variations could be material. Assets and liabilities from energy trading
activities (as shown in our Consolidated Balance Sheets beginning on page 4)
increased at September 30, 1999 compared to December 31, 1998 because of greater
business activity during the period.
26
<PAGE>
Power Projects
- --------------
During the quarter and nine months ended September 30, 1999, earnings from
our power projects business decreased compared to the same periods of 1998
mostly because of two factors:
o In August 1999, our power projects business recorded a $6.7 million
after-tax, or $.05 per share write-off of a geothermal power project.
The write-off occurred because the expected future cash flow from the
project is less than the investment in the project as a result of
declining water temperature of the geothermal resource used by the plant
for production.
o In July 1998, our power projects business recorded a $10.4 million
after-tax, or $.07 per share, gain for its share of earnings in a
partnership. The partnership recognized a gain on the sale of a power
purchase agreement.
California Power Purchase Agreements
- ------------------------------------
Constellation Power and subsidiaries and Constellation Investments have
$308.2 million invested in 14 projects that sell electricity in California under
power purchase agreements called "Interim Standard Offer No. 4" agreements.
Earnings from these projects were $12.4 million, or $.08 per share, for the
quarter ended September 30, 1999 compared to $24.0 million, or $.16 per share
for the same period of 1998. Earnings from these projects were $26.3 million, or
$.18 per share, for the nine months ended September 30, 1999 compared to $41.0
million, or $.28 per share for the same period of 1998.
Under these agreements, the electricity rates change from fixed rates to
variable rates beginning in 1996 and continue through 2000. The projects which
already have had rate changes have lower revenues under variable rates than they
did under fixed rates. When the remaining projects transition to variable rates,
we expect their revenues also to be lower than they are under fixed rates.
Our power projects business is pursuing alternatives for some of these power
generation projects including:
o repowering the projects to reduce operating costs,
o changing fuels to reduce operating costs,
o renegotiating the power purchase agreements to improve the terms,
o restructuring financing to improve existing terms, and
o selling its ownership interests in the projects.
At the date of this report, ten projects had already transitioned to
variable rates. The remaining four projects that have the highest revenues will
transition between February and December 2000. The projects which transitioned
in 1999 contributed $2.1 million, or $.01 per share to the quarter ended
September 30, 1999 earnings and $5.4 million, or $.04 per share for the nine
months ended September 30, 1999 earnings. Those changing over in 2000
contributed $9.9 million, or $.07 per share to the quarter ended September 30,
1999 earnings and $20.4 million, or $.14 per share for the nine months ended
September 30, 1999 earnings. We expect earnings ultimately to decrease by
similar amounts as these projects transition.
We also describe these projects and the transition process in the Notes to
Consolidated Financial Statements on page 15.
International
- -------------
At September 30, 1999, Constellation Power had invested about $182.0 million
in 10 power projects in Latin America compared to $104.4 million invested in
Latin America at September 30, 1998. These investments include:
o the purchase of a 51% interest in a Panamanian electric distribution
company for approximately $90 million in 1998 by an investment group in
which subsidiaries of Constellation Power hold an 80% interest, and
o approximately $98 million for the purchase of existing electric
generation facilities and the construction of an electric generation
facility in Guatemala.
In the future, Constellation Power expects to expand its power projects
business further in both domestic and international projects.
Other Energy Services
- ---------------------
During the quarter and nine months ended September 30, 1999, earnings from
our other energy services businesses decreased compared to the same periods of
1998 mostly because of lower gross margins from energy trading at our energy
products and services business.
27
<PAGE>
Other Diversified Businesses
- ----------------------------
During the quarter and nine months ended September 30, 1999, earnings from
our other diversified businesses were lower compared to the same periods of 1998
mostly because our financial investments business had lower earnings from its
investment in Capital Re Corporation (Capital Re).
In May 1999, our financial investments business announced that it will
exchange its shares of common stock in Capital Re for common stock of ACE
Limited (ACE) as part of a business combination whereby ACE would acquire all of
the outstanding capital stock of Capital Re. In June 1999, our financial
investments business wrote-down its $94.2 million investment in Capital Re stock
by $3.6 million after-tax, or $.02 per share to reflect the valuation of this
pending business combination.
In September 1999, our financial investments business wrote-down its
investment in Capital Re stock by an additional $17.3 million after-tax, or $.12
per share to reflect the market value of $12.50 per share for this investment.
The initial close was scheduled for early in the fourth quarter of 1999.
However, in October 1999, another insurance company, XL Capital, Inc., submitted
a competing bid to acquire the shares of common stock in Capital Re.
Subsequently, ACE matched the competing bid with an offer composed of cash and
stock, whose exchange rate was increased from their initial offer. As of the
date of this report, the market value of the current offer is approximately
$14.40 per share and is partially dependent on the market value of ACE stock.
Upon closing, which is expected to occur in the first quarter of 2000, final
valuation will occur, and our financial investments business will record any
change in the market value of this investment to the income statement.
Earnings from our real estate and senior-living facilities business were
about the same compared to the same periods of 1998. In September 1999, earnings
include a $3.4 million after-tax, or $.02 per share write-down of certain
senior-living facilities related to the sale of these facilities as discussed
below. This write-down was offset by higher earnings from various other real
estate projects in 1999.
In August 1999, our senior-living facilities business announced that it
entered into an agreement to sell all but one of its senior-living facilities to
Sunrise Assisted Living, Inc. Under the terms of the agreement, Sunrise was to
acquire twelve of our existing senior-living facilities, three facilities under
construction, and several sites under development for $72.2 million in cash and
$16.0 million in debt assumption. We have been unable to reach agreement on
financing issues that subsequently arose, and the agreement was terminated in
November 1999. As a result, our real estate and senior-living facilities
business will now engage a third-party management company to assist in managing
its senior-living facilities portfolio including the three facilities now under
construction, which will be completed by our real estate and senior-living
facilities business in the first half of 2000.
In April 1999, Constellation Real Estate Group, Inc. (CREG) sold Church
Street Station, our entertainment, dining, and retail complex in Orlando,
Florida for $11.5 million, the approximate book value of the complex.
Most of CREG's remaining real estate projects are in the
Baltimore-Washington corridor. The area has had a surplus of available land in
recent years and as a result these projects have been economically hurt.
Constellation Real Estate's projects have continued to incur carrying costs
and depreciation over the years. Additionally, this business has been charging
interest payments to expense rather than capitalizing them for some undeveloped
land where development activities have stopped. These carrying costs,
depreciation, and interest expenses have decreased earnings and are expected to
continue to do so.
Cash flow from real estate operations has not been enough to make the
monthly loan payments on some of these projects. Cash shortfalls have been
covered by cash obtained from the cash flows of, or additional borrowings by,
other diversified subsidiaries.
Our current real estate strategy is to hold each real estate project until
we can realize a reasonable value for it. We evaluate strategies for all our
businesses, including real estate, on an ongoing basis. We anticipate that
competing demands for our financial resources and changes in the utility
industry will cause us to evaluate thoroughly all diversified business
strategies on a regular basis so we use capital and other resources in a manner
that is most beneficial.
28
<PAGE>
We consider market demand, interest rates, the availability of financing,
and the strength of the economy in general when making decisions about our real
estate projects. If we were to decide to sell our real estate projects, we could
have write-downs. In addition, if we were to sell our real estate projects in
the current market, we would have losses which could be material, although the
amount of the losses is hard to predict. Depending on market conditions, we
could also have material losses on any future sales.
Under accounting rules, we are required to write down the value of a real
estate project to market value in either of two cases. The first is if we change
our intent about a project from an intent to hold to an intent to sell and the
market value of that project is below book value. The second is if the expected
cash flow from the project is less than the investment in the project.
- --------------------------------------------------------------------------------
Financial Condition
- -------------------
Cash Flows
- ----------
For the nine months ended September 30:
- ---------------------------------------
1999 1998
---- ----
(In millions)
Cash provided by (used in):
Operating Activities $ 483.5 $ 654.8
Investing Activities (441.8) (415.1)
Financing Activities (159.0) (187.2)
During the nine months ended September 30, 1999, we generated less cash from
operations compared to the same period in 1998 mostly because of changes in
working capital requirements.
During the nine months ended September 30, 1999, we used more cash for
investing activities compared to the same period in 1998 mostly because of the
following factors: our power marketing and trading business increased its
investment in Orion Power Holdings, Inc. by $97.7 million, our power projects
business increased its investment in power projects by $25.7 million, and BGE
increased its capital expenditures by $11.9 million. These increases are
partially offset by a $60.7 million investment for the purchase of a power
generation facility in Guatemala in 1998 by our power projects business. In
addition, our real estate and senior-living facilities business invested less in
1999 compared to the same period of 1998.
During the nine months ended September 30, 1999, we used less cash for
financing activities compared to the same period of 1998 mostly because we
redeemed less BGE preference stock and our net short-term borrowings were
higher. This was partially offset by an increase in the repayments of long-term
debt and a decrease in the issuances of long-term debt.
Security Ratings
- ----------------
Independent credit-rating agencies rate Constellation Energy and BGE's
fixed-income securities. The ratings indicate the agencies' assessment of each
company's ability to pay interest, distributions, dividends, and principal on
these securities. These ratings affect how much it will cost each company to
sell these securities. The better the rating, the lower the cost of the
securities to each company when they sell them. Constellation Energy and BGE's
securities ratings at the date of this report are:
Standard Moody's Duff & Phelps'
& Poors Investors Credit
Rating Group Service Rating Co.
------------- ---------- --------------
Constellation Energy
- --------------------
Unsecured Debt A- A3 A
BGE
- ---
Mortgage Bonds AA- A1 AA-
Unsecured Debt A A2 A+
Trust Originated
Preferred Securities
and Preference Stock A- "a2" A
Capital Resources
- -----------------
Our business requires a great deal of capital. Our actual consolidated
capital requirements for the nine months ended September 30, 1999, along with
estimated annual amounts for the years 1999 through 2001, are shown on page 30.
For the twelve months ended September 30, 1999, the ratio of earnings to fixed
charges for Constellation Energy was 2.68. The ratio of earnings to fixed
charges for BGE was 3.32 and the ratio of earnings to combined fixed charges and
preferred and preference dividend requirements for BGE was 3.00.
29
<PAGE>
Investment requirements for 1999 through 2001 include estimates of funding
for existing and anticipated projects. We continuously review and modify those
estimates. Actual investment requirements may vary from the estimates included
in the table below because of a number of factors including:
o regulation, legislation, and competition,
o load growth,
o environmental protection standards,
o the type and number of projects selected for development,
o the effect of market conditions on those projects,
o the cost and availability of capital, and
o the availability of cash from operations.
Our estimates are also subject to additional factors. Please see "Forward
Looking Statements" on page 38.
Upon receipt of all regulatory approvals, on July 1, 2000, all of BGE's
generation assets will be moved to nonregulated subsidiaries of Constellation
Energy. The discussion and table for capital requirements below include these
generation assets as part of the utility business.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Calendar Year Estimates
1999 1999 2000 2001
--------- ------- -- -------- -- --------
(In millions)
Utility Business Capital Requirements:
- --------------------------------------
Construction expenditures (excluding AFC)
<S> <C> <C> <C> <C>
Electric $ 176 $ 290 $327 $330
Gas 42 64 64 63
Common 20 27 25 24
-------- ------- ------- -------
Total construction expenditures 238 381 416 417
AFC 8 11 7 4
Nuclear fuel (uranium purchases and processing charges) 45 46 50 48
Deferred energy conservation expenditures 1 1 - -
Retirement of long-term debt and redemption of
preference stock 250 342 403 282
-------- ------- ------- -------
Total utility business capital requirements 542 781 876 751
-------- ------- ------- -------
Diversified Business Capital Requirements:
- ------------------------------------------
Investment requirements 140 140 766 697
Retirement of long-term debt 116 201 273 367
-------- ------- ------- -------
Total diversified business capital requirements 256 341 1,039 1,064
-------- ------- ------- -------
Total capital requirements $ 798 $1,122 $1,915 $1,815
======== ======= ======= =======
</TABLE>
Capital Requirements of Our Utility Business
- --------------------------------------------
Our estimates of future electric construction expenditures do not include
costs to build more generating units. Electric construction expenditures include
improvements to generating plants and to our transmission and distribution
facilities.
Future electric construction expenditures include estimated costs for
replacing the steam generators and renewing the operating licenses at Calvert
Cliffs. The operating licenses expire in 2014 for Unit 1 and in 2016 for Unit 2.
We estimate these Calvert Cliffs costs to be:
o $34 million in 1999,
o $40 million in 2000, and
o $66 million in 2001.
We estimate that during the two-year period 2002 through 2003, we will spend
an additional $150 million to complete the replacement of the steam generators
and extend the operating licenses at Calvert Cliffs. We discuss the license
extension process further in the "Other Matters - Calvert Cliffs License
Extension" section of BGE's 1998 Annual Report on Form 10-K.
If we do not replace the steam generators, we estimate that Calvert Cliffs
could not operate for the full term of its current operating licenses. We expect
the steam generator replacements to occur during the 2002 refueling outage for
Unit 1 and during the 2003 outage for Unit 2.
30
<PAGE>
Additionally, our estimates of future electric construction expenditures
include the costs of complying with Environmental Protection Agency (EPA) and
State of Maryland nitrogen oxides emissions (NOx) reduction regulations as
follows:
o $33 million in 1999,
o $60 million in 2000, and
o $52 million in 2001.
We discuss the NOx regulations in the "Environmental Matters" section of the
Notes to Consolidated Financial Statements on page 13.
During the twelve months ended September 30, 1999, our utility operations
provided about 92% of the cash needed to meet its capital requirements,
excluding cash needed to retire debt and redeem preference stock.
We will continue to have cash requirements for:
o working capital needs including the payments of interest, distributions,
and dividends,
o capital expenditures, and
o the retirement of debt.
During the three years from 1999 through 2001, we expect utility operations
to provide about 115% of the cash needed to meet its capital requirements,
excluding cash needed to retire debt and redeem preference stock.
When BGE cannot meet utility capital requirements internally, BGE sells debt
and preference stock. BGE also sells securities when market conditions permit it
to refinance existing debt or preference stock at a lower cost. The amount of
cash BGE needs and market conditions determine when and how much BGE sells.
Future funding for capital expenditures, the retirement of debt, and
payments of interest and dividends is expected from internally generated funds,
commercial paper issuances, available capacity under credit facilities, and/or
the issuance of long-term debt, trust securities, or preference stock. At
September 30, 1999 the Federal Energy Regulatory Commission has authorized BGE
to issue up to $700 million of short-term borrowings, including commercial
paper. To support its commercial paper program, BGE maintains $83 million in
annual committed bank lines of credit and has $100 million in bank revolving
credit agreements. In addition, BGE has access to interim lines of credit as
required from time to time to support its outstanding commercial paper.
Capital Requirements of Our Diversified Businesses
- --------------------------------------------------
We expect to expand certain of our energy services businesses. This will
require additional funding for:
o growing our power marketing and trading business,
o the development and acquisition of power projects, as well as loans made
to project entities, and
o funding for construction of cooling system projects.
The investment requirements exclude Constellation Power Source, Inc.'s
commitment to contribute up to $175 million in equity to fund its investment in
Orion Power Holdings, Inc. Orion acquires electric generating plants in the
United States and Canada. To date, Constellation Power Source has funded $104
million of this commitment.
Our diversified businesses have met their capital requirements in the past
through borrowing, cash from their operations, sales of receivables, and from
time to time, equity contributions from BGE.
Future funding for the expansion of our energy services businesses is
expected from internally generated funds, commercial paper issuances and
long-term debt financing by Constellation Energy and from time to time equity
contributions from Constellation Energy. BGE Home Products & Services may also
meet capital requirements through sales of receivables.
At September 30, 1999, Constellation Energy has a commercial paper program
where it can issue up to $500 million in short-term notes to fund its
diversified businesses. To support its commercial paper program, Constellation
Energy maintains a $25 million committed bank line of credit and has a $135
million revolving credit agreement, under which it can also issue letters of
credit. In addition, Constellation Energy has access to interim lines of credit
as required from time to time to support its outstanding commercial paper. Our
diversified businesses also have revolving credit agreements totaling $135
million to provide additional liquidity for short-term financial needs.
If we can get a reasonable value for our real estate projects, additional
cash may be obtained by selling them. Our ability to sell or liquidate assets
will depend on market conditions, and we cannot give assurances that these sales
or liquidations could be made.
31
<PAGE>
Other Matters
- -------------
Environmental Matters
- ---------------------
We are subject to federal, state, and local laws and regulations that work
to improve or maintain the quality of the environment. If certain substances
were disposed of or released at any of our properties, whether currently
operating or not, these laws and regulations require us to remove or remedy the
effect on the environment. This includes Environmental Protection Agency
Superfund sites. You will find details of our environmental matters in the
"Environmental Matters" section of the Notes to Consolidated Financial
Statements beginning on page 13 and in BGE's 1998 Annual Report on Form 10-K
under "Item 1. Business - Environmental Matters." These details include
financial information. Some of the information is about costs that may be
material.
Year 2000 Readiness Disclosure
- ------------------------------
We have not experienced any significant year 2000 problems to date and we do
not expect any significant problems to impair our operations as we transition to
the new century. However, due to the magnitude and complexity of the year 2000
issue, even the most conscientious efforts cannot guarantee that every problem
will be found and corrected prior to January 1, 2000. We believe that all of
BGE's "mission critical" systems for electric and gas production and delivery
are year 2000 ready. Mission critical systems include BGE's:
o electric generating plants, including Calvert Cliffs Nuclear Power
Plant,
o energy distribution systems,
o natural gas delivery system, and
o mission critical applications supporting these systems.
Please refer to "Forward Looking Statements" on page 38.
Utility Business
- ----------------
We established a year 2000 Program Management Office (PMO). Based on a work
plan developed by the PMO, we targeted the following six key areas:
o digital systems (devices with embedded microprocessors such as power
instrumentation, controls, and meters),
o telecommunications systems,
o major suppliers,
o information technology applications (our customer, business, and human
resources information systems),
o computer hardware and software infrastructure, and
o contingency plans.
Of these areas, digital systems have the most impact on our ability to
provide electric and gas service. Telecommunications, major suppliers, and
certain information technology applications also impact our ability to provide
electric and gas service.
Year 2000 Project Phases
- ------------------------
Our year 2000 project is divided into two phases:
o Phase I - initial assessment and detailed analysis, and
o Phase II - testing, remediation, certification, and contingency
planning.
Phase I involved conducting an inventory of all systems and identifying
appropriate resources. We identified the following appropriate resources for
each system or piece of equipment:
o BGE employees familiar with each system or piece of equipment,
o specialized contractors, and
o specific vendors.
Phase I also included developing action plans to ensure that the key areas
identified above are year 2000 ready. The action plans for each system or piece
of equipment included:
o our budget,
o schedules for Phase I and II, and
o our remediation approach - repair, upgrade, replace or retire.
32
<PAGE>
In evaluating our risks and estimating our costs, we utilized employees with
expertise in each line of business to perform the activities under Phase I. We
believe our employees are the most familiar with their systems or equipment and,
therefore, provided a reliable estimate of our risks and costs.
Phase II included converting and testing all of our systems. Each system was
tested by those employees used in Phase I following formal guidelines developed
by the PMO. Each system or piece of equipment was then certified by a tester and
the PMO, following testing guidelines developed with the help of outside
consultants. We received an independent Year 2000 readiness review of our
processes and systems. Phase II also included identifying our major suppliers
and developing contingency plans. We have identified our mission critical
suppliers and have assessed their year 2000 readiness through surveys and
interviews. We believe that our mission critical suppliers (for example, coal
suppliers and natural gas pipeline suppliers) are year 2000 ready. We are
completing the readiness review of our non-mission critical suppliers through
surveys.
Contingency Planning
- --------------------
Year 2000 operational contingency plans have been developed utilizing
employees familiar with the operations in each area of our business. The
individual plans are integrated into a corporate-wide Year 2000 Contingency
Plan. Associated staffing plans have been completed identifying all essential
personnel needed on-site for the rollover weekend (December 31, 1999 - January
1, 2000) to deal with any problems, if they should occur. BGE will have a
corporate command center staffed during the rollover weekend to serve as the
communication hub for year 2000 status information for BGE and all diversified
businesses. The center will have two-way communications with the electric, gas,
retail services, nuclear, and information technology operations command centers
for the purpose of collecting information and coordinating responses. The center
will also have two-way communications with the Maryland Emergency Management
Agency and local emergency operation centers in BGE's service territory.
Detailed coordination of the plans will continue, and personnel will be trained
in order to provide for a smooth transition.
The year 2000 contingency plans were developed using the contingency
guidelines issued by the Nuclear Energy Institute (which are endorsed by the
Nuclear Regulatory Commission), the contingency guidelines issued by the North
American Electric Reliability Council (NERC), and guidance from consultants.
We have addressed the impact of electric power grid problems that may occur
outside of our own electric system. We developed year 2000 electric power grid
impact contingency plans through our various electric interconnection
affiliations and continue to refine them. The PJM interconnection drafted year
2000 operational preparedness plans and restoration scenarios and continues to
coordinate and develop these plans during the fourth quarter of 1999 in
cooperation with NERC. The NERC continues to perform monthly assessments of the
electric utility industry to communicate the readiness of the national electric
grid for year 2000.
On April 9, 1999, we participated in a NERC sponsored drill, along with
other North American electric bulk operating utilities. The drill focused on
testing backup voice and data communications and protocols. The drill was
successful as it demonstrated our ability to operate the bulk power and gas
distribution systems reliably during a partial loss of telephone and data
communications.
On June 2, 1999, we conducted a successful test on our energy control system
and its interface with the PJM. This system monitors and controls the flow of
electricity on BGE's electric grid.
On September 8-9, 1999, we participated in the second NERC sponsored drill.
The focus of this drill was a simulation of the rollover to the year 2000 for
the electric utility industry. BGE expanded the drill to include all of its
business areas. The drill was successful as it demonstrated our understanding of
our Year 2000 Operational Contingency Plan and our ability to operate gas and
electric systems with limited voice and data communications.
Through the Electric Power Research Institute (EPRI), an industry-wide
effort was established to deal with year 2000 problems affecting digital systems
and equipment used by the nation's electric power companies. Under this effort,
participating utilities assessed specific vendors' system problems and test
plans. These assessments have been shared by the industry as a whole to
facilitate year 2000 problem solving.
BGE joined the American Gas Association (AGA) in an initiative similar to
the one with NERC to facilitate year 2000 problem solving among gas utilities.
The AGA and its affiliates performed quarterly assessments of the gas utility
industry to communicate the readiness of its members for the year 2000.
33
<PAGE>
Current Status
- --------------
The most reasonably likely worst case scenario faced by our utility business
is a localized interruption in providing electric and gas service to our
customers. We cannot predict the impact of any interruption on our results of
operations, but the impact could be material.
For all systems and equipment, both mission critical and non-mission
critical, we have completed Phase I and II.
Costs
- -----
In the following table, we show the breakdown of our total costs between
normal system replacements that will be capitalized (included in the
Consolidated Balance Sheets) and the costs that will be expensed (included in
our Consolidated Statements of Income) through operations and maintenance (O&M)
cost. We also show the breakdown of non-incremental (previously included in our
information technology budget) and incremental O&M cost:
Estimated Total
Actual Costs Costs Costs
------------ ----- -----
Through
1996- September Remainder of
1997 1998 30, 1999 1999 2000
------ ---- -------- ------- ----
(In millions)
Total Cost $1.8 $18.9 $14.0 $7.7 $3.6 $46.0
Less: Capital
cost - 7.3 4.2 2.8 0.2 14.5
----- ------ ----- -------- ---- -------
O&M cost 1.8 11.6 9.8 4.9 3.4 31.5
Less:
non-incremental
O&M cost 1.8 4.6 4.1 2.9 1.9 15.3
----- ------ ----- -------- ---- -------
Incremental
O&M cost $ - $7.0 $5.7 $ 2.0 $1.5 $16.2
===== ====== ====== ======== ==== =======
The costs incurred in 1996 and 1997 were for Phase I. The costs incurred in
1998 were for Phases I and II. Cost incurred in 1999 and 2000 will be for Phase
II. In 1998, we had the equivalent of approximately 110 full-time employees
assigned to our year 2000 project. We have had a similar level of commitment of
resources during 1999.
Diversified Businesses
- ----------------------
Overview
- --------
Our diversified businesses have established year 2000 task forces to address
their year 2000 issues. As the assessments were completed, the businesses
developed action plans to prepare their systems for the year 2000. Outside
consultants have been retained by several of our diversified businesses to help
complete the initial assessment and detailed analysis phase, and to assist in
the testing, remediation, and certification phase of their year 2000 projects.
The action plans developed are similar to those used by our utility business,
including a test certification process. All systems are expected to be certified
by December 1999.
In evaluating their risks and estimating their costs, our diversified
businesses utilized employees with expertise in each line of business to perform
initial assessments. We believe our diversified businesses' employees are the
most familiar with their systems or equipment and therefore will provide a
reliable estimate of our risks and costs.
The progress of our diversified businesses' year 2000 projects are reviewed
by their year 2000 project task forces in monthly status meetings with the
personnel responsible for each project and their supervision. Monthly progress
is also monitored by senior management for each business and monthly updates are
provided to Constellation Energy senior management.
Contingency Planning
- --------------------
Each of our diversified businesses are developing contingency plans, which
are expected to be completed by December 1999.
Current Status
- --------------
The most reasonably likely worst case scenarios faced by our energy services
businesses and our other diversified businesses are discussed on page 35.
However, if any of these scenarios actually occurred, the impact is not expected
to be material to our consolidated financial results.
34
<PAGE>
Energy Services
- ---------------
The most reasonably likely worst case scenarios for any one of our power
projects would be:
o a shutdown of the plant's systems (most of which can be manually
overridden),
o inability of the purchasing utility to take the plant's power, or
o failure of critical suppliers.
Personnel at each plant have completed their assessment of their particular
year 2000 issues and have substantially completed the testing, remediation, and
certification phase of their year 2000 project. In Latin America, personnel are
focused on assessing the year 2000 readiness of suppliers and are preparing
contingency plans where necessary.
For our power marketing and trading business and our energy products and
services business, the most reasonably likely worst case scenario would be
encountering any Internet access problems with trading partners, transmission
service providers, independent system operators, power exchanges, or various
electronic bulletin boards. Each of these businesses has three Internet service
providers for alternate routing to critical Internet sites necessary to perform
day-to-day business functions. Both have completed all phases of their year 2000
projects.
For our home products and commercial building systems business, the most
reasonably likely worst case scenarios would be any interruption in billing
customers or renewing maintenance contracts. This business completed the
assessment and detailed analysis phase and has substantially completed the
testing, remediation, and certification phase of its year 2000 project.
Other Diversified Businesses
- ----------------------------
The most reasonably likely worst case scenarios for our financial
investments business would be a breakdown in the systems of the brokers or
safekeeping banks which it uses to trade, or the failure of its investment
managers' computer programs that set investment strategy. This business is
monitoring the year 2000 readiness of its banks, brokers, and investment
managers.
For our real estate and senior-living facilities business, the most
reasonably likely worst case scenario is a failure of the systems that support
the health, safety, and welfare of residents in the senior-living facilities.
Personnel at each senior-living facility are involved in assessing its
particular year 2000 issues and have a consultant coordinating the overall year
2000 activity. This business completed the assessment and detailed analysis
phase and has substantially completed the testing, remediation, and
certification phase of its Year 2000 project.
Costs
- -----
We estimate our total year 2000 costs for our power projects business to be
approximately $4.2 million, of which $1.2 million is related to our year 2000
efforts for our Panamanian electric distribution company. The total estimated
year 2000 costs for our remaining diversified businesses are approximately $2.8
million.
Accounting Standards Issued
- ---------------------------
In July 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137 regarding the delay of the
effective date for SFAS No. 133 on derivatives and hedging. This standard delays
the effective date by one year and therefore, we must adopt the provisions of
SFAS No. 133 in our financial statements for the quarter ended March 31, 2001.
35
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We discuss the following information related to our market risk:
o quarterly financing activities in the Notes to Consolidated Financial
Statements on page 12, and
o trading activities of our power marketing and trading business in the
"Power Marketing and Trading" section of Management's Discussion and
Analysis on page 26.
Under the Restructuring Order, BGE will provide standard offer service to
customers at fixed rates over various time periods during the transition period,
and the electric fuel rate will be discontinued effective July 1, 2000.
Additionally, upon receipt of all regulatory approvals, BGE will transfer all of
its generating assets to nonregulated subsidiaries of Constellation Energy at
that time. As a result of these provisions of the Restructuring Order, BGE will
be subject to market risk associated with acquiring energy to provide standard
offer service, and Constellation Energy's nonregulated subsidiaries will be
subject to market risk associated with the sale of energy from their generating
assets. At this time, we cannot estimate the financial risks associated with
this transition. However, these financial risks could have a material impact on
our financial position or our results of operations.
36
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Asbestos
- --------
Since 1993, we have been involved in several actions concerning asbestos.
The actions are based upon the theory of "premises liability," alleging that we
knew of and exposed individuals to an asbestos hazard. The actions relate to two
types of claims.
The first type is direct claims by individuals exposed to asbestos. We
described these claims in BGE's Report on Form 8-K filed August 20, 1993. We are
involved in these claims with approximately 70 other defendants. Approximately
530 individuals that were never employees of BGE each claim $6 million in
damages ($2 million compensatory and $4 million punitive). These claims were
filed in the Circuit Court for Baltimore City, Maryland in the summer of 1993.
We do not know the specific facts necessary to estimate our potential liability
for these claims. The specific facts we do not know include:
o the identity of our facilities at which the plaintiffs allegedly worked
as contractors,
o the names of the plaintiff's employers, and
o the date on which the exposure allegedly occurred.
To date, 22 of these cases were settled for amounts that were immaterial.
The second type is claims by one manufacturer -- Pittsburgh Corning Corp. --
against us and approximately eight others, as third-party defendants. These
claims relate to approximately 1,500 individual plaintiffs and were filed in the
Circuit Court for Baltimore City, Maryland in the fall of 1993. To date, about
140 cases have been resolved, all without any payments by BGE. We do not know
the specific facts necessary to estimate our potential liability for these
claims. The specific facts we do not know include:
o the identity of our facilities containing asbestos manufactured by the
manufacturer,
o the relationship (if any) of each of the individual plaintiffs to us,
o the settlement amounts for any individual plaintiffs who are shown to
have had a relationship to us, and
o the dates on which/places at which the exposure allegedly occurred.
Until the relevant facts for both types of claims are determined, we are
unable to estimate what our liability, if any, might be. Although insurance and
hold harmless agreements from contractors who employed the plaintiffs may cover
a portion of any awards in the actions, our potential liability could be
material.
Waste Disposal
- --------------
As previously reported in our 1998 Annual Report on Form 10-K in United
States v. Keystone Sanitation Company, et al., BGE and other defendants entered
into a settlement with the Environmental Protection Agency for an immaterial
amount in regard to contamination of the Keystone Sanitation Company landfill
Superfund site in Adams County, Pennsylvania in 1997. On September 10, 1999, the
U.S. District Court for the Middle District of PA approved the settlement,
ending BGE's involvement with the site.
37
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PART II. OTHER INFORMATION (Continued)
Item 5. Other Information
Forward Looking Statements
- --------------------------
We make statements in this report that are considered forward looking
statements within the meaning of the Securities Exchange Act of 1934. Sometimes
these statements will contain words such as "believes," "expects," "intends,"
"plans," and other similar words. These statements are not guarantees of our
future performance and are subject to risks, uncertainties and other important
factors that could cause our actual performance or achievements to be materially
different from those we project. These risks, uncertainties and factors include,
but are not limited to:
o general economic, business, and regulatory conditions,
o energy supply and demand,
o competition,
o federal and state regulations,
o availability, terms, and use of capital,
o nuclear and environmental issues,
o weather,
o implications of the Restructuring Order issued by the Maryland PSC,
o commodity price risk, and
o year 2000 readiness.
Given these uncertainties, you should not place undue reliance on these
forward looking statements. Please see the other sections of this report and our
other periodic reports filed with the SEC for more information on these factors.
These forward looking statements represent our estimates and assumptions only as
of the date of this report.
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) Exhibit No. 10(a) Constellation Energy Group, Inc. 1995 Long-Term Incentive Plan, as
amended and restated.
Exhibit No. 10(b) Constellation Energy Group, Inc. Nonqualified Deferred Compensation
Plan, as amended and restated.
Exhibit No. 10(c) Constellation Energy Group, Inc. Executive Benefits Plan, as amended
and restated.
Exhibit No. 10(d) Executive Annual Incentive Plan of Constellation Energy Group, Inc.
as amended and restated.
Exhibit No. 10(e) Summary of Severance Arrangement for a Named Executive Officer.
Exhibit No. 12(a) Constellation Energy Group, Inc. Computation of Ratio of Earnings
to Fixed Charges.
Exhibit No. 12(b) Baltimore Gas and Electric Company Computation of Ratio of Earnings
to Fixed Charges and Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred and Preference Dividend Requirements.
Exhibit No. 27(a) Constellation Energy Group, Inc. Financial Data Schedule.
Exhibit No. 27(b) Baltimore Gas and Electric Company Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K for the quarter ended September 30, 1999:
Date Filed Items Reported
---------- --------------
July 19, 1999 Item 5. Other Events
Item 7. Exhibits
38
<PAGE>
SIGNATURE
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSTELLATION ENERGY GROUP, INC.
-----------------------------------------------------------------
(Registrant)
BALTIMORE GAS AND ELECTRIC COMPANY
-----------------------------------------------------------------
(Registrant)
Date: November 12, 1999 /s/ D. A. Brune
------------------------- --------------------------------------------
D. A. Brune, Vice President on behalf of each
Registrant and as Principal Financial Officer
of each Registrant
39
<PAGE>
EXHIBIT INDEX
Exhibit
Number
------
10(a) Constellation Energy Group, Inc. 1995 Long-Term Incentive
Plan, as amended and restated.
10(b) Constellation Energy Group, Inc. Nonqualified Deferred
Compensation Plan, as amended and restated.
10(c) Constellation Energy Group, Inc. Executive Benefits Plan,
as amended and restated.
10(d) Executive Annual Incentive Plan of Constellation Energy
Group, Inc. as amended and restated.
10(e) Summary of Severance Arrangement for a Named Executive
Officer.
12(a) Constellation Energy Group, Inc. Computation of Ratio of
Earnings to Fixed Charges.
12(b) Baltimore Gas and Electric Company Computation of Ratio of
Earnings to Fixed Charges and Computation of Ratio of
Earnings to Combined Fixed Charges and Preferred and
Preference Dividend Requirements.
27(a) Constellation Energy Group, Inc. Financial Data Schedule.
27(b) Baltimore Gas and Electric Company Financial Data Schedule.
40
<PAGE>
Exhibit 10(a)
Constellation Energy Group, Inc.
1995 Long-Term Incentive Plan
(Plan)
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 CEG and its Subsidiaries, who are mainly responsible for the
continued growth, development, and financial success of CEG and its
Subsidiaries, for the continued profitable performance of CEG and its
subsidiaries. The Plan is also designed to permit CEG and its
Subsidiaries to retain talented and motivated officers and key
employees and to increase their ownership of CEG 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.
"Board" means the Board of Directors of CEG.
"Book Value" means the book value of a share of Stock determined in
accordance with CEG'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.
"CEG" means Constellation Energy Group, Inc., a Maryland corporation,
or its successor, including any "New Company" as provided in Section
14I.
"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 CEG 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 CEG 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 CEG 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 CEG or a Subsidiary who has been
granted an Award under this Plan.
"Pension Plan" means the Pension Plan of Constellation Energy Group,
Inc. 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, CEG, 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.
2
<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 CEG or its
Subsidiaries since the Date of Grant.
"Stock" means the common stock, without par value, of CEG.
"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 CEG.
"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 CEG 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. This Plan has been
transferred from Baltimore Gas and Electric Company (BGE) to CEG
effective April 30, 1999 in connection with a share exchange between
CEG and the common stockholders of BGE. The Plan was approved by a
majority of the outstanding shares of common stock of BGE voted at its
1995 Annual Meeting of Stockholders, and became 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.
3
<PAGE>
D. Grants Outstanding. Grants outstanding at the effective time of the
share exchange between CEG and the common stockholders of Baltimore Gas
and Electric Company (BGE) will be converted from BGE common
stock-based grants to CEG common stock-based grants.
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 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 CEG 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 CEG 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 CEG under the Plan may be
authorized and unissued Stock, Stock held in the treasury of CEG, 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
4
<PAGE>
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.
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 CEG'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 CEG.
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, CEG, one or more Subsidiaries, or
any combination thereof. Performance Periods may overlap and
Participants
5
<PAGE>
may participate simultaneously with respect to Performance-Based
Restricted Stock Awards 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.
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 CEG'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 CEG.
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
6
<PAGE>
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.
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 CEG 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 CEG with another
company is submitted to the stockholders of CEG 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.
7
<PAGE>
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 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, CEG, 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
8
<PAGE>
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 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 CEG'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 CEG with another company is submitted to the stockholders
of CEG for a vote, the Committee, in its sole
9
<PAGE>
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.
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.
10
<PAGE>
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 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
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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.
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 CEG or the
combined voting power of CEG's then outstanding shares of voting
securities entitled to a vote generally, or (ii) the consummation of,
following the approval by the stockholders of CEG of a reorganization,
merger, or consolidation, in each case, with respect to which persons
who were stockholders of CEG 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 CEG 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
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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.
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 CEG 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. CEG 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 CEG or a Subsidiary.
Subject to compliance
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<PAGE>
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 CEG or a Subsidiary, the
retention by CEG 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.
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 CEG 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. CEG 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, CEG
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 CEG
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 CEG 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 CEG or any of its Subsidiaries, as a matter of law, or
otherwise, or any power that CEG 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 CEG 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
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<PAGE>
action taken, including the furnishing of information, or failure to
act, if in good faith.
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. CEG Successors. In the event CEG becomes a party to a merger,
consolidation, sale of substantially all of its assets or any other
corporate reorganization in which CEG 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 CEG 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
CEG 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.
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Exhibit 10(b)
CONSTELLATION ENERGY GROUP, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN (PLAN)
1. Objective The objective of this Plan is to enable certain management
employees of Constellation Energy Group and its subsidiaries to defer
compensation.
2. Definitions. All words beginning with an initial capital letter and not
otherwise defined herein shall have the meaning set forth in the Employee
Savings 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:
"Basic Compensation" means such compensation as set forth in the Employee
Savings Plan, without regard to the Internal Revenue Code Section
401(a)(17) annual compensation limitation.
"Committee" means the Committee on Management of the Board of Directors of
Constellation Energy Group.
"Constellation Energy Group" means Constellation Energy Group, Inc., a
Maryland corporation, or its successor.
"Deferred Compensation" means any compensation payable by Constellation
Energy Group or its subsidiaries to a participant that is deferred under
the provisions of this Plan.
"Employee Savings Plan" means the Constellation Energy Group, Inc. Employee
Savings Plan as may be amended from time to time, or any successor plan.
"Executive Annual Incentive Plan" means the Executive Annual Incentive Plan
of Constellation Energy Group, Inc. as may be amended from time to time, or
any successor plan, and/or any other incentive plan designated in writing
by the Plan Administrator.
"Incentive Award" means an award granted under the Executive Annual
Incentive Plan or the Senior Management Annual Incentive Plan.
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"Matching Contributions" means the matching contributions described in
Section 8.
"Plan Accounts" means amounts of a participant's Deferred Compensation,
Matching Contributions, and earnings under the Plan.
"Plan Administrator" means, as set forth in Section 3, the Vice President -
Human Resources of Constellation Energy Group, (or the Vice-President
succeeding to that function).
"Rabbi Trust" means the trust established by Constellation Energy Group
pursuant to Grantor Trust Agreement dated as of April 30, 1999 between
Constellation Energy Group and T. Rowe Price Trust Company.
"Senior Management Annual Incentive Plan" means the Senior Management
Annual Incentive Plan of Constellation Energy Group, Inc. as may be amended
from time to time, or any successor plan, and/or any other incentive plan
designated in writing by the Plan Administrator.
"Termination From Employment with Constellation Energy Group" means a
participant's separation from service with Constellation Energy Group or a
subsidiary of Constellation Energy Group; however, a participant's transfer
of employment to or from a subsidiary of Constellation Energy Group shall
not constitute a Termination From Employment with Constellation Energy
Group.
3. Plan Administration. The Vice President - Human Resources of Constellation
Energy Group, (or the Vice-President succeeding to that function) is the
Plan Administrator and has the 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
Committee. Decisions by the Committee shall be final and not subject to
further appeal. The Plan Administrator shall have the power to
2
<PAGE>
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. Each officer or key employee of
Constellation Energy Group or its subsidiaries, or employees of
Constellation Energy Group or its subsidiaries who hold senior management
level positions, may be designated in writing by the Plan Administrator as
eligible to participate with respect to one or more of the provisions of
Sections 5, 6, 7 and 8, which designation will also indicate whether all or
part of such participant's Plan Accounts will be held in the Rabbi Trust.
Once designated, eligibility shall continue until such designation is
withdrawn at the discretion and by written order of the Plan Administrator.
Notwithstanding subsequent withdrawal of eligibility of an employee, such
an employee with Plan Accounts will remain a participant of the Plan,
except that no further deferrals of compensation under the Plan are
permitted. While designated as eligible with respect to one or more of the
provisions of Sections 5, 6, 7 or 8, an employee may participate in the
Plan to the extent set forth in such designation.
5. Basic Compensation Deferral Election. Unless otherwise designated in
writing by the Plan Administrator, a participant may defer Basic
Compensation as set forth in this Section 5. A participant may elect to
defer up to 15% of monthly Basic Compensation. A participant may also elect
to defer up to 100% of Basic Compensation, if any, in excess of the dollar
limitation set forth in Internal Revenue Code Section 401(a)(17) (as
adjusted by the Commissioner for increases in the cost of living in
accordance with Internal Revenue Code Section 401(a)(17)(B)). Any deferrals
shall be in 1% multiples, subject to adjustment as necessary to provide for
any required withholding taxes. Such election shall be made by notification
in the form and manner established by the Plan Administrator from time to
time, and shall be effective as of the beginning of the month following the
month during which the election is received by the Plan Administrator. Such
election may be revoked by notification in the form and manner established
by the Plan Administrator from time to time, and shall be
3
<PAGE>
effective as of the beginning of the month following the month during which
the revocation is received by the Plan Administrator.
6. Incentive Award Deferral Election. A participant may elect to defer
Incentive Award compensation in 1% multiples, subject to adjustment as
necessary to provide for any required withholding taxes. Such election
shall be made annually by notification in the form and manner established
by the Plan Administrator from time to time. Such annual election shall be
made prior to the Incentive Award performance year, and shall be effective
as of the first day of such performance year. If a participant initially
becomes eligible to participate in the Plan during a performance year, the
election for such performance year must be made prior to the date the
participant initially becomes eligible to participate in the Plan, and
shall be effective on such date. Elections under this Section are
irrevocable once effective.
7. Other Deferral Election. A participant may elect to defer, in 1% multiples,
other forms of compensation that are designated in writing by the Plan
Administrator. Such election must be made prior to the date the
compensation is earned by the participant, by notification in the form and
manner established by the Plan Administrator from time to time. Such
election is effective as of the date the compensation is earned. Elections
under this Section are irrevocable once effective.
8. Matching Contributions. Matching Contributions are made by Constellation
Energy Group to the Plan in an amount equal to (i) up to the rate of
Company Matching Contributions under the Employee Savings Plan multiplied
by a participant's monthly Basic Compensation deferral, less (ii) the
amount of Company Matching Contributions made to the Employee Savings Plan
on behalf of such participant with respect to such month.
9. Plan Accounts. Deferred Compensation and Matching Contributions shall be
(i) credited to participant Plan Accounts as soon as practicable; (ii) to
the extent designated by the Plan Administrator, held for the benefit of
the participant in the Rabbi Trust; and
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<PAGE>
(iii) credited with earnings at the T. Rowe Price Prime Reserve Fund rate.
However, a participant may elect (by notification in the form and manner
established by the Plan Administrator from time to time) to have all or a
portion of his/her Plan Accounts credited with earnings at a rate equal to
the T. Rowe Price Prime Reserve Fund rate, the T. Rowe Price New Income
Fund rate, or one or more of the rates earned by investment options
available under the Employee Savings Plan, except the Common Stock Fund and
the Interest Income Fund. Earnings are credited to Plan Accounts commencing
on the day the Deferred Compensation and Matching Contributions are
credited to the Plan Accounts. Plan Accounts will be valued daily in the
same manner as for Investment Funds under the Employee Savings Plan.
A participant may elect to change the investment option of future Deferred
Compensation and Matching Contributions, which election shall be effective
when the next Deferred Compensation contributions and/or Matching
Contributions are credited to the participant's Plan Accounts. A
participant may elect to reallocate to other investment options current
Plan Accounts, which election shall be effective at the same time as, and
valued in accordance with, the interfund transfer provisions under the
Employee Savings Plan. Such elections shall be made by notification in the
form and manner established by the Plan Administrator from time to time.
10. Distributions of Plan Accounts. Distributions of Plan Accounts shall be
made in cash only, and to the extent designated by the Plan Administrator,
from the Rabbi Trust.
Prior to the end of the thirtieth (30th) calendar day after the date of a
participant's Termination From Employment with Constellation Energy Group,
such participant must elect the timing of distributions of his/her Plan
Accounts. The participant may elect (by notification in the form and manner
established by the Plan Administrator from time to time) to begin
distributions (i) in the calendar year following the calendar year of the
participant's Termination From Employment with Constellation Energy Group,
(ii) in the year following the year in which a participant attains
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<PAGE>
age 70-1/2, if later, or (iii) any calendar year between (i) and (ii). A
participant may elect (by notification in the form and manner established
by the Plan Administrator from time to time) to receive distributions in a
single payment or in annual installments during a period not to exceed
fifteen years. The single payment or the first installment payment,
whichever is applicable, shall be made within the first sixty (60) days of
the calendar year elected for distribution. Subsequent installments, if
any, shall be made within the first sixty (60) days of each succeeding
calendar year until the participant's Plan Accounts have been paid. In the
event no election is made prior to the end of the thirtieth (30th) calendar
day after the date of a participant's Termination From Employment with
Constellation Energy Group, a participant shall receive a distribution in a
single payment within the first sixty (60) days of the following year.
Earnings are credited to Plan Accounts through the date of distribution,
and amounts held for installment payments shall continue to be credited
with earnings, as specified in Section 9.
If a participant dies, the entire unpaid balance of his/her Plan Accounts
shall be paid to the beneficiary(ies) designated by the participant by
notification in the form and manner established by the Plan Administrator
from time to time or, if no designation was made, to the estate of the
participant. Payment shall be made within sixty (60) days after notice of
death is received by the Plan Administrator, unless prior to the end of the
thirtieth (30th) calendar day after the date of the participant's
Termination From Employment with Constellation Energy Group, the
participant elected (in the form and manner established by the Plan
Administrator from time to time) a delayed and/or installment distribution
option for such beneficiary(ies); provided, however that (i) such a
distribution option election shall be effective only if the value of the
participant's Plan Accounts is more than $50,000 on the date of the
participant's death; and (ii) the final distribution must be made to such
beneficiary(ies) no later than 15 years after the participant's death.
After the end of the thirtieth (30th) calendar day after the date of a
participant's Termination From Employment with Constellation Energy Group,
a distribution option election for a particular
6
<PAGE>
beneficiary is irrevocable; provided, however, that the participant may
make a distribution option election for a new beneficiary who is initially
designated after the participant's Termination From Employment with
Constellation Energy Group, and such election is irrevocable with respect
to the new beneficiary.
In the event a participant's deferred Incentive Award is credited to the
Plan after the participant's death, such Incentive Award shall be either
paid to his/her beneficiary(ies), or if a delayed and/or installment
distribution option was elected for such beneficiary(ies), paid as part of
the aggregate Plan Accounts in accordance with such election.
Upon the death of a participant's beneficiary for whom a delayed and/or
installment distribution option was elected, the entire unpaid balance of
the participant's Plan Accounts shall be paid to the beneficiary(ies)
designated by the participant's beneficiary by notification in the form and
manner established by the Plan Administrator from time to time or, if no
designation was made, to the estate of the participant's beneficiary.
Payment shall be made within sixty (60) days after notice of death is
received by the Plan Administrator.
Notwithstanding anything herein contained to the contrary, the Committee
shall have the right in its sole discretion to vary the manner and timing
of distributions, and may make such distributions in a single payment or
over a shorter or longer period of time than that elected by a participant.
11. Beneficiaries. A participant shall have the right to designate a
beneficiary(ies) who is to receive a distribution(s) pursuant to Section 10
in the event of the death of the participant. A participant's
beneficiary(ies) for whom a delayed and/or installment distribution option
was elected shall have the right to designate a beneficiary(ies) who is to
receive a distribution pursuant to Section 10 in the event of the death of
the participant's beneficiary(ies).
Any designation, change or recision of the designation of beneficiary shall
be made by notification in the form and manner established by the Plan
Administrator
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<PAGE>
from time to time. The last designation of beneficiary received by the Plan
Administrator shall be controlling over any testamentary or purported
disposition by the participant (or, if applicable, the participant's
beneficiary(ies)), provided that no designation, recision or change thereof
shall be effective unless received by the Plan Administrator prior to the
death of the participant (or, if applicable, the participant's
beneficiary(ies)).
If the designated beneficiary is the estate, or the executor or
administrator of the estate, of the participant (or, if applicable, the
participant's beneficiary(ies)), a distribution pursuant to Section 10 may
be made to the person(s) or entity (including a trust) entitled thereto
under the will of the participant (or, if applicable, the participant's
beneficiary(ies)), or, in the case of intestacy, under the laws relating to
intestacy.
A participant's beneficiary(ies) for whom a delayed and/or installment
distribution option was elected shall have the right, after the death of
the participant, to make investment elections or changes in investment
elections with respect to a participant's Plan Accounts to the same extent
available to the participant pursuant to Section 9. A beneficiary(ies) of
the participant's beneficiary(ies) shall have no right to make any
investment election or change in investment election pursuant to Section 9
with respect to a participant's Plan Accounts.
12. Valuation of Interest. The Plan Administrator shall cause the value of a
participant's Plan Accounts, at least once per year as of December 31, to
be determined separately and be reported to Constellation Energy Group and
the participant (or, if applicable, the participant's beneficiary(ies)).
Valuation of a participant's Plan Accounts shall be determined in
accordance with the procedures contained in the Employee Savings Plan.
13. Withdrawals. No withdrawals of Plan Accounts may be made, except a
participant may at any time request a hardship withdrawal from his/her Plan
Accounts if he/she has incurred an unforeseeable financial emergency. An
unforeseeable financial emergency is
8
<PAGE>
defined as severe financial hardship to the participant resulting from a
sudden and unexpected illness or accident of the participant (or of his/her
dependents), loss of the participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the participant. The need to send a child
to college or the desire to purchase a home are not considered to be
unforeseeable emergencies. The circumstance that will constitute an
unforeseeable emergency will depend upon the facts of each case.
A hardship withdrawal will be permitted by the Plan Administrator only as
necessary to satisfy an immediate and heavy financial need. A hardship
withdrawal may be permitted only to the extent reasonably necessary to
satisfy the financial need. Payment may not be made to the extent that such
hardship is or may be relieved (i) through reimbursement or compensation by
insurance or otherwise, (ii) by liquidation of the participant's assets, to
the extent the liquidation of such assets would not itself cause severe
financial hardship, or (iii) by cessation of deferrals under the Plan.
The request for hardship withdrawal shall be made by notification in the
form and manner established by the Plan Administrator from time to time.
Such hardship withdrawal will be permitted only with approval of the Plan
Administrator. The participant will receive a lump sum payment after the
Plan Administrator has had reasonable time to consider and then approve the
request.
14. Miscellaneous. A participant's Plan Accounts shall not 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; and (ii) as requested by the participant or beneficiary to
satisfy income tax withholding or liability.
This Plan may be amended from time to time or suspended or terminated at
any time. All amendments to this Plan which would increase or decrease the
compensation of any senior management officer or key employee of
Constellation Energy Group, either directly or
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<PAGE>
indirectly, must be approved by the Board of Directors. All other
permissible amendments may be made at the written direction of the
Committee. No amendment to or termination of this Plan shall impair the
rights of any participant or beneficiary with respect to amounts in his/her
Plan Accounts before the date of such amendment or termination.
Participation in this Plan shall not constitute a contract of employment
between Constellation Energy Group and any person and shall not be deemed
to be consideration for, or a condition of, continued employment of any
person.
The Plan, notwithstanding the creation of the Rabbi Trust, is intended to
be unfunded for purposes of Title I of the Employee Retirement Income
Security Act of 1974. Constellation Energy Group shall make contributions
to the Rabbi Trust in accordance with the terms of the Rabbi Trust. Any
funds which may be invested and any assets which may be held to provide
benefits under this Plan shall continue for all purposes to be a part of
the general funds and assets of Constellation Energy Group and no person
other than Constellation Energy Group shall by virtue of the provisions of
this Plan have any interest in such funds and assets. To the extent that
any person acquires a right to receive payments from Constellation Energy
Group under this Plan, such rights shall be no greater than the right of
any unsecured general creditor of Constellation Energy Group.
In the event Constellation Energy Group becomes a party to a merger,
consolidation, sale of substantially all of its assets or any other
corporate reorganization in which Constellation Energy Group will not be
the surviving corporation or in which the holders of the common stock of
Constellation Energy Group will receive securities of another corporation
(in any such case, the "New Company"), then the New Company shall assume
the rights and obligations of Constellation Energy Group under this Plan.
This Plan shall be governed in all respects by Maryland law.
10
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Exhibit 10(c)
CONSTELLATION ENERGY GROUP, INC.
EXECUTIVE BENEFITS PLAN
Restated October, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
1. Objective 1
2. Definitions 1
3. Plan Administration 4
4. Eligibility 4
5. Supplemental Pension Benefit 4
(a) Retirement benefits 4
(i) Eligibility for retirement benefits 4
(ii) Computation of retirement benefits 5
(iii) Form of payout of retirement benefits 6
(iv) Amount, timing, and source of monthly
retirement benefit payout 7
(v) Amount, timing, and source of lump sum
retirement benefit payout 7
(vi) Death of participant entitled to lump
sum payout 7
(vii) Health and dental benefits 7
(b) Accrued benefit 8
(i) Computation of gross accrued benefit 8
(ii) Computation of net accrued benefit 8
(c) Entitlement to benefit upon happening of
certain events 9
(i) Satisfaction of requirements 9
(ii) Other events 9
(1) Change in control 9
(2) Plan amendment 9
(3) Involuntary Demotion, Termination
From Employment With Constellation
Energy Group, or eligibility
withdrawal without Cause 10
(iii) Form of benefit payout 10
(iv) Amount, timing and source of benefit
payout 10
(v) Death of participant entitled to lump
sum payout 11
<PAGE>
(d) Other benefits 12
(i) Eligibility for other benefits 12
(ii) Computation of other benefits 12
(iii) Form of payout of other benefits 13
(iv) Amount, timing, and source of monthly
other benefit payout 13
6. Supplemental Long-Term Disability Benefit 13
(i) Eligibility for disability benefits 13
(ii) Computation of disability benefits 14
(iii) Form of payment of disability benefits 14
(iv) Amount, timing, and source of monthly
disability benefit payout 14
(v) Bonus 15
7. Supplemental Survivor Annuity Benefit 15
(a) Survivor annuity benefit 15
(i) Eligibility for survivor annuity benefit 15
(ii) Computation of survivor annuity benefit 15
(iii) Form of payout of survivor annuity
benefits 17
(iv) Amount, timing, and source of monthly
survivor annuity benefit payout 17
(b) Other survivor benefit 17
(i) Eligibility for other survivor benefit 17
(ii) Computation of other survivor benefit 18
(iii) Form of payout of other survivor
benefit 18
(iv) Amount, timing, and source of monthly
other survivor benefit payout 18
8. Death Benefit 19
9. Dependent Death Benefit 19
10. Sickness Benefit 19
11. Vacation Benefit 20
12. Planning Benefit 20
13. Miscellaneous 21
<PAGE>
CONSTELLATION ENERGY GROUP, INC.
EXECUTIVE BENEFITS PLAN
1. Objective. The objective of this Plan is to enhance the benefits
provided to officers and key employees of Constellation Energy Group
and its subsidiaries in order to attract and retain talented executive
personnel.
2. Definitions. All words beginning with an initial capital letter and not
otherwise defined herein shall have the meaning set forth in the
Pension Plan. All singular terms defined in this Plan will include the
plural and vice versa. As used herein, the following terms will have
the meaning specified below:
"Annual Base Salary" means an amount determined by adding the monthly
base rate of pay amounts (i.e., the types of such pay that are
includable in the computation of Pension Plan benefits)earned over the
twelve calendar months immediately preceding the month that includes
the date of the computation.
"Average Incentive Award" (or "Average Award") means generally the
product of the percentage equal to an average of the two highest of the
participant's five immediately prior year award percentages earned
under Constellation Energy Group's Executive Annual Incentive Plan,
Constellation Energy Group's Senior Management Annual Incentive Plan
and/or the Results Incentive Awards Program multiplied by the
participant's annualized base rate of pay amount (i.e., the types of
such pay that are includable in the computation of Pension Plan
benefits) in effect at the end of the prior year.
"Cause" means the participant's (a) failure to comply with
Constellation Energy Group policy, (b) deliberate and continual refusal
to satisfactorily perform employment duties on substantially a
full-time basis, (c) deliberate and continual refusal to act in
accordance with any specific instructions of a majority of
Constellation Energy Group's Board of Directors, (d) disclosure,
without the consent of a majority of Constellation Energy Group's Board
of Directors, of confidential information or trade secrets concerning
Constellation Energy Group which could be materially
1
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damaging to Constellation Energy Group, or (e) deliberate misconduct
which could be materially damaging to Constellation Energy Group
without reasonable good faith belief by the participant that such
conduct was in the best interest of Constellation Energy Group.
"Change in Control" means (a) the purchase or acquisition by any
person, entity or group of persons, (within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), or any comparable successor provisions), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20 percent or more of either the outstanding shares of common stock
of Constellation Energy Group or the combined voting power of
Constellation Energy Group's then outstanding shares of voting
securities entitled to a vote generally, or (b) the consummation of,
following the approval by the stockholders of Constellation Energy
Group of a reorganization, merger, or consolidation of Constellation
Energy Group, in each case, with respect to which persons who were
stockholders of Constellation Energy Group immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own more than 50 percent of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated entity's then outstanding securities, or (c) a liquidation
or dissolution of Constellation Energy Group or the sale of
substantially all of its assets, or (d) a change of more than one-half
of the members of the Board of Directors of Constellation Energy Group
within a 90-day period for reasons other than the death, disability, or
retirement of such members.
"Committee" means the Committee on Management of the Board of Directors
of Constellation Energy Group.
"Constellation Energy Group" means Constellation Energy Group, Inc., a
Maryland corporation, or its successor.
"Constellation Energy Group's Executive Annual Incentive Plan" means
such plan or other incentive plan or arrangement designated in writing
by the Plan Administrator.
"Constellation Energy Group's Senior Management Annual Incentive Plan"
means such plan or other incentive plan or arrangement designated in
writing by the Plan Administrator.
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"Demotion" means a transfer to a position with Constellation Energy
Group or a subsidiary of Constellation Energy Group that either (a) is
below the substantially 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 substantially 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.
"Income Replacement Percentage" means the percentage under the LTD Plan
that is used to calculate the participant's actual LTD Plan benefit.
"Interest Rate" means the rate equal to 3.5% plus 65% of yield on the
Lehman Brothers Government/Corporate Bond Index.
"LTD Plan" means the Constellation Energy Group, Inc. Disability
Insurance Plan as may be amended from time to time, or any successor
plan.
"Mortality Table" means the mortality table used to value liabilities
for Pension Plan funding purposes.
"Pension Plan" means the Pension Plan of Constellation Energy Group,
Inc. as may be amended from time to time, or any successor plan.
"Plan Administrator" means, as set forth in Section 3, the Committee.
"Rabbi Trust" means the trust adopted by Constellation Energy Group
pursuant to the Grantor Trust Agreement Dated as of April 30, 1999,
between Constellation Energy Group and Citibank, N.A.
"Results Incentive Awards Program" means the program applicable to
certain employees that provides awards; but includes only the types of
awards that are includable in the computation of Pension Plan benefits.
3
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"Termination From Employment With Constellation Energy Group" means a
participant's separation from service with Constellation Energy Group
or a subsidiary of Constellation Energy Group; however, a participant's
retirement, disability, or transfer of employment to or from a
subsidiary of Constellation Energy Group shall not constitute a
Termination From Employment With Constellation Energy Group.
3. Plan Administration. The Committee is the Plan Administrator and has
sole authority (except as specified otherwise herein) to interpret the
Plan and, in general, to make all other determinations advisable for
the administration of the Plan to achieve its stated objective. Appeals
of written decisions by the Plan Administrator may be made to the Board
of Directors of Constellation Energy Group. Decisions by the Board
shall be final and not subject to further appeal. The Plan
Administrator shall have the power to delegate all or any part of its
duties to one or more designees, and to withdraw such authority, by
written designation.
4. Eligibility. Each officer or key employee of Constellation Energy Group
or its subsidiaries may be designated in writing by the Plan
Administrator as a participant with respect to one or more benefits
under the Plan. Once designated, participation shall continue until
such designation is withdrawn at the discretion and by written order of
the Plan Administrator, 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
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<PAGE>
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:
(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 Constellation Energy Group, and President
of Constellation Enterprises, Inc. - 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 an
officer or key employee of Constellation
Energy Group or its subsidiaries, other than
the Chairman of the Board and President of
Constellation Energy Group or the President
of Constellation Enterprises, Inc., 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
5
<PAGE>
(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 Plan
Administrator a signed Lump Sum Election Form. The
Form must be received by the Plan Administrator
before the beginning of the calendar year during
which the participant's 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 Plan Administrator a signed Lump Sum
Revocation Form.
(iv) Amount, timing, and source of monthly retirement
benefit payout. A participant entitled to monthly
supplemental pension retirement benefits will receive
monthly payments equal to the amount determined under
paragraph (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.
6
<PAGE>
(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 or other pension
payment adjustments or to post-retirement survivor
annuity coverage under the Plan.
(vi) Death of participant entitled to lump sum payout. In
the event of the death of a participant after his/her
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 time 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 or other pension payment
adjustments or to post-retirement survivor annuity
coverage under the Plan.
(vii) Health and dental benefits. A participant who
receives supplemental pension retirement benefits
under this Plan, but who is not eligible for
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<PAGE>
benefits under the Constellation Energy Group Retiree
Flexible Benefits Program, is entitled to health and
dental benefits under this Plan that in the sole
discretion of the Plan Administrator, are reasonably
similar to health and dental benefits provided for
participants under the Constellation Energy Group
Retiree Flexible Benefits Program, taking into
account employer cost, age and service.
(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 Constellation Energy Group and President
of Constellation Enterprises, Inc. - 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)(iv), 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.
8
<PAGE>
(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 Constellation Energy Group, or the withdrawal of
a participant's eligibility to participate under
Section 5, shall be entitled to his/her net accrued
supplemental pension benefit. The effective date of
the Demotion, Termination From Employment With
Constellation Energy Group, or eligibility withdrawal
event shall be the date of such Demotion, Termination
From Employment With Constellation Energy Group, or
eligibility withdrawal.
(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
Constellation Energy Group, or the
withdrawal of the participant's eligibility
to participate under the Plan, is an
entitlement event. The effective date of the
entitlement event shall be the date of the
Demotion, Termination From Employment With
Constellation Energy Group, or eligibility
withdrawal.
(2) Plan amendment. A Plan amendment that has
the effect of reducing a participant's gross
accrued supplemental pension benefit is an
entitlement event. In determining whether
such a reduction has occurred, the
9
<PAGE>
participant's gross accrued supplemental
pension benefit calculated on the day
immediately preceding the effective date of
the amendment shall be compared to the
participant's gross accrued supplemental
pension benefit calculated on the effective
date of the amendment. An amendment that has
the effect of reducing future benefit
accruals is not an entitlement event. It is
intended that an entitlement event under
this paragraph (c)(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 Constellation Energy Group,
or eligibility withdrawal without Cause. A
participant's involuntary Demotion or
involuntary Termination From Employment With
Constellation Energy Group without Cause, or
the withdrawal of a participant's
eligibility to participate under Sections 5
or 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 Constellation Energy Group
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 62 (unless
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the participant is the Chairman of the Board or
President of Constellation Energy Group, or the
President of Constellation Enterprises, Inc. in which
case age 65) (or the participant's actual age, if the
participant is older than age 62 (unless the
participant is the Chairman of the Board or President
of Constellation Energy Group, or the President of
Constellation Enterprises, Inc. in which case 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 (using the method set forth in (a)(ii)(4))
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 Constellation Energy
Group 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 or other pension
payment adjustments or to preretirement or
post-retirement survivor annuity coverage.
(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
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<PAGE>
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 or
other pension payment adjustments or to preretirement
or post-retirement survivor annuity coverage under
the Plan.
(d) Other benefits.
(i) Eligibility for other benefits. Upon a participant's
Termination From Employment With Constellation Energy
Group, if such participant (1) does not satisfy the
requirements of Sections 5(a)(i), 5(c)(i), and/or
5(c)(ii), and (2) is a vested participant under the
Pension Plan, such participant shall be entitled to
the benefits in this Section 5(d).
(ii) Computation of other benefits. A participant who is
eligible for other benefits will be entitled to
benefits under this Plan, which will be calculated as
set forth below on the date the participant begins
receipt of benefit payments under the Pension Plan:
(1) compute the participant's adjusted monthly
benefit payment under the terms of the
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Pension Plan, by also treating awards, if
any, paid to the participant under
Constellation Energy Group's Executive
Annual Incentive Plan and/or Constellation
Energy Group's Senior Management Annual
Incentive Plan during the immediately
preceding twenty-four consecutive months as
bonuses and/or incentives included in the
computation of the participant's Average Pay
(as defined under the Pension Plan), and
(2) subtract from the amount in (1) above the
participant's actual monthly benefit payment
under the Pension Plan.
For purposes of the computation in (1), the
participant will bear the cost of any
post-retirement survivor annuity coverage
provided under Section 7(b).
(iii) Form of payout of other benefits. Each participant
entitled to other benefits will receive his/her other
benefits payout in the form of a monthly payment.
(iv) Amount, timing, and source of monthly other benefit
payout. A participant entitled to monthly other
benefits will receive monthly payments equal to the
amount determined under paragraph (d)(ii). Such
payments shall commence effective with the date the
participant commences receipt of benefit payments
under the Pension Plan. Monthly payments hereunder
shall permanently cease upon the death of the
participant, effective with the monthly payment for
the month following the month of the participant's
death. Monthly payments hereunder shall be made from
general corporate assets.
6. Supplemental Long-Term Disability Benefit.
(i) Eligibility for disability benefits. Any participant who has
completed at least one full calendar month of service with
Constellation Energy Group or its subsidiaries, who has
elected coverage under the LTD Plan, and who is disabled (as
determined under the LTD Plan) will be entitled to
supplemental disability benefits under this Plan.
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<PAGE>
(ii) Computation of disability benefits. The amount of such
supplemental disability benefits shall be determined as
follows:
(1) multiply the monthly base rate of pay amount in
effect immediately prior to becoming entitled to
benefits under the LTD Plan by twelve,
(2) add the Average Incentive Award to the product,
(3) add certain bonuses and incentives that are included
in the computation of Average Pay under the Pension
Plan (except that awards under the Results Incentive
Awards Program shall be excluded), earned over the
last 12 months to the product,
(4) divide the sum by 12,
(5) multiply this monthly dollar amount by the Income
Replacement Percentage, and
(6) subtract from the product the gross monthly amount
provided for the participant under the LTD Plan
before such amount is reduced for other benefits as
set forth under the LTD Plan.
(iii) Form of payment of disability benefits. Each participant
entitled to supplemental disability benefits will receive
his/her supplemental disability benefit payout in the form of
a monthly payment.
(iv) Amount, timing, and source of monthly disability benefit
payout. A participant entitled to supplemental disability
benefits will receive a monthly payment equal to the amount
determined under (ii) above. Such payments shall commence
effective with the commencement of the participant's LTD Plan
benefit payments. Monthly payments shall permanently cease
when benefit payments under the LTD Plan cease. Monthly
payments shall be made from Constellation Energy Group's
general corporate assets.
If a participant receiving payments pursuant to this Section 6
receives cost of living or other inflation/indexing
adjustment(s) under the LTD Plan,
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the payments hereunder will be automatically increased based
on the same percentage of, and at the same time as, such
adjustment(s).
(v) Bonus. Any participant who has less than ten years of Credited
Service shall be entitled to a monthly taxable cash bonus,
equal to an amount based on the cost of LTD Plan coverage,
using the formula for computing Constellation Energy
Group-provided Flexible Benefits Plan credits for LTD Plan
coverage and taking into account the Participant's Credited
Service and covered compensation. Such cash bonus shall be
made from general corporate assets.
7. Supplemental Survivor Annuity Benefit.
(a) Survivor annuity benefit.
(i) Eligibility for survivor annuity benefit. Following
the death of a participant (other than a participant
who satisfied the requirements of Section 5(d)(i)
upon such participant's Termination From Employment
With Constellation Energy Group), a supplemental
survivor annuity may be paid to the participant's
surviving spouse until the death of that spouse,
using the same percentage to compute such
supplemental benefit that is actually used to compute
any survivor annuity provided on behalf of the
participant under the Pension Plan. The participant
will not bear the cost of up to a 50% survivor
annuity benefit, but will bear the cost of a survivor
annuity benefit in excess of 50%. For purposes of
this Section 7(a), a participant's surviving spouse
is the individual married to the participant on the
date of the participant's death. If there is no
surviving spouse, or if the participant or the
participant's spouse previously received or is
entitled to receive a lump sum payment under Section
5, no supplemental survivor annuity will be payable.
(ii) Computation of survivor annuity benefit. The amount
of the supplemental survivor annuity will be
determined as follows:
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(1) if the participant had retired prior to the
date of death:
(a) begin with the monthly pension
benefit (under Section 5(a) of this
Plan) that the participant was
receiving prior to the date of
death, and
(b) multiply this dollar amount by the
percentage used to compute the
survivor annuity provided on behalf
of the participant under the Pension
Plan.
(2) otherwise:
(a) begin with the larger of the Early
Retirement pension benefit (under
both the Pension Plan and Section
5(a) 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,
(b) multiply this dollar amount by the
percentage used to compute the
survivor annuity provided on behalf
of the participant under the Pension
Plan,
(c) subtract from the product the net
amount, if any, of the survivor
annuity provided on behalf of the
participant under the Pension Plan,
and
(d) subtract from this dollar amount the
charges relating to coverage (under
both the Pension Plan and this Plan)
for a preretirement survivor annuity
in excess
16
<PAGE>
of 50%, and for a post-retirement
survivor annuity in excess of 50%.
(iii) Form of payout of survivor annuity benefits. Each
surviving spouse entitled to a supplemental survivor
annuity benefit will receive his/her survivor annuity
benefit payout in the form of a monthly payment.
(iv) Amount, timing, and source of monthly survivor
annuity benefit payout. A surviving spouse entitled
to monthly supplemental survivor annuity benefits
will receive a monthly payment equal to the amount
determined under (ii) above. Such payments shall
commence effective with the first day of the month
following the month of the participant's death. If
such surviving spouse receives (or would have
received but for the Internal Revenue Code
limitations) cost of living adjustment(s) under the
Pension Plan, the monthly payments hereunder will be
automatically increased based on the percentage of,
and at the same time as, such adjustment(s). Monthly
payments hereunder shall permanently cease upon the
death of the surviving spouse, effective with the
monthly payment for the month following the month of
the surviving spouse's death. Monthly payments
hereunder shall be made in accordance with the
provisions of the Rabbi Trust and, to the extent not
paid under the terms of the Rabbi Trust, from general
corporate assets.
(b) Other survivor benefit.
(i) Eligibility for other survivor benefit. Following the
death of a participant who satisfied the requirements
of Section 5(d)(i) upon such participant's
Termination From Employment With Constellation Energy
Group, a survivor benefit may be paid to the
participant's surviving spouse until the death of
that spouse. For purposes of this Section 7(b), a
participant's surviving spouse is the individual who
is the Surviving Spouse under the Pension Plan. If
there is no surviving spouse, no survivor benefit
will be payable.
17
<PAGE>
(ii) Computation of other survivor benefit. The amount of
the survivor benefit will be calculated as set forth
below on the date the surviving spouse begins receipt
of benefit payments under the Pension Plan:
(1) compute the surviving spouse's adjusted
monthly benefit payment under the terms of
the Pension Plan, by also treating awards,
if any, paid to the participant under
Constellation Energy Group's Executive
Annual Incentive Plan and/or Constellation
Energy Group's Manager Annual Incentive Plan
during the immediately preceding twenty-four
consecutive months as bonuses and/or
incentives included in the computation of
the participant's Average Pay (as defined
under the Pension Plan), and
(2) subtract from the amount in (1) above the
surviving spouse's actual monthly benefit
payment under the Pension Plan.
For purposes of the computation in (1), the
surviving spouse will bear the cost of the
survivor benefit.
(iii) Form of payout of other survivor benefit. Each
surviving spouse entitled to a survivor benefit will
receive his/her survivor benefit payout in the form
of a monthly payment.
(iv) Amount, timing, and source of monthly other survivor
benefit payout. A surviving spouse entitled to
monthly survivor benefits will receive monthly
payments equal to the amount determined under
paragraph (b)(ii). Such payments shall commence
effective with the date the surviving spouse
commences receipt of benefit payments under the
Pension Plan. Monthly payments hereunder shall
permanently cease upon the death of the surviving
spouse, effective with the monthly payment for the
month following the month of the surviving spouse's
death. Monthly payments hereunder shall be made from
general corporate assets.
18
<PAGE>
8. Death Benefit. Constellation Energy Group 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
Constellation Energy Group and the participant.
As determined in the sole discretion of the Plan Administrator, in the
event that either (i) a participant is ineligible to receive the type
of life insurance coverage provided to other participants under this
Plan, or (ii) such coverage is not available on reasonably
cost-effective terms as a result of any penalty for smoking or other
factors that are reflected in the insurance carrier's rates, then
Constellation Energy Group shall provide a benefit that, in the
discretion of the Plan Administrator, is substantially equivalent to
the cost of the benefit provided to other participants under this Plan.
9. Dependent Death Benefit. In the event of the death of a participant's
qualified dependent while the participant is an active employee of
Constellation Energy Group or a subsidiary of Constellation Energy
Group, Constellation Energy Group shall make a death benefit payment to
the participant, from general corporate assets. For purposes of this
Section 9, qualified dependent shall have the same meaning as set forth
in Constellation Energy Group's 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 Constellation Energy Group's Family Life Insurance Plan. The
dependent death benefit payment under this Plan shall be grossed-up for
income tax withholding.
10. Sickness Benefit. Each participant, without regard to length of
service, shall be entitled to the greater of the benefits stipulated
under the Constellation Energy Group sick benefit policy for employees
or twenty-six (26) weeks of paid sick benefits within a rolling 52-week
period.
19
<PAGE>
11. Vacation Benefit. Each participant, without regard to length of
service, shall be entitled to the greater of the benefits stipulated
under the Constellation Energy Group vacation benefit policy for
employees or five weeks of paid vacation during a calendar year.
12. Planning Benefit. Each participant shall be entitled to certain
personal financial, tax, and estate planning services paid for by
Constellation Energy Group but provided through designated professional
firms. This entitlement shall be subject to any dollar limitation
established by the Plan Administrator with respect to all such fees.
The services shall be provided to each participant by the chosen
firm(s) on a personalized and confidential basis; and each firm shall
have sole responsibility for quality of the services which it may
render.
The services to be provided shall be on an on-going and continuous
basis, but shall be limited to (i) the development and legal
documentation of both career-oriented 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 Constellation Energy
Group, his/her planning benefit period shall be extended until he/she
no longer serves as a member of the Board of Directors.
Upon the death of a participant entitled to the planning benefit
provided hereunder, his/her surviving spouse shall be entitled to
receive the following planning benefit: (i) if the deceased was not
retired at the time of death, the surviving spouse shall be entitled to
the planning benefit for the year in which the death occurred plus the
next two calendar years, including completion of the federal and state
personal tax returns for the second calendar year after the year in
which the death occurred; or (ii) if the deceased was retired at the
time of death, then the surviving spouse shall receive a planning
benefit equal to that the deceased would have received if he/she had
not died
20
<PAGE>
prior to expiration of the planning benefit. The surviving spouse of a
retired member of senior management whose death occurs while serving as
a member of the Board of Directors of Constellation Energy Group, shall
be entitled to a planning benefit as set forth in (i) above.
The planning benefit provided under this Plan shall be grossed-up for
income tax withholding.
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.
This Plan may be amended from time to time, or suspended or terminated
at any time, provided, however, that no amendment or termination shall
reduce any previously accrued supplemental pension benefit under this
Plan or impair the rights of any participant or beneficiary entitled to
receive current or future payment hereunder at the time of such action.
All amendments to this Plan which would increase or decrease the
compensation of any Officer of Constellation Energy Group, either
directly or indirectly, must be approved by the Board of Directors. All
other permissible amendments may be made at the written direction of
the Committee.
Participation in this Plan shall not constitute a contract of
employment between Constellation Energy Group and any person and shall
not be deemed to be consideration for, or a condition of, continued
employment of any person.
The Plan, notwithstanding the creation of the Rabbi Trust, is intended
to be unfunded for purposes of Title I of the Employee Retirement
Income Security Act of 1974. Constellation Energy Group shall make
contributions to the Rabbi Trust in accordance with the terms of the
Rabbi Trust. Any funds which may be invested and any assets which may
be held to provide benefits under this Plan shall continue for all
purposes to be a part of the general funds and assets of Constellation
Energy Group and no person other than
21
<PAGE>
Constellation Energy Group shall by virtue of the provisions of this
Plan have any interest in such funds and assets. To the extent that any
person acquires a right to receive payments from Constellation Energy
Group under this Plan, such rights shall be no greater than the right
of any unsecured general creditor of Constellation Energy Group.
In the event Constellation Energy Group becomes a party to a merger,
consolidation, sale of substantially all of its assets or any other
corporate reorganization in which Constellation Energy Group will not
be the surviving corporation or in which the holders of the common
stock of Constellation Energy Group will receive securities of another
corporation (in any such case, the "New Company"), then the New Company
shall assume the rights and obligations of Constellation Energy Group
under this Plan.
This Plan shall be governed in all respects by Maryland law.
22
<PAGE>
Exhibit 10(d)
Executive Annual Incentive Plan
Of
Constellation Energy Group, Inc.
1. Plan Objective. The objective of this Plan is to allow Constellation
Energy Group, Inc. (Constellation Energy Group or Company) to attract,
retain and motivate highly competent officers and key employees of the
Company and its subsidiaries by focusing incentive compensation toward
the achievement of performance results that primarily support the
interests of shareholders and customers of the Company.
2. Plan Administration. The Plan is administered by the Constellation
Energy Group Board of Directors' (Board) Committee on Management
(Committee on Management) which has sole authority (unless otherwise
specified herein) to interpret the Plan; to refine its provisions from
time to time subject to Board approval, particularly those relating to
factors, targets and procedures used in connection with calculating the
awards (which refinements shall be reflected in guidelines for the
performance year); to suspend the Plan at any time; and in general, to
make all other determinations necessary or advisable for the
administration of the Plan to achieve its stated objective.
The Committee on Management shall have the power to delegate all or any
part of their duties to one or more designees, and to withdraw such
authority, by written designation.
3. Eligibility. Each officer or key employee of Constellation Energy Group
or its subsidiaries may be designated in writing by the Committee on
Management as a participant under the Plan. Once designated,
participation shall continue until such designation is withdrawn at the
discretion and by written order of the Committee on Management.
Participation is subject to the following conditions:
Participant must have been an eligible participant for some
portion of the performance year and at the time of
distribution be actively employed by the Company or elsewhere
with the approval of the Company unless employment was
terminated by death, disability or retirement. Except as
otherwise provided herein, where an individual is not an
eligible participant for the entire performance year, the
amount of the award, whether full, partial or none, will be at
the Committee on Management's discretion, subject to Board
approval.
1
<PAGE>
Where, prior to the end of a performance year, a participant's
active employment is terminated as a result of death,
disability or retirement, the award is calculated based on the
participant's position at the time of termination. Unless
otherwise stated, any such award will be made on a pro-rata
basis for the period of active employment, or, in total, at
the discretion of the Committee on Management. Where active
employment is terminated as a result of death of participant,
distribution is made in accordance with Section 9.
(Designation of Beneficiary) of this Plan.
4. Performance Goals
A. Performance Targets. The Committee on Management shall
establish for each plan year Performance Targets designed to
accomplish the purpose set forth in Section 1 of this Plan.
The Committee on Management will ensure that each plan year's
Performance Targets meet the following general criteria:
(1) The interests of the Company's shareholders will be
balanced with the interests of the Company's
customers.
(2) The targets should be set at levels which are
attainable, but which, in the Committee on
Management's judgment, are attainable only with a
high degree of competence and diligence.
The Committee on Management shall have sole authority to amend
Performance Targets at any time when, in the Committee's
judgment, unforeseen circumstances exist which require
modification in order to ensure that the purpose of the Plan
is properly served.
The Committee on Management shall have authority to establish
appropriate Performance Targets, differing to the degree
necessary from those established for the Company, for each of
the Company's subsidiaries employing one or more participants
in this Plan; and shall have authority to adjust such targets
subsequently should unforeseen circumstances arise.
B. Individual Performance. A participant's individual per-
formance will be evaluated by the Chairman of the Board.
5. Award Opportunity. The Committee on Management shall establish for each
plan year the Award Opportunity (minimum, target,
2
<PAGE>
and maximum, as appropriate) applicable to participants in the Plan.
The Award Opportunity may be allocated among the various Performance
Targets and Individual Performance and may vary among classes of
participants.
6. Award Determination. The Committee on Management, with the concurrence
of the Board, shall determine the Awards, if any, to be made for each
plan year as soon after the end of the plan year as is practical. In
the case of participants in this Plan employed by a subsidiary of the
Company, the Award, if any, will be recommended by the non-employee
members of the board of directors of that subsidiary and subsequently
approved by the Committee on Management.
Awards are calculated taking into account the degree of attainment of
performance targets, individual performance, and the percent of
participation during the performance year. The dollar amount of the
participants' award is determined by multiplying the participant's
prior December 31 annualized base salary by the award percentage. All
amounts awarded to participants are subject to the approval of the
Board.
7. Payment of Awards. Awards approved by the Board for each plan year
shall be paid as soon as practicable after such determination has been
made. Payment may be made in a lump cash sum or, at the participants'
election, may be deferred in whole or in part. When required by
applicable law, Federal, State and FICA taxes will be withheld from
awards at applicable rates.
Awards will not be paid for any performance year in which Company
earnings are less than the amount necessary to fund the annual
dividend. Additionally, awards will not be paid for any plan year in
which the dividend is suspended or effectively reduced from its prior
amount.
8. Deferred Payment of Award. A participant may elect to defer the receipt
of all or a portion of the award for the plan year. Any such deferral
and investment of any such amounts deferred pursuant to this Plan shall
be made in accordance with the provisions of the Constellation Energy
Group Nonqualified Deferred Compensation Plan.
9. Designation of Beneficiary. A participant shall have the right to
designate a beneficiary or beneficiaries who are to receive in a lump
sum any undistributed incentive compensation award to the extent a
participant has chosen not to defer all or a portion of his incentive
award pursuant to Section 8 hereof, should the participant
3
<PAGE>
die during the plan year and be entitled to an incentive award for that
plan year. Such designation shall apply only to the portion of the
undistributed incentive award not subject to a deferral election. Any
designation, change or rescission of the designation shall be made in
writing by completing and furnishing to the Vice President - Human
Resources of the Company a notice on an appropriate form designated by
the Vice President - Human Resources of the Company. The last
designation of beneficiary received by the Vice President - Human
Resources of the Company shall be controlling over any testamentary or
purported disposition by the participant, provided that no designation,
rescission or change thereof shall be effective unless received prior
to death of the participant. Distribution of any incentive awards
previously deferred pursuant to Section 8 of the Plan shall be paid to
the beneficiary or beneficiaries designated under the Constellation
Energy Group Nonqualified Deferred Compensation Plan.
10. Change in Control. Notwithstanding any other provisions of this Plan to
the contrary, if a participant separates from service with
Constellation Energy Group or a subsidiary of Constellation Energy
Group (except due to a participant's transfer of employment to or from
a subsidiary of Constellation Energy Group), within 2 years following a
change in control, such participant is eligible for an award for the
performance year during which the separation from service occurs. The
award is calculated assuming maximum performance achievement and based
on the participant's position at the time of termination and is
pro-rated for the period of active employment during the performance
year. The Committee on Management, in its discretion, may grant a
total, rather than pro-rated award. Payment of the award will be made
in a lump cash sum within 60 days after the participant's separation
from service. Payment may not be deferred.
A change in control for purposes of this Section 10 shall mean (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 Securities
Exchange Act of 1934 (the "Exchange Act"), or any comparable successor
provisions), of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20 percent or more of either the
outstanding shares of common stock of Constellation Energy Group or the
combined voting power of Constellation Energy Group's then outstanding
shares of voting securities entitled to a vote generally, or (ii) the
consummation of, following the approval by the stockholders of
Constellation Energy Group of a reorganization, merger, or
consolidation of Constellation Energy Group, in each case, with respect
to which persons who were stockholders of Constellation Energy Group
immediately prior to such reorganization, merger
4
<PAGE>
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 Constellation Energy Group or the sale of substantially
all of its assets, or (iv) a change of more than one-half of the
members of the Board of Directors of Constellation Energy Group within
a 90-day period for reasons other than the death, disability, or
retirement of such members.
11. Miscellaneous. The plan year and the performance year shall be the same
and shall be the calendar year.
Any payments made under this Plan are not considered as earnings for
purpose of the Company's qualified pension or Employee Saving Plan, or
for any other general employee benefit program. However, all payments
made under this Plan will be included in the determination of benefits
provided under the Company's Executive Benefits Plan.
None of the payments provided under this Plan which are deferred 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 to the extent specifically
mandated and directed by applicable State or Federal statute. Payment
shall be made only into the hands of the participant or beneficiary
entitled to receive the same or into the hands of his or her authorized
legal representative. Deposit of any sum into any financial institution
to the credit of the participant or beneficiary entitled thereto shall
constitute payment into his or her hands. Notwithstanding the
foregoing, at the request of the participant or beneficiary or as
required by law, such sums as may be requisite for payment of any
estimated or currently accrued income tax liability may be withheld and
paid over to the governmental entity entitled to receive the same.
Participation in this Plan shall not constitute a contract of
employment between the Company and any employee and shall not be deemed
to be consideration for, inducement to, or a condition of employment of
any person. The deferral of any incentive compensation amounts pursuant
to the provisions of the Plan shall not be construed to give any
employee the right to be retained in the employ of the Company or to
interfere with the right of the company to terminate such employment at
any time.
The Board intends to continue the Plan indefinitely but reserves the
right to amend the Plan from time to time or to permanently
5
<PAGE>
discontinue it provided none of these, nor any suspension, may deprive
the participants of any payment of amounts which were previously
awarded at the time thereof.
In the event Constellation Energy Group becomes a party to a merger,
consolidation, sale of substantially all of its assets or any other
corporate reorganization in which Constellation Energy Group will not
be the surviving corporation or in which the holders of the common
stock of Constellation Energy Group will receive securities of another
corporation (in any such case, the "New Company"), then the New Company
shall assume the rights and obligations of Constellation Energy Group
under this Plan.
6
<PAGE>
Exhibit 10 (e)
Summary
Severance Arrangement
For A Named Executive Officer
Edward A. Crooke will take an early retirement in connection with the
displacement from his position as Chairman, President and Chief Executive
Officer of Constellation Enterprises, Inc. (CEI) because of the corporate
restructuring and elimination of CEI. As a result of his displacement and in
recognition of the significant contributions he has made to the success of the
company during his 31 plus years of service, the Board of Directors of
Constellation Energy Group, Inc. approved a severance package that will be
effective when he retires on January 1, 2000. His severance benefits will
include a lump sum severance payment equal to two times the total of (1) final
annual base salary, and (2) the average of the two highest annual bonus
percentages earned during the preceding five years multiplied by the prior
year's final annual salary, which lump sum payment based on prior year bonus
percentages is estimated to total approximately $1.3 million. Mr. Crooke will
also be entitled to a pension benefit computed without reduction for early
receipt and a prorata payout of any earned performance-based restricted stock
award for the 1998-2000 and 1999-2001 performance periods. He will also receive
an $8,817 lump sum payment to use toward the cost of health coverage.
CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
12 Months Ended
-----------------------------------------------------------------------------------------
September December December December December December
1999 1998 1997 1996 1995 1994
------------ ------------- ------------ ------------ ------------ -----------
(In Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 300.1 $ 305.9 $ 254.1 $ 272.3 $ 297.4 $ 283.7
Taxes on Income, Including Tax Effect for
BGE Preference Stock Dividends 166.8 169.3 145.1 148.3 152.0 137.6
------------ ------------- ------------ ------------ ------------ ------------
Adjusted Net Income $ 466.9 $ 475.2 $ 399.2 $ 420.6 $ 449.4 $ 421.3
------------ ------------- ------------ ------------ ------------ ------------
Fixed Charges:
Interest and Amortization of
Debt Discount and Expense and
Premium on all Indebtedness $ 252.1 $ 255.3 $ 234.2 $ 203.9 $ 206.7 $ 204.2
Earnings required for BGE Preference
Stock Dividends 21.0 33.8 45.1 59.4 61.0 59.0
Capitalized Interest 2.3 3.6 8.4 15.7 15.0 12.4
Interest Factor in Rentals 1.8 1.9 1.9 1.5 2.1 2.0
------------ ------------- ------------ ------------ ------------ ------------
Total Fixed Charges $ 277.2 $ 294.6 $ 289.6 $ 280.5 $ 284.8 $ 277.6
------------ ------------- ------------ ------------ ------------ ------------
Earnings (1) $ 741.8 $ 766.2 $ 680.4 $ 685.4 $ 719.2 $ 686.5
============ ============= ============ ============ ============ ============
Ratio of Earnings to Fixed Charges 2.68 2.60 2.35 2.44 2.52 2.47
</TABLE>
(1) Earnings are deemed to consist of net income that includes earnings of
Constellation Energy's consolidated subsidiaries, equity in the net income
of BGE's unconsolidated subsidiary, income taxes (including deferred
income taxes, investment tax credit adjustments, and the tax effect of
BGE's preference stock dividends), and fixed charges other than
capitalized interest.
<PAGE>
BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
12 Months Ended
-----------------------------------------------------------------------------------------
September December December December December December
1999 1998 1997 1996 1995 1994
------------ ------------- ------------ ------------ ------------ ------------
(In Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 305.7 $ 327.7 $ 282.8 $ 310.8 $ 338.0 $ 323.6
Taxes on Income 163.3 181.3 161.5 169.2 172.4 156.7
------------ ------------- ------------ ------------ ------------ ------------
Adjusted Net Income $ 469.0 $ 509.0 $ 444.3 $ 480.0 $ 510.4 $ 480.3
------------ ------------- ------------ ------------ ------------ ------------
Fixed Charges:
Interest and Amortization of
Debt Discount and Expense and
Premium on all Indebtedness $ 199.8 $ 255.3 $ 234.2 $ 203.9 $ 206.7 $ 204.2
Capitalized Interest 1.3 3.6 8.4 15.7 15.0 12.4
Interest Factor in Rentals 0.9 1.9 1.9 1.5 2.1 2.0
------------ ------------- ------------ ------------ ------------ ------------
Total Fixed Charges $ 202.0 $ 260.8 $ 244.5 $ 221.1 $ 223.8 $ 218.6
------------ ------------- ------------ ------------ ------------ ------------
Preferred and Preference
Dividend Requirements: (1)
Preferred and Preference Dividends $ 13.7 $ 21.8 $ 28.7 $ 38.5 $ 40.6 $ 39.9
Income Tax Required 7.3 12.0 16.4 20.9 20.4 19.1
------------ ------------- ------------ ------------ ------------ ------------
Total Preferred and Preference
Dividend Requirements $ 21.0 $ 33.8 $ 45.1 $ 59.4 $ 61.0 $ 59.0
------------ ------------- ------------ ------------ ------------ ------------
Total Fixed Charges and Preferred
and Preference Dividend Requirements$ 223.0 $ 294.6 $ 289.6 $ 280.5 $ 284.8 $ 277.6
============ ============= ============ ============ ============ ===========
Earnings (2) $ 669.7 $ 766.2 $ 680.4 $ 685.4 $ 719.2 $ 686.5
============ ============= ============ ============ ============ ===========
Ratio of Earnings to Fixed Charges 3.32 2.94 2.78 3.10 3.21 3.14
Ratio of Earnings to Combined Fixed
Charges and Preferred and Preference
Dividend Requirements 3.00 2.60 2.35 2.44 2.52 2.47
</TABLE>
(1) Preferred and preference dividend requirements consist of an amount equal
to the pre-tax earnings that would be required to meet dividend
requirements on preferred stock and preference stock.
(2) Earnings are deemed to consist of net income that includes earnings of
BGE's consolidated subsidiaries, equity in the net income of BGE's
unconsolidated subsidiary, income taxes (including deferred income taxes
and investment tax credit adjustments), and fixed charges other than
capitalized interest.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM CONSTELLATION ENERGY'S SEPTEMBER 30, 1999
INTERIM CONSOLIDATED INCOME STATEMENT, BALANCE
SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,657
<OTHER-PROPERTY-AND-INVEST> 1,833
<TOTAL-CURRENT-ASSETS> 1,653
<TOTAL-DEFERRED-CHARGES> 629
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,772
<COMMON> 1,494
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,589
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,082
0
190
<LONG-TERM-DEBT-NET> 2,588
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 143
<LONG-TERM-DEBT-CURRENT-PORT> 965
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,804
<TOT-CAPITALIZATION-AND-LIAB> 9,772
<GROSS-OPERATING-REVENUE> 2,723
<INCOME-TAX-EXPENSE> 167
<OTHER-OPERATING-EXPENSES> 2,083
<TOTAL-OPERATING-EXPENSES> 2,250
<OPERATING-INCOME-LOSS> 473
<OTHER-INCOME-NET> 5
<INCOME-BEFORE-INTEREST-EXPEN> 478
<TOTAL-INTEREST-EXPENSE> 191
<NET-INCOME> 287
0
<EARNINGS-AVAILABLE-FOR-COMM> 287
<COMMON-STOCK-DIVIDENDS> 188
<TOTAL-INTEREST-ON-BONDS> 172
<CASH-FLOW-OPERATIONS> 484
<EPS-BASIC> 1.92
<EPS-DILUTED> 1.92
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM BALTIMORE GAS AND ELECTRIC COMPANY'S
SEPTEMBER 30, 1999 INTERIM CONSOLIDATED INCOME STATEMENT,
BALANCE SHEET AND STATEMENT OF CASH FLOWS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,657
<OTHER-PROPERTY-AND-INVEST> 397
<TOTAL-CURRENT-ASSETS> 708
<TOTAL-DEFERRED-CHARGES> 619
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,381
<COMMON> 1,494
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 969
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,462
0
190
<LONG-TERM-DEBT-NET> 2,206
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 23
<LONG-TERM-DEBT-CURRENT-PORT> 615
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,885
<TOT-CAPITALIZATION-AND-LIAB> 7,381
<GROSS-OPERATING-REVENUE> 2,357
<INCOME-TAX-EXPENSE> 166
<OTHER-OPERATING-EXPENSES> 1,735
<TOTAL-OPERATING-EXPENSES> 1,901
<OPERATING-INCOME-LOSS> 456
<OTHER-INCOME-NET> 5
<INCOME-BEFORE-INTEREST-EXPEN> 461
<TOTAL-INTEREST-EXPENSE> 159
<NET-INCOME> 302
10
<EARNINGS-AVAILABLE-FOR-COMM> 292
<COMMON-STOCK-DIVIDENDS> 188
<TOTAL-INTEREST-ON-BONDS> 130
<CASH-FLOW-OPERATIONS> 572
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
