ML20101G974

1995 Annual Rept

ML20101G974
Person / Time
Site:	Calvert Cliffs
Issue date:	12/31/1995
From:	Poindexter C BALTIMORE GAS & ELECTRIC CO.
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
NUDOCS 9603290052
Download: ML20101G974 (54)

Text

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Cuc txs II. CRUSE Baltimore Gas and Electric Company Vice President Calvert Cliffs Nuclear Power Plant i Nuclear Energy 1650 Calvert Cliffs Parkway l Lusby, Maryland 20657 410 495-4455 March 26,1996 U. S. Nuclear Regulatory Commission Washington, DC 20555 ATTENTION: Document Control Desk

SUBJECT:

Calvert Cliffs Nuclear Power Plant Unit Nos.1 & 2; Docket Nos. 50-317 & 50-318 1995 Annual Report In accordance with the requirements of 10 CFR 50.71(b), enclosed please find a copy of the Baltimore Gas and Electric Company's 1995 Annual Report to its shareholders.

Should you have questions regarding this matter, we will be pleased to discuss them with you.

Very truly yours, CilC/DWM/bjd #le Enclosure cc: Resident Inspector, NRC (Without Enclosure)

D. A. Brune, Esquire J. E. Silberg, Esquire

, L. B. Marsh, NRC D. G. Mcdonald, Jr., NRC T. T. Martin, NRC R. I. McLean, DNR J. H. Walter, PSC 9603290052 951231 PDR ADOCK 05000317 I PDR /,

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1 Cn tha Caver DOE ct a Clinca Pennsylvania Bedtimore Gas and E/cetric As the nation's oldest gas utility and one ,

'0 j o.laware Company's 1995 Annual of the earliest electric utilities, the Baltimore westVirginia j Report reveals the bold Gas and Electric Company has a long tradition virginia steps we're taken toward of superior service and reliability. BGE's core fr realizing our destiny---a business brings gas and electricity to more than m eu s Menenwy

, brightfuture in the new 2.6 million residents in Central Maryland. p/

encixy marle;h e. BGE also has three subsidiaries that enhance customer service and increase revenue growth. In Beginning a new era in 1995 combined revenues totaled $2.9 billion from utility and diversified operations.

our 180-year history, BGE employees at ercry Last year BGE signed an agreement to merge with Potomac Electric Power Company level will create a new (PEPCO) to form Constellation Energy Corporation, one of the 10 largest utilities in the i company-one that United States. The merger is expected to be completed by emly 1997.

is ready to meet the challenges of a changing Electric business environment and BGE provides electricity and related services to more than one million customers in a 2,300-destined to become an even , square-mile area of Central Maryland. The company owns and operates 10 generating plants, including two units at the Calvert Cliffs Nuclear Power Plant, and is part owner of Keystone, better valuefor your Conemaugh, and Safe liarbor generating plants in PennsyIvania. BGE's generating capacity  !

investmcht dollars. exceeds 6,200 megawatts: 27% nuclear 43% coal-fired. 26% oil and gas, and 4% hydro.

Contents Gas j BGE's gas business senes nearly 550,000 customers in a more than 600-square-mile area in 1 Highlights Central Maryland. We proside storage and distribution, as well as commercial transmission, through two gas plants and 10 gate stations in and around Baltimore. We deliser approxi-m tely 110 million dekathermr, of gas to our customers through 4,900 miles of gas mains.

2 Chairman's Letter

" "I' E" " "E' "" """" "E " " " ' * " E"'

to Shareholders " * "I " E '

• for large mdustnal and commercial customers through a subsidiary.

Reali:ing Our Destiny

"" " "E" 6 President's Letter f' ' Constellation IIoldings, Inc. (Clii), consists of four businesses: Constellation Power, Inc.

to Shareholderc has ownership interests in 26 electric power pmjects in the United States and Latin America Creating the '

and has 14 operating and maintenance contracts. Constellation Real Estate Group develops real  !

Utility of Choice estate pmjects and prosides design / build, construction, and asset management services. l Constellation llealth Senices, Inc. focuses on assisted and independent senior living. 'l 9 Realizira Our Constellation Investments, Inc. provides current income from investments in securities, partner- l Destiny ships, and financial services companies.

15 Financial Contents BGE Energy Projects & Services The formation of our Energy Projects & Senices, Inc. (EP&S), subsidiary in 1995 consoli-50 BGE Boards of r dated our value-added activities for our industrial and commercial customers. EP&S works Directors and with customers to bring new technologies to market, inside and outside our service area.

Officers Examples of EP&S's energy-related projects include electrical and lighting system improve-ments, campus and multi-building energy systems, and Comfort Link", a chilled water

'" "E *N" "' " ""# E 53 Shareholder I Information I BGE Home Products & Services 1

/ '

BGE Home Products & Services. Inc. (IIP &S), markets home appliances, electronics, i replacement window s and doors, Litchen and bath remodeling, and residential and

@ 7his annual nport ir printed commercial llVAC, plumbing, and electrical systems. IIP &S operates 10 retail stores on recycledpaper which was .

throughout BGE's senice area. In addition, the company prosides repair services and offers

'  ?

madefn"n the 500 tons of wanc service contracts for appliances, electronics, and heating and cooling equiprrent.

paper BGE recycles each year.

Hi;hli;hto In millions. except per.. share amounts 1995 1994 7c Change Common Stock Data Earnings per share Utility operations $ 1.84 $ 1.81 1.7 7c Diversified activities 0.18 0.12 50.0 %

Total $ 2.02 $ 1.93 4.7 %

Dividends declared per share $ 1.55 $ 1.51 2.6 7c Average shares outstanding 147.5 147.1 0.3 %

Return on average common equity 10.84'7c 10.637c 2.0 %

llook value per share-year end $ 19.07 518.42 3.5 W Market price per share-year-end close $28h $22% 28.8 %

Finincial Data Revenues Electric $ 2,230 $2,127 4.8 %

Gas 400 421 (5.0) 7c Diversified activities 305 235 29.8 %

Total $ 2,935 $2,783 5.5 %

Net income $ 338 $ 324 4.3 %

Earnings applicable to common stock $ 297 $ 284 4.6 7c Assets ,

Utility $7,051 $ 6.837 3.1 7c

)

Diversified 1,266 1.201 5.4 % l Total $ 8,317 $ 8,038 3.5 % I Utility construction expenditures $ 344 $ 455 (24.4) %

llGE investment in Constellation Holdings $ 352 $ 319 10.3 9 Utility System Data Electric sales-megawatt-hours 28.2 27.5 2.5 %

Gas sales-dekatherms 110.8 108.7 1.9 %

Earnings and Dividends Declared Return on ,

Common Stock Market Price per Share of Common Stock Avera0e Common Equity and Book Value

$2.50 12% $30

$2.00

_ 10% g $25 -

8% - --

$20 --- -

$1.50 -

6% -- - - -

$15

~

4g _ _ . _ . -

$10

$0.50 2%- $5- -

1991 1992 1993 1994 1995 1991 1992 1993 1994'1995 1991 1992 1993 1994 1995 m Earnings (Conschdated) M Market Pnce (Year-End Close)

M DMdends Declared M Book Value (Year End) 1

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I i

Although the merger took center for change in our industry, although generation and agreed that utilities stage, additional victories the speed and nature of those need Ocxibility to offer terms and contributed to a year of excellent changes varied across the nation. conditions that meet unique .

performance, liere are just a few of customer needs, Federal regulators are grappling with the year's highlights:

how best to give competitors access On the gas side of our business, A Common stock earnings to utilities' transmission systems. At state regulators also took steps to advanced to $2.02 per share, a the same time, regulators need to create a more competitive market.

4.7% increase over 1994- make sure that new entrants fairly Under future consideration are o We increased our annual dividend compensate utilities for the use of further unbundling of gas services, to $ 1.56, a 2.6% increase, and their transmission systems. a market-based rate program for marked 86 consecutive years of natural gas that BGE initiated, and in December the power pool dividend payrr.ents. the continued development of the to which BGE belongs, the A Our dividend payout ratio Pennsylvania-New Jersey-hiaryland E" "E * "'

continued to decline to 77% interconnection (PJhi), unveiled a by the end of 1995. joint proposal that redefines the Our View of Change i o Over the past two years group's pooling arrangement. The in our many interactions with operating and maintenance objective of the propmal is to regulators, BGE is advocating expenses have continued to come preserve cooperation and reliability, that regulatory changes meet these down, while we have reduced while promoting open access to the key objectives: ,

capital expenditures by 24% pool's transmission system. The A Allow retums commensurate l A Our gas business connected PJh1 is currently working on the with business risks j 13,600 new customers. The details of its proposal for ,p g; gp g i

h1aryland Public Service submission to the Federal Energy g Commission (PSC) granted Regulatory Commission.

A Permit economic forces to BGE an annual gas rate play out increase of more than PSC Rules on Competition

$19 million in late 1995. On the state level the PSC require different solutions A Our Constellation IIoldings concluded its review of the structure subsidiaries had an excellent of the state's electric industry. We intend to stay flexible as the year. Earnings were $27 million, energy market and regulatory The PSC sa.di h1ary. land . .is m the or 18 cents per share, a 97q environment evolve. We believe, enviable position of having efficient, increase oser 1994 earnings. however, that to be successful .m reliable, comparatively, low-cost the long term, we must become a o To add a new source of future power. The PSC also determined eammgs, we created BGE larger, more cost-competitive that wholesale competition remains company. We are convinced that Energy Projects & Serv. ices. Inc., in the best interests of the state's the way to achieve that goal is our which offers a broad range of energy consumers-a position BGE merger with I,EPCO.

customized energy services for supported. Accon:ing to the PSC, commercial, industrial, and h1aryland energy consumers do

]

government customers. not currently need retail competition On Our Decision to Merge to capture the benefits of the Although the move toward Regulators Reshape industry competitise energy market. consolidation is new to today's utility employees, mergers are not As it has for several years, compe- In addition, the PSC mandated new to BGE. We,ve been through tition continues to act as a catalyst co:npetitive bidding for all new 3

about three dozen in our long gj _ , _ _]

history. Our philosophy in 52 , 7 .. ; .

~"

evaluating any strategic business .

-. ].,

combination is that it must T

..s y* R .

.. +

p

- L: . ,.x n c Enhance shareholder value - . g4 '_ au, ,- 8 m e

~

. r. ~

4' y . gg . e,_

1. -t-t., wp -= , . ;;.. , ' ' ' . .

o improve our competitive position ."--" . - ~'

p vg [,Qmb " ' v 'TV1 Y'f e.,

s 4 A Reduce costs to allow us the .

, !ti9, m pricing flexibility to retain and . f -

3 9

.. 4 attract customers

[ ,.

In late September we signed an agreement tojoin forces with President and Chief Brighten Baltimore aims to PEPCO, a combination that meets Operating Officer John make the city's 3kyline as all three objectives. Since the details Derrick will be the President brilliant as it appears in this of the proposed merger were and Chief Operating Of0cer of enhanced photo. A cooperative described at great length in the joint Constellation Energy Corporation. ventme betircen BGE and several proxy statement, I will touch only . city agencies, Brighten Baltimore is To complete th.is comb.manon,we  !

briefly on the highlights of this ivorAing to male Baltimore 's I must first obtam shareholders, i

' business combination. doirntoirn safer and more attractive

) approval, then the approval of l

\

through enhanced lighting of numerous regulatory agencies. We buildings and streetscapes.

] The New Management Team expect to complete all regulatory The boards of BGE and PEPCO approvals by the early part of 1997. " We 're irorking irith the major unanimously approved the proposed doirntoirn businesses and business After reviewing a long list of merger and top management virners on this project,,, says potential names, we finally settled positions. Constellation Energy Marketing's Kathy Pmetor, BGE's on Constellation Energ*y ..

Corporation's Board of Directors Brighten Baltimon> pmgram admtms-Corporation., a name that not only will consist of 16 members,9 .. trator "BGE's mle is to design renects our vision for the new designated by BGE and 7 . . lighting plans and ident:Jy energy 1 organization but is within our own designated by PEPCO. 3arings that can help the businesses fam.lyi of companies. Our finance the enhanced lighting.

Ed Mitchell, PEPCO's Chairman subsidiary, Constellan.on Energy, j

and CEO, will be Chainnan of the Inc., has changed its name to " Brighten Baltimon is raising the l new company's Board of Directors. Constellation Power, Inc., to avoid economic derchipment pm3pects for l I will be CEO of Constellation name conflict with the new parent, our city, which helps njurenate the Energy Corporation, then assume downtown area," says Fmctor "And the additional responsibility of a vital downtown makes a big Why the Merger Makes Sense Chairman of the Board from Ed difference in the way people look at Th.is merger builds on our strong Mitchell one year after the merger the entire irgion."

business fundamentals. The two takes place.

companies are ah.gned philosoph.i-BGE President and Chief Operating cally, sharing a common vision and Officer Ed Crooke will serve as Vice values. Both are well-respected,

)

Chairman of the new company and financially sound, low-cost Chairman of the Board of the companies with strong ,

nonregulated subsidiaries. PEPCO's management teams.

I 1

i O ,

I

I believa Contt;ll; tion Energy Corporation will bring

( l believe Constellation Energy enhanced shareholder value Exactly how we will define this

Corporation will bring enhanced utility of the futuce will be the i shareholder value to both IIGE and to both BGE and focus of 1996. Thece are a number l

PEPCO investors. I also believe of givens, however that will be the PEPCO investors.

both companies' stock perfor- foundation of oiv new company.

l mances after the announcement First, we intend to remain a yield-l indicate that the investment oriented equity investment. We will What This Means community viewed the merger as create a low-cost structure that to Our Employees good for both companies. ensures price flexibility. We w.lli l

I firmly believe that those things Constellation Energy Corporation position ourselves as a leading our employees value most-job l .

provider of energy and energy-l will adopt BGE's dividend policy. security, good wages and benefits, t . . .

related pralucts and services.

i That is, it will seek to grow the and challenging careers-are .

I I dividend at a rate greater than the And we will seek growth in our t .

possible only if our company is .

d.iversified businesses, industry average. When the merger growing and profitable. Creating is complete, the new company's Constellation Energy Corporation To do this, we will continue to

annual dividend will be $1.67 increases the likelihood of improve our strong customer focus l per share. continued success. and build a culture that fosters continuous improvement. We'll The merger will also improve our We regret that much of the cost also pursue strategies to des.elop competitive standing by creating a sasings will be realized by reducing and retain the superior and ficxible larger, stronger company our combined workforce by about workforce we need for the future.

positioned to prosper from in . dustry 10 percent. These will not be i change. Together, BGE and across-the-board reductions. We will work toward influencing PEPCO can keep costs lower than The greatest impact will be felt regulatory policy that recognizes they could as stand-alone by BGE and PEPCO employees that investors built this industry and companies-a critical advantage in in the administrative, staff, and that investors will be needed to

! a competitive environment. service support areas. grow the energy business of the future. I am committed to the Operational efficiencies w.ll i result We plan to handle this as compas- .

proactive approach we,ve set for l fiom having side-by-side service sionately as possible. We will Constellation Energy Corporation territories, and Constellation Energy provide a good severance package and will continue to look out for Corporation will have an excellent and as much information as we can your interests-as well as those of generation mix. We expect to throughout the transition process s our customers and employees-achieve significant savings-about that our employees can make every step of the way,

$1.3 billion over 10 years-by informed career decisions.

eliminating duplicate functions, centralizing purchasing processes, gg and reducing corporate expenses.

for the New Company I '

Our combined Baltimore- Given the intensity of industry Washington service territory, in changes, this is an opportune time N addition to being compact and to go through this transition. We are Christian 11. Poindexter prosperous, contains a good shaping a combination gas and balance of industrial, commercial, electric company positioned to Chairman of the Board and i government, and residential profit in the emerging competitive Chief Executive O//icer 4

customers. utility industry. Februarv 12,1996 4

5

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0"'A Pg*TMN 7 Chief Operating Officer of BGE h* .

dd" hbL[ -

"'f from now until the completion of the merger.

y y John Derrick and I have Epw,,,,].s - "

3 approached this assignment as an opportunity to position g

Constellation Energy Corporation r <>

f ay=+

to compete in the energy industry 3 n@. . j of the future, an industry quite  ;

v .

different from the one with which  !

~

we are familiar. We are fortunate to (

s;g have excellent ingredients to work j with-two committed workforces,

(

aligned philosophies, excellent Today reliability is reduction in customer interruptions reputations, and good regulatory a competitive advantage, in 1995 and improved customer relationships, to name a few.

so we 're using new distribution satisfaction ratings. We attribute the Throughout most of 1996, automation (DA) technology to help improved system performance to hundreds of BGE and PEPCO l us impnire service to cu3tomers. efforts such as our overhead employees will be working ,

Pnsject Manager Brian Deaver (inset) inspection and maintenance together on more than a dozen I eaplains, " Distribution Automation program, completely revamped \

different process teams charged involves installing electnmically tree-trimming process, increased with shaping the fundamentals of contndled 'line reclosers' on BGE's replacement of older, direct-buried Constellation Energy Corporation.

cables, and the expansion of electric feeder mains. The reclosers Employees at every level will then automatically isolate electricalfimIts distribution automation in our be called upon to bring to and signal BGE system opennors of ""f* PCff"""I"E "f#"' realization the principles, relation-an outage. ships, and processes that will Looking Forward characterize our new company.  :

"Without DA, faldts on the freder mains can result in power outages to in 1996 we will continue to keep That will be both difficult and BGE strong and profitable while exhilarating. Our reward will $

all customers on a feeder untilfield opennors can n spond," says Dearer building the foundation of be an even stronger company, With DA, Customer Operations Constellation Energy Corporation.

better able to profit and grow }

system operator 3 such as Ed Wgel, PEPCO's President and Chief in the years ahead. '

above right, can remotely n ston two- Operating Oflicer John Derrick and i thirds of those customers within afew I are co-chairing the transition (

management team charged with minutes from a PC workstation in taking two fine companies with Baltimore. "That Aind of im/mwed reliability greatly improves our proud histories and creating one c/cctric service," says Dearer even better organization. And to i ensure that BGE operational issues Edward A. Crooke are well managed. Executive Vice President and President George Creel has Chief Operating OJjicer assumed the day-to-day duties of February /2,1996 0 l l

l l

I i

l A:hieving Pricing Flexibility activity-based planning and We have to earn the right To meet our customers' needs budgeting system that will provide today, we must create custom.ued

. . to keep that customer by l us with better mformation faster

! responses. That means having the than before. The first segment of delivering products and financial flexibility to provide BIS went on line in 1995. Over the alternative pricing strategies and services that go beyond ,

next year we'll add new systems to innovative products. track inventory, purchasing infor- providing electricity and A streamlined cost structure, the *"II "' "nd other data on actual g

j single most important element of c sts. Th.is will help us make better-informed business decisions.

pricing flexibility, is well within our l control. Since 1993, employees of all divisions have contributed to Earning the Right to Serve BGE's success in trimming Key to becoming the utility of operations and maintenance costs. choice is realizing that we no longer often a homeowner's preferred own exclusive rights to the customer heating fuel. In 1995 we took strong Our capital spending is also dramat-relationship. Instead, we have to action to extend mains into strategic ically lower. Expenditures in 1995 were $344 million, down from earn the right to keep that customer growth areas and expanded our by delivering products and senices system more deeply into the

$455 million in 1994. Our strategy that go beyond providing electricity outlying areas of our territory.

for controlling capital expenditures and natural gas.

l is to impose adequate financial tests for all discretionary spending. That's the philosophy behind our Reliability Key to Satisfaction l

newest subsidiary, BGE Energy Bringing customers the linest array Our generation employees ,

Projects & Services, Inc. (EP&S). of products and services will not l exceeded expectations by achieving I

EP&S will act as developer, compensate for shortcomings in l the highest generation ever in both rnarketer, packager, and general system reliability. That truth guided our nuclear and fossil plants. They manage of value-added energy a self-assessment of our reliability also met the ambitious cost-projects for large commercial and as benchmarked against other reduction goal we set in 1992. At industrial customers. Our objective utilities. We found that, although that time we were in the middle of is to profitably enhance customer we had many strengths, we also had the eight PJM companies in terms relationships through quality mom to improve system reliability.

of generation costs. We set our .

• ""C#'

sights on being in the lowest third This led to the Genesis Project, a in generation operating costs in the EP&S is one facet of our marketing comprehensive analysis of the PJM within five years, in less than strategy that sells customers the performance of our electric distri-l l three years we achieved our goal. products they desire and places bution system. Based on employee l By any standard, this is a high value on building customer insights at all phases, this effort remarkable accomplishment. relationships. First we listen to produced a philosophical shift how our customers define quality, from reactive maintenance, which Along with producuvity and cost then we identify opportunities for emphasizes restoration. to improvements, we are also using new products, senices, and preventive maintenance, which advanced information technology customa gmwth. focuses on keeping problems from to help us determine the cost of acu ng in the 6t place.

producing and marketing our We are bringing the advantages of products. Our new Business natural gas to more customers. The improvements our employees j information System (BIS)is an Research shows that natural gas is suggested resulted in a 309 7

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BGE is moving ahead with our efforts to meet customers'needs on both sides of the meter Our merger with PEPCO is the most visible step we 've taken to meet the challenges ofa competitive world, The merger will create a company that can succeedfar into the future by providing us opportunities to not only enhance customer service, but to increase shareholder value and lower costs, as well.

To realize our destiny today, we're working hard to retain and attract customers, offer new l products and services, and enhance our profitability. And that work is paying off R E Al lZING Oll/' DESTIN Y by retaining and attracting customers through low cost gas and electricity 1

Across the nation, consumers are to this reduction by completing the customer service processes in our beginning to realize greater choices Unit Two outage in one-third less 180-year history. Service to new of energy providers, products, and time than a similar outage on Unit customers has been greatly l services. Although many variables One the year before. enhanced by the creation of a )

can influence consumer decisions, department dedicated to the specific Our fossil plant employees one thing is certain: price will "## "f "#* " ""#*"" "#*

continued their outstanding record.

become even more important to home construction, In 1995 fossil generation reached an energy customers, all-time high. For the fourth year in a Our cost-reduction efforts not only row, the average unit cost of power help us retain existing customers, Low Cost Equals Flexibility generation for our fossil plants but help us attract new customers as To be able to offer flexible pricing, decreased faster than that of PJM well. We added more than 17,(X)0 we continue to work on creating a comparison companies. The reason new electric customers in 1995. On low-cost structure. In 1995 our is increased output due to higher the gas side, we connected 13,600 employees once again made reliability and lower costs. ocw gas customers, doubled the j excellent progress toward reducing number of residential conversions )

costs while increasing output, Reengineering to gas over 1994, and constructed I which has strengthened BGE's Brings Benefits 256 miles of new gas mains.

standing as a low-cost generator. In 1995 employees in our Customer Last year employees at our Calvert Service & Distribution Division Profitability is a Priority Cliffs Nuclear Power Plant set the identified savings of about $35 We achieved our goal of increasing highest generation record for the million to be realized over the next the profitability of our gas plant and reduced the average unit two years The savings were business-a strategic asset often cost of power generation by about identified as part of the most overlooked by the investment 139. Plant employees contributed extensive reengineering of our community and underrated by the

'l 18

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market. In 1995 the Maryland Public Service Commission granted - -- S c "V {'

l ~

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1" i ilGE a $19.3 million gas base-rate b- MW y A 1 incicase. The increase will allow us

~

i j to earn a return on our investment b e a

j in gas system expansion and j improvements. Even with this gas ~

m

! rate increase, IlGE's first in three years, our gas prices remain among .

the lowest in our region.

Our profitability was also enhanced in 1995 by our Constellation lloldings subsidiary, which had its

best year ever.

4 i

Our partnership  ;

RE AI lZING Our DFS1INY "*""'"*"#""

Pn>ving Ground ,

by offering products and services our customers value (APG) helped the U.S.

Anny facility dramaticaHy reduce its We're listening closely to what our EP&S will position us as a leading energy use and costs last year:

l customers need and want. As new provider of pnxlucts and services to ..H'c <xtende d se n n indes of gas rirain pnxlucts and services become meet our customers' energy-related dirough die post," says St<>n bch available, we continue to expand needs. Products under the EP&S of BGE's Gas Engineering and our markets delivering total energy umbrella range from efficient lighting Construction Department (inset).

solutions in ways that benefit both to heating and cooling systems for

.. That a# owed us to convert l IlGE and our customers. large customers. Services include N buddirigs pn viously heated widi ou We've adopted a centralized commercial and industrial HVAC to dual fuel ou and riutund gas, E"' """' " E '

( marketing approach that lets us *~~ ""'U?'

and constmetum management.

capability. The whole ethirt iHustrates i meet a full range of customers, our aggn>ssire pursuit of gas energy needs. This approach lets us expansion." l know segment by segment the Added New Products , j ,

value and needs of each customer and services ,. & M>s Ditis dd group so we can market what the To provide customers mere energy customer wants and, at the same choices, we also mtmduced and

- r r HM> hi ini-6 M budirm at APG pd is M>in

time, enhance our profits. began marketing several new

, ,, pg ., ,,, ,g ,

pnxlucts and services, some of vehicles. As a result of aH these energ'y Created New subsid.sary which fall under the EP&S umbrella.

savings. Aberdeen received two To complement our core business A Comfort Link": In partnership fedend energy conserration awants and provide industrial and with The Poole and Kent Company, last year:

commercial customers better a llaltimore-based mechanical service and choice, we created a contracting limi. IlGE is building a

new subsidiary, ilGE Energy system that uses a central plant to l Projects & Services, Inc. (EP&S).

1 l 11 4

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Our Premium Power 9' '

p .

program responds to a

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s customers' needs by making

)

their sensitive electnmic equipment

., I less susceptible to outages.

4- .A

. A'

- e  ; '$ lost year Pnmitun Power installed 1 s - )* .}g.

g f) uninterruptible power systems (UPS)

~. ]p y c, in electric robots that weld Chevndet 4

. /

• and GAIC vans at the Genend Alotors

~ ,- N k. l. }h W% '

plant in cast Bahimon. "Astn> and L4 C ' . l: .

\  ! Safari vans are selling at an incredible pace, and GAf cannot afoni to have pump chilled water beneath the Through our BGE Ilome Products nny pniduction delays due to power ,

streets to cool buildings. In & Services Inc. (llP&S), subsidiary, quality " says I'ladi Basch, Director of November BGE was granted a we're pursuing additional revenue BGE's Premium Power Unit.

franchise to operate district growth opportunities in the "The UP5 systems sense outage's, then chilled water and heating systems residential and commercial markets. . )

in downtown Baltimore. Created in 1994, ilP&S installs and .

n>bots don,t lose their pn>gramming, A Premium Power: We provide a repairs heating, cooling, plumbing, .

which he,Ips mm. .ami e the plant,s ,

range of energy options. to help and electrical systems. IIP &S also downtime,.. says Basch. I i

industrial customers identify and operates 10 appliance and solve potential power-quality electronics centers and provides problems. Premium Power energy home remodeling services.

solutions range from inspecting customers' facilities for faulty wiring and simple electrical repairs to installing electric RE A1 IZlNG Ol/T DESTIN Y  !

system-protection products.

by enhancing profitability )

A PowerD. igm :In 1995 we through nontraditional businesses tested and began marketing our PowerDigm subeycle transfer ,

switch along with our partner, Under the umbrella of Constellation Constellation sub Goes Global Silicon Power Corporation. Iloidings, Inc. (CIll), we operate a Constellation's independent power Developed for industrial range of nonregulated businesses producer, Constellation Power, Inc.

customers with sensitive from independent energy to real (CPI), is contributing to our electronic equipment, PowerDigm estate and senior living facilities to growing diversiGed business switches a customer's equipment fmancial investments. The strength by expanding its to a backup power source Constellation Companies' expertise marketing activities and estab- l in milliseconds with no in these areas is paying off. In 1995 lishing a presence in the power )

power interruption. we carned in excess of $27 million. market in Latin America.

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) CPI afGliates own and operate in a decision by retailer Saks Fifth Investments Perform Well 26 electric power projects in the Avenue to build a 470,(XX)-square- Constellation Investments, Inc.

l 1

j United States and Latin America foot distribution center in our (Cil), maintains a diverse

{ and have 14 operations and mainte- service territory. Working with investment portfolio that provides

! nance contracts. In July, along with state and local officials and others, current income, cash flow, and

! several partners, CPI bought a 50% CREG brought the new Saks backup liquidity for the other l interest in 181 megawatts of supercenter to our 11ickory Ridge Constellation Companies in a existing and under-construction Industrial Park. portfolio of low-to-moderate risk generating capacity formerly investments. Results in 1995 j owned by Bolivia's national utility. Focusing on Senior Living emeM epahns, pasuMy

! Constellation llealth Services, Inc. in the marketable securities (CliS), also contributed to Clil's investment program.

Real Estate Makes Strides l Constellation Real Estate Group success, rapidly developing a (CREG), has made great strides to strong position both in size and address its challenges and pursue quality of service. Focusing on independent power pniduction new opportunities. CREG's assisted and independent living, continues to be a mainstay of our existing land portfolio was CllS has over 200 units in diversified business activities. The reduced, and three new retail operation and another 750 units in commenial start-up last June of the opportunities have been initiated various stages of development. In Colver Power Pnsject near Altoona, with limited investment. Our addition, CilS purchased a health Pennsylvania, npirsents Constellation commeaial properties reached a management and consulting Power; Inc.'s (CPI), 2.lth wholesale level of 96'7c occupancy by the end company, now called Constellation power pn> ject in the United States.

of 1995, far exceeding the Senior Services, that has an John Hall, CPrs manager for the Baltimore-area average. additional 1,800 units under '

plant. calls the Colver pn> ject an management.

CREG's 1995 success is embodied envin>nmental and revenue asset.

"Colver burns coal waste to

.. generate 102 megawatts ofpower

~~

. that we sell to the Pennsylvania

- Electric Company. By using the coal wasteforfuel, we're not only

\ . generating power but also helping free up land from surrounding

, . -- d -

counties that will be nclaimed and

• A revegetated " says Hall.

"Our eAperience with other 3 f ,,,, k

• l

&5 independent power pn>jects helped

% make this the most well-organized

- 9 4 . ..

+-*Q,,.: . .~. .

~, start-up we've had. And to top it op~we

,' . _ _ c .c ,

had a near-record yearfor new plants, l

$n ./

y

& ' ..; _ _'s- (/ ..

, operating at an 86% capacityfactor;"

says Hall. "Overall, Colver has been

\

?~) m  ? a success storyfann the stan."

l 14

FincnCial Contents 18 Utility Operating Statistics 28 Consolidated Balance Sheets 35 Notes to Consolidated Financial Statements 17 Selected Financial Data 30 Consolidated Statements of Cash Flows 50 Directors and Officers 18 Management's Discussion and Analysis 31 Consolidated Statements of 52 Five year Statistical Summary Common Shareholders' Equity 26 Report of Management 53 Shareholder Information 32 Consolidated Statements 26 Report of Independent of Capitalization Accountants 34 Consolidated Statements 27 Connolidated Statements of income Taxes of Income Sales of Electricity Sales of Gas Utility Construction Expenditures Bolisons of Kttowatt-liours Millions of Dekattierms M11toons of Dollars 15 50 $500 12 -

40 . ,

$400- -

9 -44 -

30 -f: , , f: x) $300 - I 6-i3 -i4 -; - --i -

l-i3l--!4 20 -13 $200 -

g .

E E E -

1991 1992 1993 1994 1995 1991 1992 1993 1994 1995 1991 1992 1993 1994 1995 1996 l (Est.)

Residenhal > Residential Construction l M Commercial Commercial M AJtowanceforfunds SM$$ industnal $$$$$$ Industnal 'Jsed Dunn0Construction 1995 Revenue 1995 Operating Expenses Retained in E,sinass $0.02 Dwersified $0.10 Common Str ;k F"idends $0 08 Interest and Freferred and Preference Dwidends $0 08 Gas $014 .

Taxes $013

.k Depreciation and Amortization $0.11 DwersifiedSG&A $0.07

~ M Maintenance $006 Operations $019 PurchasedFuelandEnergy $0.26 Critimore Oas and Electric Company and Subsidiaries 15

Utility Cp2r tingStctistica Conipound 1995 1994 1993 1992 1991 Growth Electric Operating Statistics 5-year 10-Year Revenues (In Thousands)

Residential $ 955,239 5 931,711 $ 931,643 $ 839,954 $ 882,591 5.88 % . 6.09 %

Commercial 879,438 852.989 869,829 842,694 850,038 ' 3.00 ~ 4.50 Industrial 208,441 205,611 199,042 201,950 212,864 1.35 0.58 System Sales 2,043,118 1,990,311 2,000,514 1,884,598 1,945,493 4.10 4.69 Interchange and Other Sales 166,964 118,027 91,543 M,323 23,845 44.36 12.N Other 21,029 I9,083 20,090 16,611 21,531 9.50 0.99 Total $2,231,111 $2,127,421 $2,112,147 $1,965,532 $1,990,869 5.45 5.(M Sales (In Thousands)-Mwit Residential 10,966 10,670 10,614 9,735 10,097 3.39 4.47 .

Commercial 12,635 12.351 12.395 11,909 11,707 2.16 3.65 Industrial 4,591 4,433 3,763 3,663 3,708 4.17 1.95 System Sales 28,192 27,454 26,772 25,307 25,512 2.95 3.65 Interchange and Other Sales 8,149 5,684 4,149 3,180 1,166 49.59 15.34 Total 36,341 33,138 30,921 28,487 26,678 7.37 5.31 Customers Residential 988,179 978,591  % 8,212 956,570 939,734 1.20 1.74 Commercial 103,399 101,957 100,820 99,673 98,254 1.38 2.25 Industrial 4,161 3,967 3,800 3,761 3,584 3.37 5.21 Total 1,095,739 1,084.515 1,072.832 1,060 ON 1,041,572 1.23 1.80 Average Use per Residential Customer-Kwit 11,097 10,903 10,963 10,177 10,744 2.16 2.68 Average Rate per Kwll (System Sales)-g Residential 8.71 8.73 8.78 8.63 8.74 2.42 1.56 Commercial 6.% 6.91 7.02 7.08 7.26 0.82 0.83 Industrial 4.54 4.M 5.29 5.51 5.74 (2.72) (1.33)

Peak Load (One-hour)-Mw 5,947 6,038 5,876 5,558 5,910 1.66 2.92 Capability at Summer Peak-Mw 6,731 6,722 - 6,701 6,687 6,608 1.79 1.88 System Load Factor 57.2 % 54.7 % 55.2 % 54.8 % 52.4 % 1.12 0.32 i Gas Operating Statistics Revenues (in Thousands)

Residential $ 248,283 $ 262,736 5 265,601 $ 242,737 $ 220,653 2.54 (0.33)

Commercial Excluding Delivery Senice 109,859 121,005 121,832 112,147 ,

%,189 4.17 (1.57) i Delivery Service 3,6% 2,285 3,287 3,591 3,031 2.27 5.16 Industrial Excluding Delivery Service 16,730 20,140 22,250 21.123 14,855. (12.40) (9.14)

Delivery Service 16.332 9,635 12,920 14,290 14,288 (1.76) 0.29 Other 5,604 5,448 7,273 6,511 6,777 (9.43) (1.25)

Total $ 400,504 $ 421,249 5 433,163 $ 400,399 $ 355,793 1.52 (1.23)

Sales (In Thousands)-DTH Residential 40,2.11 40,279 40,029 39,N2 36,519 2.80 1.01 Commercial .

Excluding Delivery Ser ice 23,612 23,712 23,830 23,478 20.687 5.39 0.88 Delivery Service 6,982 6,490 7,428 7,102 6,433 3.52 5,52 Industrial Excluding Delivery Service 4,102 4,410 5,298 5,314 3,605 (10.90) (6.77)

Delivery Service 35,925 33,837 31,390 33.638 34.240 0.68 3.08 Total 110.832 108,728 107,975 108.574 101,484 1.86 1.35 Customers . .

Residential 506,739 498,152 491,165 486,863 482.085 0.98 0.52 Commercial

• 38,422 37,891 37,518 37,(XX) 36,561 1.34 1.27 l Industrial 1,334 1,354 1,353 1,412 1,385 (0.98) 0.22 ,

l Total 546,495 537,397 530,036 525,275 520,031 1.00 0.57 Average Use per Residential Customer-Therms 794 809 815 802 758 1.81 0.49  ;

Average Rate per'Ihernw$ l Residential .62 .65 .66 .62 .60 (0.32) (1.35)

Commercial (Excluding Del.very Service) .47 .51 .51 .48 46 (0.83) (2.41)

Industrial (Excluding Delivery Service) .41 .46 '42

. .40 .41 (1.40) (2.53)

Peak Day Sendout-tml 706,287 761,900 657,700 609.200 610.200 1.55 0.42 Peak Day Capability-om 847,000 847,000 847,000 847,0(X) 817,000 (0.14) 0.24 i

Utihty operating statistics do not r&JTect the elimination ofinterrompany transactions.

Certain prior ~ year anwunts have been n classified to conform with the current year's presentation.

13 Baltimore Gas and Electric Company and Subsidiaries

Sel:ct:d Fintn:ltini Dit2 Compound 1995 1994 1993 1992 1991 Groith (Dollar anwunts in thousands, ext ept per share anwunts) 5 , tear l0-Year Summary of Operations Total Revenues $2,934,799 $2,782,985 $2,741,385 $2,559,536 $2,514,631 5.47 % 4.56 %

Expenses Other Than interest and Income Taxes 2,239,107 2.147,726 2,124,993 2,024,227 2.026,910 3.10 4.93 l Income From Operations 695,692 635,259 616,392 535,309 487,721 16.36 3.46 l Other Income 8,819 32.365 20,310 22,132 28,095 (23.87) (4.60) '

Income Before Interest and Income Taxes 704,511 667,624 636,702 557,441 515,816 14.33 3.30

' Net Interest Expense 1%,977 190.154 188,764 189,747 1%,588 3.58 5.98 income Before income Taxes 507,534 477,470 447,938 367,694 319,228 21.03 2.43 i income Taxes 169,527 153.853 138,072 103,347 85,547 53.41 1.11 j income Before Cumulative Effect of '

Change in Accounti'ng Method 338,007 323,617 309,866 2M,347 233,681 14.01 3.17 '

Cumulative Effect of Change in the Method of Accounting for Income Taxes - - - - 19,745 - ' -

Net income 338,007 323,617 309.866 264,347 253,426 9.65- 3.17 Preferred and Preference Stock Dividends 40,578 39,922 41,839 42,247 42,746 0.16 4.02 -

Earnings Applicable to Common Stock $ 297.429 $ 283.695 $ 268.027 5 222.100 $ 210.680 11.45 3.06 l Earnings Per Share of Common Stock l Before Cumulative Effect of Change in Accounting Method $2.02 $1.93 $1.85 $1.63 $1.51 13.13 0.77 Cumulative Effect of Change in the Method of Accounting for income Taxes _

- - - - .16 - -

Total Earnings Per Share of Common Stock $2.02 $1.93 $1.85 $ 1.63 $1.67 7.61 0.77  !

l Dividends Declared Per Share of Common '

Stock $1,55 $1.51 $ 1.47 $1.43 $1.40 2.06 3.40 Ratio of Earnings to Fixed Charges 3.21 3.14 3.00 2.65 2.27 12.52 (2.51) l Ratio of Earnings to Fixed Charges and Preferred and Preference Stock Dividends Combined 2.52 2.47 2.34 2.08 1.82 11.38 (1.99)

Financial Statistics at Year End Total Assets $8,316.663 $8.037.502 $7.829.613 $7.208.660 $6.963.547 4.39 6.88 l

Capitalization

• l Long-term debt $2,598,254 $2,584,932 $2,823,144 $2,376,950 $2,390,i15 3.44 5.69 Preferred stock 59,185 59,185 59,185 59,185 59,185

( Redeemable preference stock 24),000 279,500 342,500 398,500 (7.89) 11.70 395.500 l Preference stock not subject to mandatory redemption 210,000 150,000 150,000 110,000 110,000 13.81 1.84 Common shareholders' equity 2,812,682 2,717,866 2,620,511 2.534,639 2.153,306 6.29 6.33 l

l Total Capitalization $5,922,121 $5.791,483 $5.995.340 $5.476.274 $5.111.106 4.29 5.92 Book Value Per Share of Common Stock $19.07 $18.42 $17.94 $17.63 $17.00 2.84 3.98 Numher of Common Shareholders 79,811 81,505 82,287 80,371 71,131 1.79 0.(M Certain prior. year amounts have been retlassified to conform with the current year's presentation.

Sahimore Gas and Electric Company and Subsidiaries 17

Mingm:nt's Di2cu2ci:n and Andytis of Financial Condition and Results of Operations This annual report presents the financial condition and results of Effective November 1,1995, BGE formed a wholly owned operations of Baltimore Gas and Electric Company (BGE) and its subsidiary, BGE Energy Projects & Services, Inc. (EP&S).

subsidiaries (collectively, the Company). Among other informa- EP&S' revenues and expenses are included in diversified busi-tion, it provides Consolidated Financial Statements Notes to nesses revenues and diversified businesses selling, general, and Consolidated Financial S'tatements (Notes), Utility Operating administrative expenses, respectively.

Statistics, and Selected Financial Data. The following discussion explains factors that significantly affect the Company's results of operations, liquidity, and capital resources.

Results of Operations The following factors influence BGE's utility opetations earn-ings: regulation by the Maryland Public Service Commission Earnings per Share of Common Stock (PSC); the effect of weather and economic conditions on sales; Consolidated earnings per share were $2.02 for 1995 and $1.93 and competition in the generation and sale of electricity. The gas for 1994, an increase of $.09 and $.08 from prior-year amounts, base rate increase authorized by the PSC in November 1995 respectively.The changes in earnings per share reflect a higher favorably affected utility earnings beginning in December level of earnings applicable to common stock, offset partially by 1995. The electric and gas base rate increases authorized by the a larger number of outstanding common shares. The summary PSC in April 1993 favorably affected utility earnings through below presents the earnings-per-share amounts. April 1994. The electric fuel rate cases now pending before the PSC discussed in Notes I and 12 could affect future 1995 1994 1993 years' earnings.

Utility business $1.84 $1.81 $1.77 Diversified businesses .18 .12 .08 Future competition may also affect earnings in ways that are not Total $2.02 $1.93 $ 1.85 possible to predict (see discussion on page 25).

Earnings Applicable to Common Stock Earnings from diversified businesses, which primarily represent i Earnings applicable to common stock increased $13.7 million in the operations of Constellation iloidings, Inc. (CHI) and its 1995 and $15.7 million in 1994. The increases reflect higher subsidiaries (collectively, the Constellation Companies), BGE utility and diversified businesses carnings. Home Products & Services, Inc. and Subsidiary (HP&S), and EP&S, increased during both 1995 and 1994. The reasons for Utility earnings increased in 1995 compared to the prior year due these changes are discussed in the " Diversified Businesses to higher electric system sales resulting from the extremely hot Earnings" section on pages 22 and 23.

summer weather in 1995, and higher electric and gas sales result-ing from the colder fall weather experienced in 1995. These Effect of Weather on Utility Sales factors were partially offset by lower electric and gas system Weather conditions affect BGE's utility sales.'BGE measures sales resulting from the milder weather experienced during the weather conditions using degree days. A degree day is the differ-first half of the year as compared to last year; lower net other ence between the average daily actual temperature and the base-income and deductions in 1995; and a decrease in the allowance line temperature of 65 degrees. Ilotter weather during the sum-for funds used during construction. mer, measured by more cooling degree days, results in greater demand for electricity to operate cooling systems. Conversely, Utility earnings increased in 1994 compared to the prior year due cooler weather during the summer, measured by fewer cooling to three principal factors: lower operations and maintenance degree days, results in less demand for electricity to operate cool-expenses; an increase in the allowance for funds used during con- ing systems. Colder weather during the winter, as measured by struction; and greater sales of electricity. The higher sales of elec- greater heating degree days results in greater demand for elec-tricity were primarily due to an increased number of customers tricity and gas to operate heating systems. Conversely, warmer compared to 1993. Both 1995 and 1994 earnings increases were weather during the winter, measured by fewer heating degree offset partially by higher depreciation and amortization expense, days, results in less demand for electricity and gas to operate w hich includes the write-oft of certain Perryman costs in both heating systems. The degree-days chan below presents informa-years (see discussion on page 21). The effect of weather on tion regarding cooling and heating degree days for 1995 and 1994.

utility sales is discussed below.

18 saltimore Gas and Electric Companw and sutesidiaries

30-Year Base rates are affected by two principal items: rate orders by the 1995 1994- Average PSC and recovery of eligible electric' conservation program costs

' Cooling degree days 1,056 949 804 thrhugh the energy conservation surcharge. Base rates increased Percentage change ia 1995 compared to 1994 due to recovery of a higher level of compared to prior year 11.3 % 9.7% eligible electric conservation program costs and the ability to Heating degree days 4,601 4,670 4,901 collect the full amount of energy conservation surcharge Percentage change revenues, portions of which had been deferred subject to refund compared to prior year (1.5)% (5.8)% in 1994 as discussed below. Base rates increased slightly during 1994 due to the remaining effect of the PSC's April 1993 rate ,

rder, offset partially by the deferral of the portion of energy BGE Utility Revenues and Sales e nservation surcharge billings subject to refund.

)'

Electric revenues chenged during 1995 and 1994 because of the s

following factors:

Under the energy conservation surcharge, if the PSC determines 1995 19 %

that BGE is earning in excess of its authorized rate of return, BGE will have to refund (by means of lowering future sur-System sales volumes $ 43.4 $ 9.9 charges) a portion of energy conservation surcharge revenues to Base rates 23.2 1.4 its cust mers. The portion subject to the refund is compensation Fuel rates (13.8) (21.5) for foregone sales from conservation programs and incentives for Revenues from system sales 52.8 (10.2) achieving conservation goals and will be refunded to customers Interchange and other sales 49.0 26.5 with interest beginning in the ensuing July when the annual Other revenues 1.4 (1.9) resetting of the conservation surcharge rates occurs. BGE earned Total electric revenues $103.2 $ 14.4 in excess of its authorized rate of return on electric operations for the period July 1,1993 through June 30,1994. As a result, BGE

- Electric system sales represent volumes sold to customers w'ithin deferred the portion of electric energy conservation revenues sub-BGE's service territory at rates determined by_the PSC. These ject to refund for the period December 1993 through November amounts exclude interchange sales and sales to other utilities, dis- 1994 The deferral of these billings totaled $20.1 million.

cussed separately later. Following is a comparison of the changes .

in electric system sales volumes: Changes in fuel rate revenues result from the operation of the electric fuel rate fonnula. The fuel rate formula is designed to 1995 1994 recover the actual cost of fuel, net of revenues from interchange Residential 2.8% 0.5% sales and sales to other utilities (see Notes 1 and 12). Changes in Commercial 2.3 (0.4) fuel rate revenues and interchange and other sales normally do . )

Industrial 3.6 17.8 not affect earnings. Ilowever, if the PSC were to disallow Total 2.7 2.5 recovery of any part of these costs, earnings would be reduced as discussed in Note 12.

The increase in sales to residential and commercial customers during 1995 reflects the extremely hot summer and colder fall Fuel rate revenues decreased during both 1995 imd 1994 due to a weather during 1995 and an increase in the number of customers, lower fuel rate, offset partially by increased electric system sales offset partially by milder weather experienced during the first volumes. The rate was lower in both years because of a less-half of the year as compared to last year. Sales to industrial cus- costly twenty-four month generation mix resulting from greater j tomers increased primarily due to an increase in the number of generation at the Calvert Cliffs Nuclear Power Plant and Brandon customers and the increased sale of electricity to Bethlehem Shores Power Plant compared to the previous year, as well as Steel, offset partially by lower usage by other industrial cus- lower fuel costs. BGE expects electric fuel rate revenues to tomers. Bethlehem Steel has been purchasing its full electricity remain relatively constant through 1996.

requirements from BGE since March of 1994 and is selling power produced with its own generating facilities to BGE rather Interchange and other sales represent sales of BGE's energy to than using the power to reduce its requirements. the Pennsylvama-New Jersey-Maryland Interconnection (PJM) and other utilities. The PJM is a regional power pool of eight In 1994, sales to residential and commercial customers were member companies including BGE. These sales occur after BGE essentially unchanged from the prior year due to three factors: has satisfied the demand for its own system sales of electricity, if the number of customers increased; higher sales from extreme BGE's available generation is the least costly available. Inter-weather conditions early in the year slightly exceeded lower sales change and other sales increased during 1995 and 1994 because from milder weather in the second half of the year; and usage- BGE had a less-costly generation mix than the other utilities. The p:r-customer decreased. Sales to industrial customers reDect less-costly mix reflects greater generation from the Brandon primarily an increase in the sale of electricity to Bethlehem Steel, Shores Power Plant and the continued operation of the Calvert which purchased more electricity from BGE due to increased Cliffs Nuclear Power Plant, which generated a record level of steel production and the fact that Bethlehem Steel has been electricity during 1995.

purchasing its full electricity requirements from BGE since March of 1994.

Baltimore Gas and Electric Company and SuInsidiaries is

(

l Gas revenues changed during 1995 and 19941:rcause of the charge adjustment clause, and the actual cost adjustment clause, following factors: which are designed to recover actual gas costs (see Note 1).

Changes in gas cost adjustment revenues normally do not affect 1995 1994 earnings. Gas cost adjustment revenues decreased during 1995

(/n millions) - and 1994 because of lower gas prices for purchased gas and Sales volumes $ 0.2 $ 3.6 lower sales volumes subject to gas cost adjustment clauses.

Base rates 6.4 2.4 - Delivery service sales volumes are not subject to gas cost adjust-Gas cost adjustment revenues (27.4) (16.1) ment clauses because delivery service customers purchase their Other revenues - 0.1 (1.8) gas directly from third parties.

Total gas revenues .

$(20.7) $(11.9)

BGE. Utility Fuel and Energy Expenses Electric fuel and purchased energy expenses were as follows:

The changes in gas sales volumes compared to the year before ,

were: 1995 1994 1993 (in million?)

1995 1994 Actual costs $554.5 $541.2 $483.9 Residential (0.2)W 0.6% Net recovery of costs Commercial 1.3 (3.4) under electric fuel rate Industrial 4.7 4.2 clause (see Note 1) 24.3 1.1 50.7 Total 1.9 0.7 Total expense $578.8 $542.3 $534.6 Total gas sales incteased during 1995 as a result of higher sales Total electric fuel and purchased energy expenses increased in to commercial and industrial customers, while sales t'o residential 1995 as a n sult of the operation of the electric fuel rate clause and customers were essentially the same as last year. Sales to com- increased actual electric costs. Actual electric fuel and purchased. '

mercial customers increased compared to last year due to an energy ' costs increased during 1995 primarily due to a higher net increase in the number of customers, increased usage per cus- output of electricity and higher purchased energy and capacity tomer, and the colder fall weather in 1995, offset partially by costs, offset partially by a less costly generation mix resulting

' milder weather during the first half of the year. Sales to industrial primarily from a shorter refueling and maintenance outage at the customers increased compared to last year due to greater usage of Calvert Cliffs Nuclear Power Plant as compared to the prior year.

gas per customer. Total gas sales increased during 1994 because of higher sales to residential and industrial customers, offset par- Total electric fuel and purchased energy expenses increased in tially by lower sales to commercial customers. Sales to industrial 1994 as a result of increased actual electric costs and the opera-

, customers reDect primarily greater usage of natural gas by . tion of the electric fuel rate clause. Actual electric fuel and pur-Bethlehem Steel. Sales to commercial and industrial customers . chased energy costs increased during 1994 as a result of a more were negatively impacted because delivery service customers costly generation mix and an increase in the net output of elec-either voluntarily switched their fuel source from natural gas to tricity generated to meet the demand of BGE's system and the alternate fuels, or were involuntarily interrupted by BGE as a PJM system.The cost of the generation mix increased due to result of extreme winter weather conditions in the first quarter of higher purchased energy costs and scheduled outages at the 1994. Interruptible customers maintain alternate fuel sources and Calvert Cliffs Nuclear Power Plant in 1994.  !

pay reduced rates in exchange for BGE's right to interrupt ser-vice during periods of peak demand. Purchased gas expenses were ai follows:

Base rates increased slightly during 1995 and 1994 due to an - 1995 1994 1993 increased recovery of eligible gas conservation program costs (In millionst through the energy conservation surcharge. In addition, base Actual costs $205.9 $222.7 $246.4 rates increased slightly during 1995 as a result of the PSC's Net (deferral) recovery of costs

. November 1995 rate order, which increased annual base rate under purchased gas adjustment ,

revenues by $19.3 million, including $2.4 million to recover clause (see Note 1) (7.8) 1.9 (3.7) l higher depreciation expense. Future gas base rate revenues are Total expense $198.1 $224.6 $242.7 expected to be impacted favorably as a result of this order.

Changes in gas cost adjustment revenues result primarily from Total purchased gas expenses decreased in 1995 due to signifi-the operation of the purchased gas adjustment clause, commodity cantly lower actual purchased gas costs and the operation of the ,

purchased gas adjustment clause. Actual purchased gas costs l

30 Baltimore Gas and Electric Campany and Sulosidiaries

decreased in 1993 due to lower gas prices which reflect market resulted from the addition of electric transmission and distribu-conditions. This decrease would have been greater except for a tion plant and certain capital additions at the Calvert ClitTs  ;

take-or-pay refund which reduced actual costs in 1994. Nuclear Power Plant during 1994. Additionally, as discussed I below, depreciation and amortization expense during 1995 and Total purchased gas expenses decreased in 1994 due to signifi- 1994 reflected the write-off of certain Perryman costs. 1 cantly lower actual purchased gas costs, offset partially by the opration of the purchased gas adjustment clause. Actual pur- Initially, BGE had planned to build two combined cycle gene-chased gas costs decreased during 1994 for two reasons: lower rating units at its Perryman site with each unit consisting of two gas prices and lower output associated with'the decreased combustion turbines and a heat recovery steam generator.

demand for BGE gas. The lower gas prices reflect market condi- However, due to significant changes in the environment in w hich tions and take-or-pay and other supplier refunds, offset by higher utilities operate, BGE decided in 1994 not to construct the costs related to the implementation of Federal Energy Regulatory second combined cycle unit and wrote off the construction work Commission (FERC) Order 636 and higher demand charges, in progress costs associated with that unit. This write-off reduced after-tax earnings during 1994 by $11.0 million or 7 cents per Purchased gas y ists exclude gas purchased by delivery service share. As a result of tlhe PSC's August 1995 Order requiring all t customers, including Bethlehem Steel, who obtain gas directly new generation capacity needs to be competitively bid and BGE's from third parties. September 1995 announcement that it will merge with Potomac Electric Power Company (PEPCO) which has some available Other Operating Expenses generating capacity, BGE determined that it will not build the Operations and maintenance expenses were essentially un- second combustion turbine for the first combined cycle unit.

changed in 1995 as compared to the prior year. Operations Therefore, during the third quader of 1995, BGE wrote off the expense decreased during 1994 primarily due to labor savings remaining work in progress costs associated with the first com-achieved as a result of the Company's employee reduction pro- bined cycle unit. This write-off reduced after-tax earnings during grams discussed in Note 7 and continuing cost control efforts. 1995 by $9.7 million. or 7 cents per share. The construction of These savings offset $18.1 million of expense from the amortiza- the first 140-megawatt combustion turbine at Perryman was com-tion of the cost of the 1993 and 1992 Voluntary Special Early pleted, and the unit was placed in service, during June 1995.

Retirement Programs (VSERP) and a $10.0 million charge for a bonus paid to employees in lieu of a general wage increase. In- Taxes other than income taxes increased slightly during 1995 and addition, operations expense for 1994 decreased because opera- 1994 due primarily to higher property taxes resulting from higher tions expense for 1993 included a $17.2 million charge for levels of utility plant in service.

certain employee reduction programs, offset partially by a credit to expense equivalent to the $9.8 million cost of termination . Inflation affects the Company through increased operating benefits associated with the Company's 1992 VSERP. Operations expenses and higher replacement costs for utility plant assets.

and maintenance expenses are expected to decline in 1996 due to Although timely rate increases can lessen the effects of inflation, ongoing cost control efforts of the Company. Maintenance the regulatory process imposes a time lag which can delay BGE's expense decreased during 1994 due primarily to lower costs at the recovery of increased costs. There is a regulatory lag primarily )

Calvert Cliffs Nuclear Power Plant, because rate increases are based on historical costs rather than projected costs. The PSC has historically allowed recovery of the Depreciation and amortization expense increased during 1995 cost of replacing plant assets, together with the opportunity to i because of higher levels of depreciable plant in service and earn a fair return on BGE's investment, beginning at the time l energy conservation program costs, and the completion of a of replacement.  !

facility-specific study of the cost to decommission the Calvert j Cliffs Nuclear Power Phmt. The higher level of depreciable plant Other Income and Expenses {

I in service, which is primarily due to certain capital additions at The allowance for equity funds used during construction (AFC) the Calven Cliffs Nuclear Power Plant, resulted in an increase of decreased during 1995 because of a lower level of construction ~

approximately $12.9 million in depreciation and amortization work in progress resulting from a decrease in new construction O expense during 1995. The facility-specific study resulted in a activity and the placement of several projects in service. AFC

$9 million increase in depreciation expense. Depreciation and increased during 1994 because of a higher level of construction l amortization expense increased during 1994 because of higher work in progress u hich was offset partially by the lower AFC levels of depreciable plant in service and energy conservation rate established by the PSC in the April 1993 rate order.

program costs. The increase in depreciable plant in service Baltimore Gas and Electric Company and Sut>sidiaries 21

Net other income and deductions decreased in 1995 primarily these agreements, the projects supply electricity to purchasing due to approximately $12.1 million in lower other interest and utilities at a fixed rate for the first ten years of the agreements finance charge income, and a decrease of $3.8 million in the gain and thereafter at fixed capacity payments plus variable energy oc the sale of receivables and property. Net other income and rates based on the utilities' avoided cost for the remaining term of deducuans increased in 1994 primarily due to a lower level of the agrcements. Avoided cost generally represents a utility's next charitable contributions and $3.9 million of gains on the sale lowest cost generation to service the demands on its system.

of receivables. These power generation projects are scheduled to convert to sup-plying electricity at avoided cost rates in various years beginning Interest expense increased during 1995 due to a combination of in late 1996 through the end of 2000. As a result of declines in higher levels of debt outstanding and higher short-term interest purchasing utilities' avoided costs subsequent to the inception of rates compared to 1994, offset partially by increased capitalized these agreements, revenues at these projects based on current interest on the Constellation Companies' projects. Interest avoided cost levels would be substantially lower than revenues expense increased slightly during 1994 due primarily to lower presently being realized under the fixed price terms of the agree-capitalized interest on the Constellation Companies' power ments. If current avoided cost levels were to continue into 1996 generation systems, offset partially by the accrual by BGE of and beyond, the Constellation Companies could experience carrying charges on electric deferred fuel costs excluded from reduced earnings or incur losses associated with these projects, rate base (see Note 5). which could be significant. The Constellation Companies are investigating and pursuing alternatives for certain of these power income tax expense increased during 1995 and 1994 due to generation projects including, but not limited to, repowering the  ;

higher taxable income from utility operations and the projects to reduce operating costs, changing fuels, renegotiating Constellation Companies. the power purchase agreements, restructuring financings, and selHng its ownership interests in the projects. Two of these Diversified Businesses Earnings wholesale power generating projects, in which the Constellation Earnings per share from diversified businesses were: Consies' investment totals $30 million, have executed agree-m mts wnn Neific Gas & Electric (PG&E) providing for the cur-tailment f u, ,ut through the end of the fixed price period in 1995 1994 1993 return for paynx ,ts from PG&E.The payments from PG&E dur-Constellation Companies ing the curtailmem ',eriod will be sufficient to fully amortire the -

Power generation systems $ .13 $ .10 $ .07 existing project finance detit. However, following the curtailment Financial investments .08 .03 .10 . period, the projects remain contractually obligated to commence Real estate development and senior production of electricity at the avoided cost rates, which could living facilities (.02) (.03) (.(M) result in reduced earnings or losses for the reasons described Effect of 1993 Tax Act - -

(.(M) above. The Company cannot predict the impact that these matters Other _(.01) (.01 ) (.01 ) regarding any of the 16 projects may have on the Constellation Total Constellation Companies .18 .09 .08 Companies or the Company, but the impact could be material.

BGE Ilome Products & Services, Inc.

and Subsidiary .00 .03 -

Earnings from the Cons'.ellation Companies' portfolio of finan-BGE Energy Projects & Services,Inc. , .00 - -

cial investments include capital gains and losses, dividends, Total diversified businesses $ .18 5 .12 5 .0g income from financial limited partnerships, and income from financial guaranty insurance companies. Financial investment earnings were higher in 1995 due to favorable earnings on the Companies' marketable securities, increased gains from financial The Constellation Companies' power generation systems busi-Partnerships, and higher earnings from financial guaranty insur-ness includes the development, ow nership, management, and ance companies. Financial investment earnings decreased during operation of wholesale power generating projects in w hich the 1994 due to reduced earnings from the investment portfobo.

Constellation Companies hold ou nership interests, as well as the Additionally,1993 results renected a $6.1 million gain from the provision of services to power generation projects under opera-sa f a po n of an investment in a fm ncial gu ranty insur-tion and maintenance contracts. Power generation systems earnings increased during 1995 due primarily to higher equity "* '"* P""Y" earnings on the Constellation Companies' energy projects and a The Constellation Compam.es' real estate development business gain on the sale of certain operating and maintenance contracts.

includes land under development; office buildmgs; retail pro-Power generation sy stems earnings increased in 1994 primarily jecN commercial projects; an entertainment, dining and retail due to payments for the curtailment of output at two wholesale comp x in ango, Florida; a mixed-use planned-unit-develop-power generating projects as discussed below.

ment; and senior hymg facihties. The majority of these projects are in the Baltimore-Washington corridor. They have been The Constellation Companies' investment in wholesale power affected adversely by the oversupply of and hmited demand for generating projects includes $197 million representing ownership land and of; lice space due to. modest economic growth and interests in 16 projects which sell electricity in California under corporate downsizings.

Interim Standard Offer No. 4 power purchase agreements. Under 22 saltimore Gas and Electric company and subsidiaries

.. . __ ~ _ _. - __ _ _ _ _ . _ ._ _ _ _ _. _

Earnings from real estate development and senior living facilities Constellation Companies' Management believes that although the in 1995 were essentially unchanged from the prior year. Earnings real estate market has improved, until the economy reflects sus-I from real estate development increased slightly duting 1994 due ' tained growth and the excess inventory in the market in the to gains recognized from the sale of two retail centers, an ofTice Baltimore-Wash'ington corridor goes down, real estate values will building, and interests in two senior living facilities. The in- not improve significantly. If the Constellation Companies were to creases in diversified businesses' revenues and in selling, general, sell their real estate projects in the current depressed market, and administrative expenses during 1994 reflect the proceeds of losses would occur in amounts difficult to determine. Depending these sales and the cost of the facilities sold, respectively. upon market conditions, future sales could also result in losses, in addition, were the Constellation Companies to change their The Constellation Companies' real estate portfolio has experi- intent about any project from an intent to hold to an intent to sell, enced continuing carrying costs and depreciation. Additionally, applicable accounting rules would require a write-down of the the Constellation Companies have been expensing rather than project to market value at the time of such change in intent if capitalizing interest on certain undeveloped land for w hich sub- market value is below book value, stantially all development activities have been suspended. These factors have affected earnings negatively and are expected to con- ,

BGE Home Products & Services' earnings decreased during 1995 tinue to do so until the levels of undeveloped land are reduced. and increased during 1994 primarily due to Ugher gains from Cash flow from real estate operations has been insuf ticient to receivables sales in 1994.

. cover the debt service requirements of certain of these projects.

Resulting cash shortfalls have been satisfied through cash infu- EnrironmentalMatters sions from Constellation Holdings, Inc., w hich obtained the The Company is subject to increasingly str'ingent federal, state, funds through a combination of cash flow generated by other and hical laws and regulations relating to improving or maintain.

Constellation Companies and its corporate borrowings. To the ing the quality of the environment. These laws and regulations extent the real estate market continues to improve, earnings from require the Company to remove or remedy the effect on the real estate activities are expected to improve also. environment of the disposal or release of specified substances at ongoing and former operating sites, including Environmental l The Constellation Companies' continued investment in real estate Protection Agency Superfund sites. Details regarding these projects is a function of market demand, interest rates, credit matters, including financial information, are presented in availability, and the strength of the economy in general. The Note 12 and in the Company's Annual Report on Form 10-K under item 1. Business - Environmental Matters.

Lisguidity and Capital Resources Capital Requirements The Company's capital requirements reflect the capital-intensive years 1996 through 1998, are reflected below. Certain prior-nature of the utility business. Actual capital requirements for the year amounts have been restated to conform with the current

]

years 1993 through 1995,' along with estimated amounts for the year's presentation. l

! 1993 1994 1995 1996 1997 1998 l tin millions) l Utility Business: .

Construction expenditures (excluding AFC) )

Electric $ 365 $345 $223 $231 $205 $212 Gas 52 68 70 68 73 67 l

Common 41 42 51 41 47 46 Total construction expenditures 458 455 344 340 325 325 AFC 23 34 22 11 10 10 Nuclear fuel (uranium purchases and processing charges) 47- 42 46 45 45 44 Deferred energy conservation expenditures 33 41 46 34 25 27 Deferred nuclear expenditures 14 8 - - - -

Retirement of long-term debt and redemption of preference stock 907 203 279 98 164 125 Total utility business 1,482 783 737 528 569 531 Diversified Businesses:

- Retirement of long-term debt 222 37 55 49 135 138

Investment requirements 78 Si i18 92 71 82 Total diversified businesses 300 88 173 141 206 220 Total $ 1.782 $871 $910 $669 $775 $751

+

Saltimore Oas and Electree Company and subsidiaries 23

l l

1 BGE Utility Capital Requirements The Constellation Companies' capital requirements are discussed BGE's construction program is subject to continuous review and below in the section titled " Diversified Businesses Capital j modification, and actual expenditures may vary from the esti- Requirements-Debt and Liquidity." The Constellation Compames mates above. Electric construction expenditures include the are exploring expansion of their energy, real estate ser ice, and installation of a 5,000 kilowatt diesel generator at the Calvert senior living facility businesses. Expansion may be achieved in a Cliffs Nuclear Power Plant which is scheduled to be placed in variety of ways, including, without limitation, increased invest-service in 1996, and improvements in BGE's existing generating ment activity and acquisitions. The Constellation Companies plants and its transmission and distribution facilities. Future plan to meet their capital requirements with a combination of electric construction expenditures do not include additional debt and internal generation of cash from their operations.

generating units. Additionally, from time to time, BGE may make loans to Constellation Holdings, Inc., or contribute equity to enhance the During 1995,1994, and 1993, the internal generation of cash capital structure of Constellation Holdings, Inc.

from utility operations provided 100%,729, and 719 respec-tively, of the funds required for BGE's capital requirements Historically, Constellation's energy projects have been in the exclusive of retirements and redemptions of debt and preference United States. As of December 31,1995, one of the Constellation stock. In addition, in 1994, $70 million of cash was provided by Companies had invested approximately $10 million in a Bolivian the sale of certain BGE and HP&S receivables (see Note 12), power generation company. In addition, $10 million has been During the three-year period 1996 through 1998, the Company committed, of which $1.2 million has been funded, to a fund that expects to provide through utility operations 115% of the funds will invest in and develop power projects in Latin America.

required for BGE's capital requirements, exclusive of retirements Constellation's energy business expansion may include domestic and redemptions. and international projects.

Utility capital requirements not met through the internal genera. Diversified Businesses Capital Requirements tion of cash are met through the issuance of debt and equity secur- Debt and Liquidity ities. During the three-year period ended December 31,1995, The Constellation Companies intend to meet capital requirements BGE's issuances of long-term debt, preference stock, and com- by refinancing debt as it comes due and through internally mon stock were $1,237 million, $190 million, and $92 million, generated cash. These internal sources include cash that may be respectively. During the same period, retirements and redemptions generated from operations, sale of assets, and cash generated by of BGE's long-term debt imd preference stock totaled $1,148 tax benefits earned by the Constellation Companies. In the event million and $219 million, respectively, exclusise of any redemp- the Constellation Companies can obtain reasonable value for real tion premiums or discounts. The amount and timing of future estate properties, additional cash may become available through issuances and redemptions will depend upon market conditions the sale of projects (for additional information see the discussion and BGE's actual capital requirements. of the real estate business and market on pages 22 and 23). The ability of the Constellation Companies to sell or liquidate assets BGE's fixed income securities are rated by various independent described above will depend on market conditions, and no assur-credit rating agencies. The ratings assigned reflect the rating ances can be given that such sales or liquidations can be made.

ageheies' current assessment of BGE's ability to pay interest, Also, to provide additional liquidity to meet interim financial dividends, and principal on these securities. The ratings impact needs, CHI has a $50 million revolving credit agreement.

BGE's cost of raising fixed income capital in the public markets.

At the date of this Report, BGE's securities ratings were as follows: Investment Requirements The investment requirements of the Constellation Companies Securities Ratings Table include its portion of equity funding to committed projects under standard MmJy'.s development, as well as net loans made to project partnerships.

Ra n Cr d an i.

Investment requirements for the years 1996 through 1998 reflect riup the Constellation Compames' estimate of funding for ongoing Senior Secured Debt A+ Al AA- and anticipated projects and are subject to continuous review and (First Mortgage Bonds) modification. Actual investment requirements may vary signifi-Unsecured Debt A A2 A+ cantly from the estimates on page 23 because of the type and Preferred Stock A "al" A+ number of projects selected for development, the impact of Preference Stock A "a2" A market conditions on those projects, the ability to obtain financing, and the availability of internally generated cash. The Constellation Companies have met their investment sequirements in the past through the internal generation of cash and through borrowings from institutional lenders.

24 Baltimore Gas and Electric Company and Subsidiaries

R:sponse to Regul tory Chang)

Electric utilities presently face competition in the construction of Form 10-K under the heading Regulatory Matters and Com-generating units to meet future load growth and in the sale of petition BGE (and after the merger the new company) from time

&tricity in the bulk power markets. Electric utilities also face ' to time will consider various strategies designed to enhance its -

the future prospect of competition for electric sales to retail competitive position and to increase its ability to adapt to and customers. As presiously disclosed, BGE regularly considered anticipate regulatory changes in its utility business. These strate-various strategies designed to enhance its competitive position gies may include internal restructurings involving the complete or and to inercase its ability to adapt to and anticipate regulatory partial separation of its generation, transmission and distribution I changes in its utility business. In September 1995, BGE con- businesses, acquisitions of related or unrelated businesses, busi-cluded that a merger with PEPCO would enhance two Ley factors ness combinations, and additions to or dispositions of portions of regarding its competitive position-maintaining low-cost produc- its franchised service territories. BGE may from time to time be tion and increasing in size. The merger is discussed in Note 12. engaged in preliminary discussions, either internally or with third Although BGE believes the merger will have a positive effect on parties, regarding one or more of these potential strategies. No its competitive position in future years, it is not possible to pre- assurances can be gisen as to whether any potential transaction of dict currently the ultimate effect competition will have on BGE's the type described above may actually occur, or as to the ultimate '

carnings in future years, or after the merger, on the earnings of effect thereof on the financial condition or competitive position the new company. In response to the competitise forces and of BGE.

i regulatory changes, as discussed in Part 1 of BGE's Reports on '

i l

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l Baltimore Oas and Electric Company and Subsidiaries 25

d i

R::p::rt cf min:g;msnt The management of the Company is responsible for the informa- Coopers & Lybrand L.L.r)., independent accountants, audit the tion and representations in the Company's financial statements. financial statements and express their opinion about them. They He Company prepares the financial statements in accordance perform their audit in accordance with generally accepted with generally accepted accounting principles based upon avail- auditing standards.

able facts and circumstances and management's best estimates andjudgments of known conditions. The Audit Committee of the Board of Directors, which consists of four outside Directors, meets periodically with Management, The Company maintains an accounting system and related internal auditors, and Coopers & Lybrand L.L.P. to review the ,

system ofinternal controls designed to proside reasonable activities of each in discharging their responsibilities. The I assurance that the financial records are accurate and that the internal audit staff and Cooper's & L3brand L.L.P. have free Company's assets are protected. The Comptmy's staff ofinternal access to the Audit Committee.

auditors, which reports directly to the Chairman of the Board, conducts periodic reviews to maintain the effectiveness of internal control procedures.

h. O u #h _,

Christian 11. Poir exter Charles W. Shivery Chainnan of the Board Chief Financial Officer Report of independent Accountants To the Shareholders of Baltimore Gas and Electric Company We hase audited the accompanying consolidated balance sheets amounts and disclosures in the financial statements. An audit also and statements of capitalization of Baltimore Gas and Electric includes assessing the accounting principles used and significant Company and Subsidiaries as of December 31,1995 and 1994, estimates made by Management, as well as evaluating the overall and the related consolidated statements of income, tah flows, financial statement presentation. We believe that our audits pro-common shareholders' equity, and income taxes for each of the vide a reasonable basis for our opinion.

three years in the period ended December 31,1995. These finan-cial statements are the responsibility of the Company's Manage- In our opinion, the financial statements referred to above present ment. Our responsibility is to express an opinion on these fairly, in all material respects, the consolidated financial position financial statements based on our audits. of Baltimore Gas and Electric Company and Subsidiaries as of December 31,1995 and 1994, and the consolidated results of We conducted our audits in accordance with generally accepted their operations and their cash flows for each of the three years auditing standards. Those standards require that we plan and per- in the period ended December 31,1995 in confonnity with l form the audit to obtain reasonable assurance about whethe the generally accepted accounting principles. l financial statements are free of material misstatement. An udit includes examining, on a test basis, evidence supponing the Coopers & Lybrand L.L.P.

i Baltimore, Maryland l January 19,1996 l

l l

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26 Baltimore Gas and Electric Company and Subsidiaries

Conxlidstad Ct:tementa cf In=me Year Ended December 31, 1995 1994 1993 lin thousands, escept per share amounts)

Revenues Electric $2,229,774 $2.126,581 12,112,I47 Gas 400,504 421,249 433,163 Diversified businesses 304,521 235,155 196,075 Total revenues 2,934,799 2,782,985 2,741,385 Expenses Other Than Interest and Income Taxes Electric fuel and purchased energy 578,801 542,314 534,623 Gas purchased for resale 198,069 224,590 242,685 Operations 550,811 552,817 574,073 Maintenance 168,269 164,892 181,208 Diversified businesses - selling, general, and administrative 220,573 167,430 143,654 Depreciation and amortization 317,417 295.950 253,913 Taxes other than income taxes 205,167 199,733 194.832 Total expenses other than interest and income taxes 2,239,107 2,147,726 2,124,993 Income from Operations 695,692 635,259 616,392 Other' Income Allowance for equity funds used during construction 14,162 21,746 14,492 figuity in earnings of Safe liarbor Water Power Corporation 4,559 4,349 4,243 Net other income and deductions (9,902) 6,270 1,575 Total other income 8,819 32,365 20,310 Income Before Interest and Income Taxes 704,511 667,624 636,702 Interest Expense Interest charges 219,689 214,347 212,971 Capitalized interest (15,050) (12,427) (16,167)

Allowance for borrawed funds used during construction (7,662) (11,766) (8,(MO)

Net interest expense 1 % ,977 100,154 188,764 Income Before Income Taxes 507,534 477,470 447,938 Income Taxes 169,527 153.853 138,072 Net Income 338,007 323,617- 309,866 Preferred and Preference 5tock Dividends 40,578 39,922 41,839 Earnings Applicable to Common Stock $ 297,429 $ 283.695 $ 268.027

, Average Shares of Commori Stock Outstanding 147,527 147,100 145,072 Earnings Per Share of Common Stock $2.02 $1.93 $1.85 See Notes to Cornolidated Financial Statements.

Certain p-ior-year amounts have been reclasssfied to conform with the current year's presentation.

Baltimore Oas and Electric Company and Subeldiaries 27

C:nsolid;ted Eclinco Chacto At December 31, _

1995 1994 (in thousands)

Assets l

Current Assets Cash and cash equivalents $ 23,443 $ 38,590 Accounts receivable (net of allowance for uncollectibles of $16,390 and $14,960, respectively) 400.005 314,842 Fuel stocks 59,614 70,627 Materials and supplies 145,900 149,614 Prepaid taxes'other than income taxes 60,508 ^ 57,740 Deferred income taxes 36,831 43,358 Trading securities 47,990 24,337 Other 31,487 22,686 Total current assets 805,778 721,794 Investments and Other Assets Real estate projects 479,344 471,435 Power generation systems 358,629 ' 311,960 l Financialinvestments 205,841 224,340 l Nuclear decommissioning trust fund 85,811 66,891 Safe Harbor Water Power Corporation 34,327 34,168 Senior living facilities 16,045 11,540 Net pension asset 60,077 -

Other 71,894 58,824 Total investments and other assets 1,311,968 1,179,158

'Jtility Plant Plant in service Electric. 6,360,624 5,929,996 Gas 692,693 616,823 Common 522,450 511,0'1 ,

Total plant in service 7,575,767 7,057,835 Accumulated depreciation (2,481,801) (2,305,372)

Net plant in service 5,093,966 4,752,463 Construction work in progress 247,2 % 506,030 Nuclear fuel (net of amortization) 130,782 134,012 Plant held for future use 25,552 24,320 Net utility plant ' 5,497,5 % 5,416,825 Deferred Charges Regulatory assets (net) -

637,915 623,639 Other 63,406- 96,086 701,321 719,725_

Total deferred charFes Total Assets $8,316,663 $8.037.502 See Aotes to Consolidated financial Statements.

Certain prior.yar wmmnts have been reclassuped to cortform with the current year's presentation.

28 settimore Gas emi slectric Company and outesidiarios

Contdid . tid Cct:nss Chrsta At December 31, 1995 1994 (in thousands)

Liabilities and Capitalisation Current Liabilities Short-term borrowings $- 279,305 $ 63,700 Current portions of long-term debt and preference stock 146, % 9 323,675 .

Accounts payable 177,092 181,931

. Customer deposits 26,857 . 24,891 Accrued taxes 8,244 19,585 Accrued interest 56,670 60,348 Dividends declared 67,198 66,012 Accrued vacation costs 33,403 30,917 Other 39,417 30.857 Total current liabilities 835,155 801,916 Deferred Credits and Other Liabilities Deferred income taxes 1,311,530 1,199,787 Pension and postemployment benefits 148,594 138,835 :

Decommissioning of federal uranium enrichment facilities 43,695 45,836

'Other 55,568 59,645 Total deferred credits and other liabilities 1,559,387 1,444,103 Capitalization long-term debt 2,598,254- 2,584,932 Preferred stock 59,185 59,185 Redeemable preference stock 242,000 279,500 Preference stock not subject to mandatory redemption 210,000 150,000 Common shareholders' equity 2.812,682 2,717,866 Total capitalization 5,922,121 5,791,483 Commitments, Guarantees, and Contingencies - See Note 12 Total IJabilities and Capitalization $8.316.663 $8.037,502 See Notes to Gmschdated financial Statements.

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

t Baltimore Oes and Electele Company and Subsidleries 29

Consolidated Ctatem nta cf Crh Fl:wo j

)

rear Ended December 3/. 1995 l994 1993 <

tin thousands) l Cash Flows From Operating Activities Net income $ 338,007 $ 323.617 $ 309,866 Adjustments to reconcile to net cash provided by operating activities Depreciation and amortization 378,977 351,064 314.027 Deferred income taxes 103,494 79,278 53,057 investment tax credit adjustments (8,088) (8,192) (8,444)

Deferred fuel costs 5,565 . I1,461 51,445 Accrued pension and postemployment benefits (7,641) (41,113) (25,276)

Albwance for equity funds used during construction (14,162) (21,746) (14,492)

Equity in earnings of affiliates and joint ventures (net) (21,259) (20,225) (4,655)

Changes in current assets other than sale of accounts receivable (107,392) (10,536) (37,252)

Changes in current liabilities, other than short-tenn borrowings (7,293) (24,447) 71,153 '

Other 2,837 13,070 (4.020) 663,045 652,231 705,409 i Net cash parvided by operating activities Cash Flows From Financing Activities Proceeds from issuance of Short-term borrowings (net) 215,605 63,700 (11,900)

Long-term debt 184,422 207,169 1,206,350 Preference stock 59,329 ,

128,776 Common stock 318 . 33,869 57,379 Proceeds from sale of receivables 2,000 70,000 -

Reacquisition of long-term debt (315,105) (240,853) (1,012,514)

Redemption of preference stock (73,000) (4,406) (144,310)

Common stock dividends paid (227,192) (220,152) (211,137)

Preferred and preference stock dividends paid (40,087) (39,950) .(42,425)

Other 13 (437) (7,094)

Net cash used in financing activities (193,697) (131,060) (36.875)

Cash Flows From Investing Activities Utility construction expenditures (including AFC) (366,037) (488,976) (480,501)

Allowance for equity funds used during construction 14,162 21,746. 14,492 Nuclear fuel expenditures, (46,330) (42,089) (47,329) '

Deferred nuclear expenditures - (8,393) (13,791)

Deferred energy conservation expenditures (45,503) (40,440) (32,909)

Contributions to nuclear decommissioning trust fund (9,780) (9,780) (9,699) +

Purchases of marketable equity securities (18,447) - (52,099) (46,820)

Proceeds from sales of marketable equity securities 49,788 40,585 33,754 Other financial investments 9,423 2,469 19,589 t Real estate projects (15,599) 14,926 (30,330)

Power generation systems (37,446) (1,116) (26,841)

Other (18,726) (3,650) 8,965 Net cash used in investing activities (484,495) (566,817) (611,420)

Net increase (Decrease)in Cash and Cash Equivalents (15,147) (45,646) 57,114 -

Cash and Cash Equivalents at Beginning of Year 38,590 84,236 27,122 r Cash and Cash Equivalents at End of Year $ 23,443 $ 38.590 $ 84.236 Other Cash Flow Information Cash paid during the year for:

Interest (net of amounts capitalized) $ 198,001 ' $ 184,441 $ 183,266 ,

Income taxes $ 132,274 $ 112,923 $ 126,034 See Notes to Camsalidated Iinancial Statements.

Certain prior-year armmnts haw been reclassoped to conform with the current year's presentation.

I

\ .

30 Baltimore Oas and Electr6c Company and Subeldieries

. l C:n2:lidated St:t:ments cf C:mm:n Ch reh:Iders' Equity Unrealized Gain (Loss) on Available Pension Common Stock Retained For Sale Liability Total Years Ended December 31,1991 199.t. und 1993 Shares Amount Earnings Securities Adjustment Amount tin thousands)

Balance at December 31,1992 143,784 $'I.335,002 $1,199,637 $ - $ - $2,534,639 Net income 309,866 309,866 Dividends declared Preferred and preference stock (41,839) (41,839)

Common stock ($1.47 per share) (213,407) (213,407)

Common stock issued 2,250 57,379 57,379 Other . (917) (3,117) (4,034)

Pension liability adjustment (33,990) (33,990)

Deferred taxes on pension liability adjustment i1,897 11,897 Balance at December 31,1993 146,034 1,391,4M 1,251,140 -

(22,093) 2,620,511 Net income 323,617 323,617 Dividends declared Preferred and preference stock (39,922) (39,922)

Common stock ($1.51 per share) (222,180) (222,180)

Common stock issued 1,493 33,869 33,869 Other 45 45 Net unrealized loss on securities (5,609) (5,609)

Deferred taxes on net unrealized loss on securities 1,963 1,963 Pension liability adjustment 8,573 8,573 Deferred taxes on pension liability adjustment (3,(X)l) (3,001)

Balance at December 31,1994 147,527 1,425,378 1,312,655 (3,M6) (16,521) 2.717,866 Net income 338,007 338,007 Dividends declared Preferred and preference stock (40,578) (40,578)

Common stock ($1.55 per share) (228,667) (228,667)

Common stock issued -

318 318 Other 109 109 Net unrealized gain on securities 14,010 14,010 Deferred taxes on net t.nrealized gain on securities (4,904) (4,904)

Pension liability adjustment 25,417, 25,417 Deferred taxes on pension liability adjustment (8,8%) (8,8%)

Bilance at December 31,1995 147,527 $1,425,805 $1.381,417 5 5,460 $ - $2.812,682 See Notes tu Consolidated Financial Statements.

Battineore Oas and Electric Conapany and Sulpoldiertes 31

1 1

C:ns:lidat:d Stntsmento cf C:pitcliznti:n At December 31. 1995 1994 (In thousands)

Long-Term Debt First Refunding Mortgage Bonds of BGE 9%% Series, due October 15,1995 $ - $ 188,014 5%% Series,due April 15,1996 26,187 26,454 6%% Series, due August 1,1997 24,935 24,935  !

Floating rate series, due April 15,1999 125,000 125,000 8.40% Series, due October 15,1999 91,200 96,225 SM% Series, due July 15,2000 125,000 125,000 -

8%% Series, due August 15,2001 122,427 122,430 7M9 Series, due January 1,2002 39,698 49,957 7%% Series, due July 1,2002 124,609 124,850 SM% Installment Series, due July 15,2002 11,045 11,650 6M% Series, due February 15,2003 124,882 124,947 6%% Series, duc July 1,2003 124,925 124,925 ,

SM% Series, due April 15,2004 124,995 125,000 7M% Series, due January 15,2007 123,667 125,000 6%% Series, due March 15,2008 124,985 125,000 7M% Series, due March I,2023 124,973 124,998 7M% Series, due April 15,2023 100,000 100,000 Total First Refunding Mortgage Bonds of BGE 1,538,528 1,744,385 Other long-term debt of BGE Term bank loan due March 29,2001 50,000 -

Medium-term notes, Series A 10,500 10,500 Medium-term notes, Series B 100,000 100,000 Medium-term notes, Series C 200,000 173,050 Medium-term notes, Series D 28,000 -

Pollution control loan, due July 1,2011 36,000 36,000 Port facilities loan, due June 1,2013 48,000 48,000 Adjustable rate pollution control loan, due July 1,2014 20,000 20,000 5.55% Pollution control revenue refunding loan, due July 15,2014 47,000 47,000 -

Economic development loan, due December 1,2018 35,000 35,000 6.00% Pollution control revenue refunding loan, due April 1,2024 75,000 75,000 Total other long-term debt of BGE 649,500- 544,550 Long-term debt of Constellation Companies Revolving credit agreement Variable rates based on LIBOR, due December 9,1998, 1,000 -

Mortgage and construction loans and other collateralized notes 13,000 '

7.6675%, due October 1,1995 -

7.50%, due October 9,2005 9,989 -

Variable rates, due through 2009 110,018 116,613 7,357% due March 15,2009 5,8% 6,152 Unsecured notes 420,000 440,000 Total long-term debt of Constellation Companies $46,903 575,765 Unamortized discount and premium (15,708) (17,593)

Current portion of long-term debt (120,969) (262,175)

Total long-term debt $2,598,254 $2,584,932

' ccmtmurd on page 33 See Notes to Comsolidated FinancialStatements.

)

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32 Baltimore Oas and Electric Company and Sutesidiaries l <

C:naclidated Ct:ttments cf Ocpitalization At December 31. 1995 1994 iin thousands}

Preferred Stock Cumulative, $100 par value, 1,000,000 shares authorized Series B,4M%,222,921 shares outstanding, callable at $110 per share $ 22,292 $ 22,292 Series C,4%,68,928 shares outstanding, callable at $105 per share 6,893 6,893 Series D,5.40%,300,000 shares outstanding, callable at $101 per share 30,000 30,(XX)

Total preferred stock 59,185 59,185 Preference Stock Cumulative, $100 par value,6.500,000 shares authorized Redeemable preference stock 7.50%,1986 Series,425,000 and 455,000 shares outstanding. Callable at $105 per share prior to October 1,1996 and at lesser amounts thereafter 42,500 45,500 6.75%,1987 Series,455,000 shares outstanding. Callable at

$1(M.50 per share prior to April 1,1997 and at lesser amounts thereafter 45,500 45,500 6.95%,1987 Series,500,000 shares redeemed at par on October 1,1995 - 50,000 7.809,1989 Series,500,000 shares outstanding 50,000 50,000 8.25%,1989 Series,3(X),(XX) and 500,000 shares outstanding 30,000 50,000 8.625%,1990 Series,650,000 shares outstanding 65,000 65,(XX) 7.85%,199i Series,350,(XX) shares outstanding 35,000 '35,000 Current potiion of redeemable preference stock (26,000) (61,500)

Total redeemable preference stock 242,000 279,500 Preference stock not subject to mandatory redemption 7.78%,1973 Series,200,000 shares outstanding, callable at $101 per share 20,000 20,000 7.125%,1993 Series,400,000 shares outstanding, not callable prior to July 1,2003 40,000 40,000 6.97%,1993 Series,500,000 shares outstanding, not callable prior to October 1,2003 50,000 50,000 6.70%,1993 Series,400.000 shares outstanding, not callabk p.*or to January 1,2004 40,000 40,000 6.99%,1995 Series,600,000 shares outstanding, not callable prior to October 1,2005 60,000 -

Total preference stock not subject to mandatory redemption 210,000 150.(XX)

Common Shareholders' Equity Common stock without par value, 175,000,000 shares authorized; 147,527,114 shares issued and outstanding at December 31,1995 and 1994. (At December 31,1995, 166,893 shares were reserved for the Employee Savings Plan and 3,277,656 shares

.were reserved for the Dividend Reinvestment and Stock Purchase Plan.) 1,425,805 1,425,378 Retained eamings 1,381,417 1,312,655 Unrealized gain (loss) on available for sale securities 5,460 (3,646)

Pension liability adjustment .- (16,521)

Total common shareholders' equity 2,812,682. 2,717,866 Total Capitalization $5,922,121 55.791.483 See Notes to Consolidiard Timmcial Statements.

BaMemore Gas and Electric Company and Subsidiaries 33

t Consolidated Statementa cf In=rma Texsc rear Emled December .11. 1995 1994 1993 l

(Dollar amounts in thousands) l Income Taxes

$ 93,459 Current $ 74,121 $ 82,767 Deferred Change in tax effect of temporary differences 118,300 88,896 63,972 Change la income taxes recoverable through future rates (1,006) (8,580) (30,086)

(13,800) 11,897

~

Deferred taxes credited (charged) to shareholders' equity (l.038)

Deferred taxes charged to expense 103,494 79,278 45,783 ,

Effect on deferred taxes of enacted change in federal corporate income tax rate Increase in deferred tax liability - - 20,105 income taxes recoverable through future rates - - (12,831)

Deferred taxes charged to expense - -

7.274 Investment tax credit adjustments (8,088) (8,192) (8,444)

Income taxes per Consolidated Statements of Income $169.527 $153.853 $138.072 Reconciliation of Income Taxes Computed at Statutory Federal Rate to TotalIncome Taxes Income before income taxes .

$507,534 - $477,470 $447,938 Statutory federalincome tax rate 35 % 35 % 35 %

Income taxes computed at statutory federal rate 177,637 167,115 156,778 Increases (decreases) in income taxes due to Depreciation differences not normalized on regulated activities 10,953 9,79.1 9.253 Allowance for equity funds used during construction (4,957) -(7,611) (5.072)

Amortization of deferred investment tax credits (8,088) (8,164) (8,444) ~

Tax credits flowed through to income (521) (1,754) (9,736)

Change in federal corporate income tax rate charged to expense - - 7,274 Amortization of deferred tax rate differential on regulated activities (2,013) (1,885) (5,789)

Other (3,484) (3,639) (6,192)

Totalincome taxes $169,527 $153.853 $138.072 Effective federalincome tax rate 33.4 % 32.2 % 30.8%

At December I. 1995 1994 Deferred Income Taxes (Dollar amounts in thousands') ,

Deferred tax liabilities Accelerated depreciation $ 878,470 $ 840,376 Allowance for funds used during construction 210,928 208,726 Income taxes recoverable through future rates 94,305 93,952 Deferred termination a W aostemployment costs ~ 49,591 53,749 Deferred fuel costs 39,559 41,507 Leveraged leases 29,842 31,948 Percentage repair allowance 38,295 - 36,630 Energy conservation expenditures 28,121 -

Other 151,231 148,064 Total deferred tax liabilities 1,520,342 1.454,952 Deferred tax assets Alternative minimum tax ,

32,626 71,074 Accrued pension and postemployment benefit costs 31,707 51,163 Deferred investment tax credits 49,512 52.288 Capitalized interest and overhead , 39,439 34,071 Contributions in aid of construction 34,404 32,707 Nuclear decommissioning liability 16,708 14,870 Other 41,247 42,350 Total deferred tax assets 245,643 298,523 Deferred tax liability, net $1.274.699 $1.156.429 See Notes to Consolidated Financial Statements.

34 Baltimore Gas and Electric Company and Subsidiaries

i N:t:0 to C:naclidnted Fin nstal Ctstsmanta Nate 1. Significant Accounting Policies recoveries or overrecoveries of purchased gas costs for the twelve

""" '" " '" ' * ' " ' *'E " ' ' ' '*

Nature of the Business customers over the ensuing calendar year.

Baltimore Gas and Electric Company (BGE) and Subsidiaries (collectively, the Company)'is primarily an electric and gas income Taxes .

utility serving a territory which encompasses Baltimore City and all or part of ten Central Maryland counties. The Company is

1. I#"' I"* * '#F*WS tax e et mPorary also engaged in diversified businesses as described further ###""" * *#" "

""" . ' "*#*#"I "" ** "'#8 in Note 3' assets and liabilities. It is measured using presently enacted tax rates. The portion of BGE's deferred tax liability applicable to Principles of Consolidation utility perati ns which has not been reflected in current service rates represents mcome taxes recoverable through future rates. It

. The consolidated financial statements include the accounts of has been recorded as a regulatory asset on the balance sheet.

BGE and all subsidiaries in which BGE owns directly or in-Deferred income tax expense represents the net change in the directly a majority of the voting stock. Intercompany balances deferred tax liability and regulatory asset during the year, and transactions have been climinated in consolidation. Under exclusive of amounts charged or credited to common share-this policy, the accounts of Constellation iloidings, Inc. and its holders' equity.

subsidiaries (collectively, the Constellation Companies), BGE Ilome Products & Services, Inc. and Subsidiary (IIP &S), BGE Energy Projects & Services, Inc. (EP&S), and BNG, Inc. are Current tax expense consists solely of regular tax less applicable consolidated in the financial statements, and Safe liarbor tax credits. In certain prior years, tax expense included an alter-native minimum tax (AMT) that can be carried forward in-Water Power Corporation is reponed under the equity method.

definitely as tax credits to future years in which the regular tax Corporate joint ventures, partnerships, and affiliated companies liability exceeds the AMT liability. Current income tax for the in which a 20% to 30% voting interest is held are accounted for year ended December 31,1995 reflects utilization of AMT under the equity method, unless control is evident, in which case the entity is consolidated. Investments in which less than a 20% credits of $40 million. Deferred income taxes related to the remaining AMT credit carryforward of $33 million have been voting interest is held are accounted for under the cost method, clasufied as current assets at December 31,1995. Prior-year unless significant influence is exercised over the entity, in w hich amounts have been reclassified to conform with the current year's case the investment is accounted for under the equity method.

presentation.

Regulation of Utility Operations The investment tax credit (ITC) associated with BGE's r.egulated BGE's utility operations are subject to regulation by the utility operaions has been deferred (see Note 5) and is amortized Maryland Public Service Commission (PSC). The accounting to income ratably over the lives of the subject property. ITC and policies and practices used in the determination of service rates other tax credits associated with nonregulated diversified busi-are also generally used for financial reporting purposes in nesses other than leveraged leases are flowed through to income.

accordance with generally accepted accounting principles for regulated industries. See Note 5.

BGE's utility revenue from system sales is subject to the Maryland public service company franchise tax in lieu of a state Utility Revenues income tax. The franchise tax is included in taxes other than BGE tecognizes utility revenues as ser ice is rendered to customers.

income taxes in the Consolidated Statements of Income.

Fueland Purchased Energy Costs Inventory Valuation Subject to the approval of the PSC, the cost of fuel used in Fuel stocks and materials and supplies are generally stated at generating electricity, net of revenues from interchange sales, and average cost.

the cost of gas sold may be recovered through zero-based electric fuel rate (see Note 12) and purchased gas adjustment clauses, RealEstate Projects respectively. The difference between actual fuel costs and fuel Real estate projects consist of the Constellation Companies' revenues is deferred'on the balance sheet to be recovered from or investment in rental and operating properties and properties under refunded to customers in future periods.

development. Rental and operating propenies are held for invest-ment. Properties under development are held for future develop-The electric fuel rate formula is based upon the latest ment and sale. Costs incurred in the acquisition and active twenty-four-month generation mix and the latest three-month development of such properties are capitalized. Rental and oper-average fuel cost for each generating unit. The fuel rate does not ating properties and properties under development are stated at change unless the calculated rate is more than 5% above or below cost unless the amount invested exceeds the amounts expected to the rate then in effect. The purchased gas adjustment is based on be recovered through operations and sales. In these cases, recent annual volumes of gas and the related current prices the projects are written down to the amount estimated to charged by BGE's gas suppliers. Any deferred under-be recoverable.

Saltimore Gas and Electr6c Company and subsidiarles SS

Investments and Other Assets vania, as well as in the transmission line which transports the Investments in debt and equity securities subject to the require- plants' output to the joint owners' service territories. BGE's ments of Statement of Financial Accounting Standards No. I15 ownership interest in these plants is 20.99% and 10.56W, (Statement No. I15) are reported at fair value. Certain of respectively, and represents a net investment of $150 million as Constellation Companies' marketable equity securities and finan. of December 31,1995. Financing and accounting for these cial partnerships are classified as trading securities. Unrealized properties are the same as for wholly owned utility plant.

gains and losses on these securities are included in diversified businesses revenues. The investments comprising the nuclear Nuclear fuel expenditures are amortized as a component of actual decommissioning trust fund and certain marketable equity secur. fuel costs based on the energy produced over the life of the fuel.

ities of Clll are classified as available fu. ale. Unrealized gains Fees for the future disposal of spent fuel are paid quanerly to the and losses on these securities, as well as Cill's portion of Depanment of Energy and are accrued based on the kilowatt-unrealized gains and losses on securities of equity-method hours of electricity sold. Nuclear fuel expenses are subject to investees, are recorded in shareholders' equity. The Company recovery through the electric fuel rate.

utilizes specific identification to determine the cost of these securities in computing realized gains or losses. Nuclear decommissioning costs are accrued by and recovered through a sinking ft.nd methodology. In a 1995 order, the PSC Utility Plant, Depreciation and Amorti:ation, and authorized BGE to record decommissioning expense based on a Decommissioning facility-specific cost estimate in order to accumulate a decom-Utility plant is stated at original cost, which includes material, missioning reserve of $521 million in 1993 dollars by the end of labor, and, where applicable, construction overhead costs and an Calvert Clifts' service life in 2016, adjusted to reflect expected allowance for funds used during construction. Additions to utility inflation, to decommission the radioactive portion of the plant.

plant and replacements of units of property are capitalized to util. The total decommissioning reser e of $136.7 million and $109.8 ity plant accounts. Utility plant retired or otherwise disposed of is million at December 31,1995 and 1994, respectively, is included charged to accumulated depreciation. Maintenance and repairs of in accumulated depreciation in the Consolidated Balance Sheets.

property and replacements of items of property determined to be less than a unit of property are charged to maintenance expense. In accordance with Nuclear Regulatory Commission (NRC) regulations, BGE has established an external decommissioning Depreciation is generally computed using composite straight-line trust to which a portion of accrued decommissioning costs have rates applied to the average investment in classes of depreciable been contributed. The NRC requires utilities to provide financial property. Vehicles are depreciated based on their estimated useful assurance that they will accumulate sufficient funds to pay for the lives. As a result of the PSC's November 1995 gas rate order, cost of nuclear decommissioning based upon either a generic BGE revised its gas utility plant depreciation rates to reflect the .NRC formula or a facility-specific decommissioning cost results of a detailed depreciation study. The new rates are estimate. The Company plans to use the facility-specific cost expected to result in an increase in depreciation accruals of estimate for funding these costs and providing the requisite approximately $2.4 million annually. financial assurance.

Depreciation expense for 1995 and 1994 includes the write-off of Allowancefor Funds Used During Construction and certain costs at BGE's Perryman site. Initially, BGE had planned Capitalized Interest to build tuo combined cycle generating units at its Perryman site The allowance for funds used during construction (AFC) is an with each unit consisting of two combustion turbines, liowever, accounting procedure which capitalizes the cost of funds used to due to significant changes in the environment in which utilities finance utility construction projects as part of utility plant on the operate, BGE decided in 1994 not to construct the second com- balance sheet, crediting the cost as a noncash item on the income bined cycle generating unit and wrote off the construction work statement. The cost of borrowed and equity funds is segregated in progress costs associated with that unit. This write-off reduced between interest expense and other income, respectively. BGE after-tax earnings during 1994 by $11.0 million or 7 cents per recovers the capitalized AFC and a return thereon after the share. As a result of the PSC's Augt'st 1995 Order requiring all related utility plant is placed in senice and included in new generation capacity needs to be competitively bid and BGE's depreciable assets and rate base.

September 1995 announcement that it will merge with Potomac Electric Power Company (PEPCO), BGE determined that it will Prior to April 23,1993, the Company accrued AFC at a pre-not build the second combustion turbine for the first combined tax rate of 9.949. Effective April 24,1993, a rate order of cycle unit. Therefore, during the third quarter of 1995 BGE the PSC reduced the pre-tax AFC rate to 9.40%. Effective l wrote off the remaining construction work in progress costs asso- Nosember 20,1995, a rate order of the PSC reduced the J ciated with the first combined cycle unit. This write-off reduced pre-tax gas plant and common plant AFC rates to 9.G4%

after-tax earnings during 1995 by $9.7 million, or and 9.36%, respectively. AFC is compounded annually.

7 cents per share. The construction of the first 140-megawatt combustion turbine at Perryman was completed, and the urA was The Constellation Companies capitalize interest on qualifying placed in ser ice, during June 1995 real estate and power generation development projects. BGE capitalizes interest on carrying charges accrued on certain BGE owns an undivided interest in tce Keystone and Conemaugh deferred fuel costs as discussed in Note 5.

electric generating plants kicated in watern Pennsyl-I i

36 Baltimore Oas and Electric Company and Subsidiaries

famg-Term Debt make estimates and assumptions that affect the reported amounts .

The discount or premium and expense of issuance associated of assets and liabilities and disclosure of contingent assets and with long-term debt are deferred and amortized over the original liabilities at the date of the financial statements and the reported lives of the respective debt issues. Gains and losses on the reac. amounts of revenues and expenses during the reporting period.

. quisition of debt are amortized over the remaining original lives 7hese estimates involve judgments with respect to, among other of the issuances. things, various future economic factors which are difficult to predict and are beyond the control of the Company. Therefore, Cash Flows actual amounts could differ from these estimates.

For the purpose of reporting cash flows, highly liquid invest-ments purchased with a maturity of three months or less are con. Accounting Standards Issued sidered to be cash equivalents. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No.121, regarding accounting Use ofAccounting Estimates for asset impairments, effective January 1,1996. Adoption of this The preparation of financial statements in conformity with statement is not expected to have a material impact on the generally accepted accounting principles requires management to Company's financial statements.

Nate 2. Segment Infoemation 1995 1994 1993 lin thousands)

Electric Nonaffiliated revenues $2,229,774 $2,126,581 $2,112,147 Affiliated revenues 1,337 840 -

Total revenues 2,231,111 2,127,421 2,112,147 income from operations 574,299 539,739 534,185 Depreciation and amortization 276,285 252,273 219,735

. Construction expenditures (including AFC) 288,509 412,885 421,923 Identifiable assets at December 31 6,195,722 5,981,634 5,867,725 Gas Total revenues (nonaffiliated) $ 400,504 $ 421,249 $ 433,163 Income from operations 48,104 27,801 34,738 Depreciation and amortization 29,637 32,478 23,875 Construction expenditures (including AFC) 77,528 76,091 58,578 Identifiable assets at December 31 748,462 726,759 677,857 Diversified Ilusinesses NonalTiliated revenues $ 304,521 5 235,155 $ 196,075 Affiliated revenues 6,609 8.245 6.825 Total revenues - 311,130 243,400 202,900 Income from operations 73,289 67,719 47,469 Depreciation and amortization 11,495 11,199 10,303 Identifiable assets at December 31 1,266,049 1,200,55I I,166,997 Total ,

Nonaffiliated revenues $2,934,799 $2,782,985 $2,741,385 Alliliated revenues 7,946 9,085 6,825 Intercompany eliminations (7,946) (9,085) (6,825) .

Total revenues 2,934,799 2,782,985 2,741,385 Income from operations 695,692 635,259 616,392 Depreciation and amortization 317,417 295,950 253,913 Construction expenditures (including AFC) 366,03; 488.976 48,0,501 Identdiable assets at December 31 8,210,233 7,908.944 7,712,579 Other mets at December 31 106J30 128,558 117.034 Tott s at December 31 ,

8,316,663 8,037,502 7,829,613 Certain p,. , -year amounts have been reclasstfied to conform with the current year's presentation.

saltimore one and Electric company and sutpoidiaries 37

- _~ _ .-.. _ .- -- . . - - ~ -- _ _ _ _ . - _ _ _ _

Neto 3. Cub:Idirry infrrm ti:n Diversified businesses consist of the operations of the Constella- tional, and government customers in commercial office buildings, tion Companies, llP&S, EP&S, and BNG, Inc. warehouses, educational, healthcare, and retail facilities. These energy services include customer electrical system improve-The Constellation Companies include Constellation Holdings, ments, lighting and mechanical engineering services, campus and inc., a wholly owned subsidiary which holds all of the stock of multi-building systems, brokering and associated financial con-three other subsidiaries, Constellation Real Estate Group, Inc., tracts, and district chilled water systems.

Constellation Power, Inc. (formerly " Constellation Energy, Inc "),

and Constellation Investments, Inc. These companies are engaged BNG, Inc. is a wholly owned subsidiary which engages m real estate development and ownership of senior living facil- in natural gas brokering.

ities; development, ownership, and operation of power generation systems; and financial investrnents, respectively. BGE's investment in Safe liarbor Water Power Corporation, a producer of hydroelectric power, represents two-thirds of Safe llP&S is a wholly owned subsidiary which engages predomi- Ilarbor's total capital stock, including one-half of the voting nantly in the businesses of appliance and consumer electronics stock, and a two-thirds interest in its retained earnings.

sales and service; heating, ventilation, and air conditionin'g sys- .

tem sales, installation and service; as well as, home improve- The following is condensed financial information for Constella-ments and services, primarily in Central Maryland. tion lloldings, Inc. and its subsidiaries. The condensed financial information does not reflect the elimination of intercompany

- Effective November 1,1995, BGE formed a w holly ow ned sub- balances or transactions which are eliminated in the Company's sidiary, EP&S, which provides a broad range of customized consolidated financial statements.

energy services to major customers, including industrial, institu-1995 1994 1993 (in thousands euept per share amounts)

Income Statements Revenues Real estate projects $ 108,414 $ 106,915 $ 77,598 Power generation systems 57,734 41,301 24,971 Financial investments 25,201 12,126 21,195 Total revenues 191,349 160,342 123,764 Expenses other than interest and income taxes 114,479 107,267 80,427 Iicome from operations 76,870 53,075- 43,337 Murity interest . (2,348) -

(280)

Interest expense (46,673) (45,782) (47,845)

Capitslized interest 13,582 10,776 14,702 Income tax benefit (expense) (14,355) (4,305) 1,984 Net income $ 27,076 5 13.764 5 11.898 Contribution to the Company's earnings per share of common stock $ .18 5 .09 $ .08 Balance Sheets Current assets $ 98,526 5 92,814 $ $4,039 Noncurrent assets 1,102,528 1,055.056 1,036.507 Total assets $1,201,054 $ 1,147.870 $ 1,090,546 Current liabilities $ 70,393 $ 70,670 $ 24,201 Noncurrent liabilities 778,505 758,626 759,G48 Shareholder's equity 352,156 318.574 307,297 Total liabilities and shareholder's equity $1,201,054 $ 1.147.870 $1.090.546 38 Baltimore Oas at:d Electric Company and Sutesidiaries

N:ta 4. C=1 Ectets Projnta and Financial Investments Real estate projects consist of the following investments held by Amortized Unrealifed Unrealized Fair the Constellation Companies: At Dmmber 31, IWS Cost Basis Gains losses Value (In thousands)

At necember 31. 1995 1994 Marketable equity

,fy ,,,,,,,,g,;

securities $ 38,520 $2,998 $ (43) $ 41,475 Properties under development $270,678 $267,483 U.S. government agency 14,177 141- - 14,318 Rental and operating properties ,

(net of accumulated State municipal depreciation) 207,666 bonds 50,411 2,056 (74) 52,393 203.000 Other real estate sentures 1,000 952 Total $103,108 $5.195 $ (117) $108,186 Total $479.344 $471.435 Amortized Unrealized Unrealized Fair At December 31, /WJ Cost Basis Gains Insses Value Financial investments consist of the following investments h' eld (in thousands) by the Constellation Companies: Marketable equity securities $ 51,758 $1,276 $(1,859) $ 51,175 At December 31, 1995 1994 U.S. government (In thousands) agency 5.215 -

(113) 5,102 Insurance companies $ 77,792 $ 87,700 State municipal Marketable equity securities 41,475 51,175 bonds 59,7 N 929 (2,599) 58,034 Financial limited partnerships 51,023 48,014 Total $116.677 $2,205 $(4.571) $114.311 Leveraged leases 35,551 37,451 Total $205,841 $224.340 Gross and net realized gains and losses on available for sale secu-rities were as follows:

The Constellation Companies' marketable equity securities and 1995 1994 1993 BGE s investments compnsmg the nuclear decommissioning trust fund are classified as available for sale. The fair values, Gross realized gains $5,470 $1,108, $2,437 gross unrealized gains and losses, and amortized cost bases Gross realized losses (2,446) (3,150) (),389) for available for sale securities, exclusive of $3.2 million of Net realized gains (losses) $3,024 $(2,N2) $1.048 unrealized net gains on securities of equity-method mvestees, are as follows:

Contractual maturities of debt securities:

Arnount (In thousands)

Less than 1 year $ -

1-5 years 10,975 5-10 years 52,920 More than 10 years 4,850 Total $68,745 N te 5. Regulatory Assets (net)

As discussed in Note I, BGE's utility operations are subject to At necember 31. 1995 1994 regulation by the PSC. Except for differences in the timing of the (in thou3 ands) recognition of certain utility expenses and credits, the ratemaking Income taxes recoverable process utilized by the PSC generally is based upon the same through future rates $269,442 $268,436 accounting principles applied by nonregulated entities. Under the I e nuclear expenditures 1,9 PSC s ratemaking process, these utility expenses and credits are Deferred postemployment benefit costs' 81,616 73,591 deferred on the balance sheet as regulatory assets and liabilities Deferred energy conservation and are recognized in income as the related amounts are included expenditures 73,297 45,534 in service rates and recovered fmm or refunded to customers in Deferred termination benefit costs i 60,073 79,979 utility revenues. The following table sets forth BGE's regulatory Deferred cost of assets and liabilities: decommissioning federal uranium enrichment facilities 51,104 52,748 Deferred environmental costs 38,371 35,015

. Deferred investment tax credits (141,463) (149,394)

Other 5,930 8.202 Total $637.915 $623.639 Baltimore Gas and Electric Company and Subsidiarles 39

income taxes recoverable through future rates represent princi- Deferred cost of decommissioning federal uranium enrichment pally the tax effect of depreciation differences not nonnalized facilities represents the unamortized ponion of BGE's required and the allowance for equity funds used during construction, contributions to a fund for decommissioning and decontami-offset by unamortized deferred tax rate differentials and deferred nating the Department of Energy's (DOE) uranium enrichment taxes on deferred ITC. These amounts are amortized as the facilitics. The Energy Policy Act of 1992 requires domestic related temporary differences reverse. See Note I for a further utilities to make such contributions, w hich are generally payable discussion of income taxes. oser a 15-year period with escalation for inflation and are based upon the amount of uranium enriched by DOE for each utility.

Deferred fuel costs represent the difference between actual fuel These costs are being amortized over the contribution period as a costs and the fuel rate revenues under BGE's fuel clauses (see cost of fuel.

Note 1). Deferred fuel costs are reduced as they are collected from customers. Deferred environmental costs represent the estimated costs of investigating contamination and performing certain remediation The underrecovered costs deferred under the fuel clauses were as activities at contaminated Company-owned sites (see Note 12). In follows: November 1995, the PSC issued a rate order in the Company's At December 3/. 1995 1994' gas base rate proceeding which authorized the Company to un r/mmam/5; amortize over a 10-year period $21.6 million of these costs, the Electric amount which had been incurred through October 1995.

Costs deferred $130,399 $152,815 Reserve for possible Deferred investment tax credits represents investment tax credits disallowance of replacement associated with BGE's regulated utility operations es discussed in energy costs (see Note 12) C5,000) (35.000) Note 1. Previously, the Company reponed deferred imestment Net electric 95,399 117,815 tax credits on the Consolidated Balance Sheets as Deferred Gas 17,627 776 Credits and Other Liabilities. In 1995, the Company reclassified Total $113,026 5118.591 those credits as a reduction of Regulatory Assets because they are deferred solely because of the regulatory treatment. Prior year Deferred nuclear expenditures represent the net unamortized amounts hase been reclassified to conform with the current year's balance of certain operations and maintenance costs which are presentation.

being amortized oser the remaining life of the Calvert Cliffs Nuclear Power Plant in accordance with orders of the PSC. These Electric deferred fuel costs in excess of $72.8 million are expenditures consist of costs incurred from 1979 through 1982 excluded from rate base by the PSC for ratemaking purposes.

for inspecting and repairing seismic pipe supports, expenditures Effectise April 24,1993, BGE has been authorized by the PSC incurred from 1989 through 1994 associated with nonrecurring to accrue carrying charges on deferred fuel costs in excess of phases of certain nuclear operations projects, and expenditures $72.8 million, net of related deferred income taxes.These carrying incurred during 1990 for investigating leaks in the pressurizer charges are accrued prospectisely at the 9.40'7( authorized rate of heater sleeves. return. The income effect of the equity funds portion of the carry-ing charges is being deferred until such amounts are recovered in Deferred postemployment benefit costs represent the excess of utility service rates subsequent to the completion of the fuel rate such costs recognized in accordance with Statements of Financial proceeding examining the 1989-1991 outages at Calvert Cliffs Accounting Standards No.106 and No. I12 over the amounts Nuclear Power Plant as discussed in Note 12. Deferred invest-reflected in utility rates. These costs will be amortized over a ment tax credits are not deducted from rate base in accordance 15-year period beginning in 1998 (see Note 6). with federal income tax normalization requirements.

Deferred energy conservation expenditures represent the net The foregoing regulatory assets and liabilities are recorded on unamortized balance of certain operations costs w hich are being BGE's Consolidated Balance Sheets in accordance with State-amortized over five years in accordance with orders of the PSC. ment of Financial Accounting Standards (SFAS) No. 71. If BGE

~

nese expenditures consist of labor, materials, and indirect costs were required to terminate application of SFAS No. 71 for all of associated with the conservation programs approved by the PSC. its regulated operations, all such amounts deferred would be recognized in the income statement at that time, resulting in a Deferred termination benefit costs represent the net unamortized charge to earnings, net of applicable income taxes.

balance of the cost of certain termination benefits (see Note 7) appLbic. to BGE's regulated operations. These costs are being smortized oser a five-year period in ascordance with rate actions of the PSC.

I j

I l

40 Baltimore Gas and Electric Company and Subsidiaries

i Nsta C. Pension and Postemployment Eenefits The Company's funding policy is to contribute at least the mini.

• "* "**"9" Ired under interniil Revenue Service regula-Pension Benefits .

tions using the proj.ected unit credit cost method. Plan assets at The Company sponsors several nonceritributory defined benefit December 31,1995 consisted primarily of marketable equity and pension plans, the largest of which (the Pension Plan) covers fixed income securities, and group annuity contracts.

substantially all BGE employees and certain employees of its subsidir. ries. The other plans, which are not material in amount.

The following tables set fonh the combined funded status of provide supplemental benefits to certain non-employee directors the plans and the composition of total net pension cost. At and key employees.. Benefits under the plans are generally based December 31,1994, the accumulated benefit obligation was on age, years of service, and compensation levels.

greater than the fair value of the Pension Plan's assets. As a result, the Company recorded an additional pension liability, a Prior service cost associated with retroactive plan amendments is portion of which was charged to shareholders' equity.

amortized on a straight-line basis over the average remaining ser-vice period of active employees.

Net pension cost shown below does not include the cost of termi-nation benefits described in Note 7.

At December 3/. 1995 1994 (In thousands)

Vested benefit obligation $688,084 $622,445 Nonvested benefit obligation 15,668 8,838 Accumulated benefit obligation 703,752 631,283 Projected benefits related to increase in future compensation levels 122,539 82,815 Projected benefit obligation 826,291 714,098 Plan assets at fair value (744,645) (614.284)

Projected benefit obligation less plan assets 81,646 99,814 Unrecognized prior service cost (24,357) (23,863)

Unrecognized net loss (118,361) (112.546)

Pension liability adjustment -

52,177 Unamonized net asset from adeption of FASB Statement No. 87 995 1,586 Accrued pension (asset) liability $(60.077) $ 17.168 kar Erried Decem5cr 3/. 1995 1994 1993 (in thousands)

Components of net pension cost Service cost-benefits earned during the period $11,407 $15,015 ' $11,645 Interest cost on projected benefit obligation 58,433 58,723 51,183 Actual return on plan assets (150,510) 7,932 (56,225)

Net amortiration and deferral 94,674 (60.07I)- 6,591 Total net pension cost 14,004 21,599 .13,194 Amount capitalized as construction cost (1,422) (2,578) (1,800)

Amount charged to expense $12.582 $19.021 $11.394 The Company also sponsors a defined contribution savings plan are unfunded. Substantially all of the health care plans are covering all eligible BGE employees and certain employees ofits contributory, and participant contributions for employees who subsidiaries. Under this plan, the Company makes contributions retire after June 30,1992 are based on age and years of service.

on behalf of participants. Company contributions to t'his plan Retiree contributions increase commensurate with the expected totaled $8.5 rnillion, $8.7 million, and $9.0 million in 1995, increase in medical costs. The postretirement life insurance plan 1994, and 1993, respectively, is noncontributory Postretirement Benefits Effective January 1,1993, the Company adopted Statement of The Company sponsors defined benefit postretirement health carc Financial Accounting Standards No.106, which requires a and life insurance plans which cover substantially all BGE change in the method of accounting for postretirement benefits employees and certain employees ofits subsidiaries. Benefits other than pensions from the pay-as-you-go method used prior to under the plans are generally based on age, years of service, and 1993 to the accrual method. The transition obligation existing at i pension benefit levels. The postretirement benefit (PRB) plans the beginning of 1993 is being amortized over a 20-year period.

Baltimore Oas and Electric Company and Sutosidiaries 41

In April 1993, the PSC issued a rate order authorizing BGE to ' order in BGE's pas base rate proceeding providing for full recog-recognize in operating expense one nalf of the annual increase in nition in operating expense of PRB and other postemployment PRB costs applicable to regulated operations as a result of the benefits (discussed below) costs attributable to gas operations, adoption of Statement No.106 and to defer the remainder of the and affirming its previous decision on amortization of deferred annual increase in these costs for inclusion in BGE's next base PRB costs. This phase-in approach meets the guidelines estab-rate proceeding. In accordance with the April 1993 Order, the lished by the Emerging Issues Task Force of the Financial increase in annual PRB costs applicable to regulated operations Accounting Standards Board for deferring PRB costs as a regula-for the period January through April 1993, net of amounts tory asset. Accrual-basis PRB costs applicable to nonregulated capitalized as construction cost, has been deferred. This amount, operations are charged to expense.

which totaled $5.7 million, as well as all amounts to be deferred prior to completion of BGE's next base rate proceeding, will be The following table sets forth the cemponents of the accumulated amortized over a 15-year period beginning in 1998 in accordance PRB obligation and a reconciliation of these amounts to the I with the PSC's Order. In November 1995, the PSC issued a rate accrued PRB liability.

At December 31. 1995 1994 Life Life Health Care Insurance IIealth Care Insurance j l

tin tlwusands)

Accumulated postretirement benefit obligation:

Retirees $157,804 $44,769 $161,134 $45,146 Fully' eligible active employees - 20,942 84 15,777 101 Other active employees 63,782 18,515 44,371 12,597 Total accumulated postretirement benefit obligation ~242,528 63,368 221,282 57,844 Unrecognized transition obligation (149,907) (43,521) (158,725) (46,081)

Unrecognized net gain (loss) (12,767) (5,764) 1.238 (2,141)

Accrued postretirement benefit liability $ 79,854 $ 14.083 $ 63.795 $ 9.622 The following table sets forth the composition of net PRB cost. attributable to regulated activities was deferred. Consistent with Such cost does not include the cost of termination benefits the PSC's November 1995 order, the amounts deferred will be described in Note 7. amortized over a 15-year period beginning in 1998. The adoption i

~

rear emled December 31. 1995 1994 of Statement No. I 12 did not have a material impact on net income.

Iin thousamis}'

Net postretirement benefit cost: Assumptions .

Service cost-benefits earned during The pension, postretirement, and other postemployment benefit the period $ 3,918 $ 5,035 liabilities were determined using the following assumptions.

Interest cost on accumulated post- Ar necember 31. 1995 1994 retirement benefit obligation 21,203 23,037 Assumptions:

Amortization of transition obligation 11,378 11,700 Discount rate Net amortization and deferral (86) 646 Pension and postretirement benefits 7.5% 8.5%

Total net postretirement benefit cost 36,413 40,418 Other postemployment benefits 6.0% 8.5%

Amount capitalized as construction cost (5,299) (5,773) Average increase in Amount deferred (8,025) - (10.213) future compensation levels 4.0% 4.0%

Amount charged to expense $23.089 $24.432 Expected long-term rate of return on assets 9.0% 9.0%

Other Postemployment Benefits The health care inflation rates for 1995 are assumed to be 8.7%

The Company provides health and life insurance benefits to f r Medicare-eligible retirees and 11.8% for retirees not covered employees of BGE and certain employees of its subsidiaries who by Medicare. The health care mflation rates for 1996 are assumed are determined to be disabled under BGE's Disability Insurance to be 8.0% for Medicare-eligible retirees and 10.5% for retirees Plan.The Company also provides pay continuation payments for ,

n t c med by Medicare. After 1996, both rates are assumed to employees determined to be disabled before Nosember 1995.

decrease by 0.5% annually to an ultimate rate of 5.5% in the Such payments for employees determined to be disabled after years 2001 and 2006, respectively. A one percentage point that date are paid by an insurance company, and the cost of such increase in the health care mflation rate from the assumed rates insurance is paid by employees. The Company adopted would increase the accumulated postretirement benefit obligation Statement of Financial Accounting Standards No. I12, which by approximnely $40 million as of December 31,1995 and requires a change in the method of accounting for these benefits would increase'the aggregate of the service cost and interest cost from the pay-as-you-go method to an accrual method, as of c mponents of postretirement benefit cost by approximately December 31,1993. The liability for these benefits totaled

$52 million and $48 million as of December 31,1995 and 1994, 54 "IIII " """"*IIY' respectively. The portion of the December 31,1993 liability 42 settimore cas and Electric company and Sehendiaries

Neta 7. Tsrmin:tien lllL:nsfits BGE offered a Voluntary Special Early Retirement Program (the BGE offered a second Voluntary Special Early Retirement 1992 VSERP) to eligible employees who retired during the Program (the 1993 VSERP) to eligible employees who retired as period February 1,1992 through April 1.1992. In accordance of February 1,1994. The one-time cost of the 1993 VSERP con-with Statement of Financial Accounting Standards No. 88, sisted of enhanced pension and postretirement benefits. In addi-

"Employeri Accounting for Settlements and Curtailments of tion to the 1993 VSERP, further employee reductions hase been Defined Benefit Pension Plans and for Termination Benefits," the accomplished through the elimination of certain positions, and one-time cost of termination benefits associated with the 1992 various programt hase been offered to employees impacted by VSERP, which consisted principally of an enhanced pension the eliminations. In accordance with Statement No. 88, the benefit, was recognized in 1992 and reduced net income by one-time cost of termination benefits associated with the 1993

$6.6 million, or 5 cents per common share, in April 1993, the VSERP and various programs, which totaled $105.5 million, was PSC authorized BGE to amortize this charge over a five-year recognized in 1993. The $88.3 million portion of 1993 VSERP period for ratemaking purposes. Accordingly, BGE established a attributable to regulated activities was deferred and is being regulatory asset and recorded a corresponding credit to operating amonized over a five-year period for ratemaking purposes, begin-expense for this amount. The reversal of the 1992 VSERP in ning in February 1994, consistent with previous rate actions of April 1993 increased net income by $6.6 million, or 5 cents per the PSC.The $17,2 million remaining cost of termination common share. benefits was charged to expense in 1993.

N:te 8. Short Term Borrowings Information concerning short-tenn borrowings is set forth below. fees in support oflines of credit. Borrowings under the lines are Short-tenu borrowing's include bank loans, commercial paper at the banks' prime rates, base interest rates, or at various money notes, and bank lines of credit. The Company pays commitment . market rates.

1995 1994 1993 ilhllar amounts in thousands)

BGE's Bank Loans Borrowings outstanding at December 31 $ 3,845 $ -

Weighted average interest rate of borrowings outstanding at December 31 4.74 % - % - 4 Maximum borrowings during the year $ 3,845 $ -

BGE's Commercial Paper Notes Borrowings outstanding at December 31 $275,300 $ 63,700 $ -

Weighted average interest rate of notes outstanding at December 31 5.92 % , 6.10% - %

Unused lines of credit supporting commercial paper notes at December 31* $238,000 $148,000 $208,000 Maximum borrowings during the year $339,100 $187,500 $ 96,900 Constellation Companies' Lines of Credit Borrowings outstanding at December 31 $ 160 5 -

Weighted average interest rate of borrowings outstanding at December 31 - % - % ~ %

Unused lines of credit at December 31 $ -

$ - $ 20,000 Maximum borrowings during the year $ 160 $ -

%clusive of $150 million of revolving credit agreements undrawn as year-end Isee Note 9).

Baltimore Oas and Electelc Company and Sutesidiaeles 43

1 1

l Note 9. Long Term Debt of $50 million. This agreement matures December 9,1998 and u to pr vide liquidity for general corporate purposes.

First Refunding Mortgage IJonds of BGE As of December 31,1995, the Constellation Compam,es had Substantially all of the principal properties and franchises owned

$1 million outstanding under this agreement.

by BGE, as well as the capital stock of Constellation iloidings, Inc., Safe liarbor Water Power Corporation, HP&S, EP&S, and The mortFage and construction loans and other collateralized BNG, Inc., are subject to the lien of the mortgage under which notes base varying terms. The $9.9 million,7.509 mongage note BGE's outstanding First Refunding htortgage Bonds have requires monthly principal and interest payments through been issued.

OctA r 9,2005. The $110 million of variable rate mortgage

, notes require periodic payment of principal and interest with On August I of each year, BGE is required to pay to the mort-various maturities from January 1996 through July 2009. The gage trustee an annual sinking fund payment equal to 19 of the

$5.9 million,7.3579 mortgage note requires quarterly principal i largest principal amount of hjortgage Bonds outstandmg under and interest payments through h1 arch 15,2009.

the mortFage during the preceding twelve months. Such funds are to be used, as prosided in the mortgage, for the purchase and The unsecured notes outstanding as of December 31,1995 1 retirement by the trustee of hjortgage Bonds of any series other '

mature in accordance with the following schedule:

than the SM% Installment Series of 2002, the 8.409 Series of A""'""'

1999, the 5M9 Series of 2(XX), the 8XW Series of 2001, the 7%%

Series of 2002, the 6M9 Series of 2003, the 6%9 Series of 2003, N" '#"*'""##

the $M% Series of 2004, the 7M9 Series of 2007, and the 6X9 ue Augmt , M $ 3,0m 6.199, due September 9.1996 10,(XX)

Series of 2008.

8.939, due August 28,1997 52,000 6.659, due September 9,1997 15,(XX)

Other Long-Term Debt of BGE 8.239, due October 15,1997 30,(XX)

BGE maintains revolving credit agreements that expire at various 7.05%, due April 22,1998 25,(XX) times during 1998. Under the terms of the agreements, BGE may, 7.06%, due September 9,1998 20 (XX) at its opuon, obtain loans at various interest rates. A commitment 8.489, due October 15,1998 75,000 fee is paid on the daily average of the unborrowed portion of the 90,000 7.309, due April 22,1999 commitment. At December 31,1995, BGE had no borrowings 8.739, due October 15,1999 15,00()

under these revolving credit agreements and had available 35,(XX) 7.55%, due April 22,2000

$150 million of unused capacity under these agreements. 30,(XX) 7.439, due September 9,2000 On December 29,1995 BGE entered into a $50 million term Total $42 m )

bank loan which matures on hlarch 29,2001. Under the terms of the loan, the bank has a one-time option to cancel the loan on Weighted Average Interest Ratesfor Variable Ra.e Debt December 29,1997. Until that date, the interest rate on the loan The weighted average interest rates for variable rMe debt during is 5.22%. If the bank does not cancel the loan on December 29, 1995 and 1994 were as follows:

1997, the interest rate for the remaining term will reset to 6.11%. 1995 1994 BGE Following is information regarding BGE's hiedium-term Notes floating rate series mortgage bonds 6,30% 4.919 outstanding at December 31,1995: Pollution control loan 3,79 2.80 Port facilities loan 4.06 3.02 Weighted-Average Adjustable rate pollution control loan 3.75 3.13 Series Interest Rate hiaturity Dates Economic deselopment loan 4.01 3.00 A 8.22% 1996 Constellation Companies B

hjortgage and construction loans D 6.129 1998-2005 and oWa couatnahd notes 8M D Loans under credit agreements 6.74 -

The principal amounts of the 5MW Installment Series htortgage Aggregate Maturities Bonds payable each year are as follows: The combined aggregate maturities and sinking fund require-

}&ar ments for all of the Company's long-term borrowings for each of stn r/um3andu the next five years are as follows:

1996 through 1997 $ 605 Constellation 1998 and 1999 690 ) Par BGE Companies 2000 and 2001 863 un ilumsandu 2002 6.725 1996 $ 71,659 $ 49,310 1997 80,657 134,970 inng-Term Debt of Constellation Companies I948 92,328 138,35l The Constellation Companies entered into an unsecured 1999 246,420 118,175 revolving credit agreement on December 9,1994 in the amount 2000 251,441 85,521 44 Battirecte Oas and Electric Company and Subsidiaries

.- - - - . ._ -.- _ - - - -- - -- _~_ . . . . _ - - .

N:ts 10. R:dscm bla Preference Stock The 7.80%,1989 Series is subject to mandatory redemption in The combined aggregate redemption requirements for all series l full at par on July 1,1997, The following series are subject to an ~ of redeemable preference stock for each of the next five years are l' annual mandatory redemption of the number of shares shown as follows: ,

. below at par beginning in the year shown below. At BGE's option, an additional number of shares, not to exceed the same l' ear

• number as are mandatory, may be redeemed at par in any year, fin thousands) +

t commencing in the same year in which the mandatory redemp- 1996 $26,000 I

tion begins. De 8.25%,1989 Series, the 8.625%,1990 Series, I 1997 83,000 and the 7.85%,1991 Series listed below are not redeemable g998 33,000 except through operation of a sinking fund. 1999 23,000 2000 23,000 Beginning Series Shares Year j 7.50% 1986 Series 15,000 1992 With regard to payment of dividends or assets available in the 6.75%,1987 Series 15,000 1993 event of liquidation, preferred stock ranks prior to preference and . I 8.25%,1989 Series 100,000 1995 common stock; all issues of preference stock, whether subject to

- 8.625%,1990 Series 130,000 1996 mandatory redemption or not, rank equally; and all preference 7.85 %,1991 Series 70,000 1997 stock ranks prior to common stock. +

l l Note 11. Leases l The Company, as lessee, contracts for certain facilities and Certain of the Constellation Compmies, as lessor, have entered

[ equipment under lease agreements with various expiration dates into operating leases for office and retail space. These leases and renewal options. Consistent with the regulatory treatment, expire over rcriods ranging from I to 21 years, with options to lease payments for utility operations are charged to expense. renew. The net book value of property under operatir.g leases l Lease expense, which is comprised primarily of operating leases, was $147 million at December 31,1995. The future minimum j totaled $12.2 million, $12.7 million, and $13.8 million for the rentals to be received under operating leases in effect at years ended 1995,1994, and 1993, respectively. December 31,1995 are as follows:

The future minimum lease payments at December 31,1995 for y

long-term noncancelable operating leases are as follows:

_jg 1996 $ 14,412 Year 1997 12,134 (In thousands) 1998 . 10,883 1996 $ 4,485 1999 .

10,130 1997 4.398 2000 9,459 1998 3,681 Hereafter 66.660 1999 1,712 Total minimum rentals $123.678 2000 1,537 Thereafter 4.214 Total minimum lease payments $20.027 E

1 I

i 1

s Baltimore See and Electric Company and Suheldiertes 45 i _ _ _; _ . _ , - _

Note 12. Commitments, Guarantees, and Contingsncise Commitments projects. The Company has assessed that the risk of material loss BGE has made substantial commitments in connection with its on the loans guaranteed and performance guarantees is minimal.

construction program for 1995 and subsequent years. In addition,'

BGE has entered into three long-term contracts for the purchase Pending Merger With Potomac Electric Power Company of electric generating capacity and energy. The contracts expire in BGE, Potomac Electric Power Company, a District of Columbia 2001,20l3, and 2023. Total payments under these contracts were and Virginia corporation (PEPCO) and Constellation Energy

$68.4, $69.4, and $68.7 million during 1995,1994, and 1993, Corporation (formerly named "Rif Acquisition Corp."), a respectively. At December 31,1995, the estimated future pay- Maryland corporation which will also be incorporated in Virginia ments for capacity and energy that BGE is obligated to buy under (CEC), have entered into an Agreement and Plan of Merger, these contracts are as follows: dated as of September 22,1995. CEC was formed to accomplish the merger and its outstanding capital stock is owned 50% by

}' ear BGE and 50% by PEPCO. The Agreement and Plan of Merger un rhmands) provides for a strategic business combination that will be accom-1996 $ 62,989 plished by merging both BGE and PEPCO into CEC (the Trans-1997 60,355 action). The Transaction, which was unanimously approved by 1998 78,950 the Boards of Directors of BGE and PEPCO, is expected to close 1999 90,224 during 1997 after shareholder approval is obtained and all other 2000 91,365 conditions to tiie consummation of the Transaction, including Thereafter 902,432 obtaining applicable regulatory approvals, are met or waived. In Total payments $1.286.315 connection with the Transaction, BGE common shareholders will receive one share of CEC common stock for each BGE share and PEPCO common shareholders will receive 0.997 share of CEC Certain of the Constellation Companies have committed to con- common stock for each PEPCO share. Further details about the tribute additional capital and to make additional loans to certain proposed merger are provided in the report on Form 8-K dated affiliates, joint ventures, and partnerships in which they have an September 22,1995 and the Registration Statement on Form S-4 interest. As of December 31,1995, the total amount of invest- (Registration No. 33-M799). -

ment requirements committed to by the Constellation Companies is $44 million. Environmental Matters The Clean Air Act of 1990 (the Act) contains two titles designed in December,1994, BGE and IIP &S entered into agreements to reduce emissions of sulfur dioxide and nitrogen oxide (NOx )

with a financial institution w hereby BGE and flP&S can sell on from electric generating stations. Title IV contains provisions for an ongoing basis up to an aggregate of $40 million and $50 mil- compliance in two separate phases. Phase I of Title IV became lion, respectively, of an undivided interest in a designated pool of effective January 1,1995, and Phase 11 of Title IV must be imple-customer receivables. Under the terms of the agreements BGE mented by 2000. BGE met the requirements of Phase I by and lip &S hase limited recourse on the receivables and have installing flue gas desulfurization systems and fuel switching and recorded a reserve for creditlosses. At December 31,1995, BGE through unit retirements. BGE is currently examining what and HP&S had sold $30 million and $42 million of receivables, actions will be required in order to comply with Phase 11 of the respectively, under these agreements. Act. However, BGE anticipates that compliance will be attained by some combination of fuel switching, flue gas desulfurization, Guarantees unit retirements, or allowance trading.

BGE has agreed to guarantee two-thirds of certain indebtedness

' of Safe Harbor Water Power Corporation. The total amount of At this time, plans for complying with NOxcontrol requirements indebtedness that can be guaranteed is $45 million, of which under Title 1 of the Act ar.c less certain be'c ause all implementa-

$30 million represents BGE's share of the guarantee. As of tion regulations have not yet been finalized by the gosernment. It December 31,1995, outstanding indebtedness of Safe Harbor is expected that by the year 1999 'hese regulations will require Water Power Corporation was $33 million. of which $22 million additional NO xcontrols for ozone attainment at BGE's gene-is guaranteed by BGE. BGE has also agreed to guarantee up to rating plants and at other BGE facilities. The controls will result

$20 million of obligations and indebtedness of BNG, Inc. As of in additional expenditures that are difficult to predict prior to the December 31,1995, there were no outstanding obligations under issuance of such regulations. Based on existing and proposed this guarantee. BGE assesses that the risk of material loss on the ozone nonattainment regulations, BGE currectly estimates that loans guaranteed is minimal. the NOxcontrols at BGE's Fenerating plants will cost approxi-mately $90 million. BGE is currently unable to predict the As of December 31,1995, the total outstanding loans and letters cost of compliance with the additional requirements at other of credit of certain power generation and real estate projects BGE facilities.

~

guaranteed by the Constellation Companies were $35 million.

Also, the Constellation Companies have agreed to guarantee cer. BGE has been notified by the Environmental Protection Agency tain other borrowings of various power generation and real estate and several state agencies that it is being considered a potentially responsible party (PRP) with respect to the cleanup of certain 46 Baltimore Oas and Electric Company and Subsidiaries

envin nmentally contaminated sites owned and operated by third For physical damage to Calvert ClitTs, BGE has $2.75 billion of parties. In addition, a subsidiary of Constellation iloidings, Inc. property insurance from industry mutual insurance companies. If has been named as a defendant in a case concerning an alleged an outage at Calvert Cliffs is caused by an insured physical emironmentally contaminated site owned and operated by a third damage loss and lasts more than 21 weeks BGE has up to party. Cleanup costs for these sites cannot be estimated, except $473.2 million per unit of insurance, provided by an industry that BGE's 15.79% share of the possible cleanup costs at one of mutual insurance company, for replacement power costs. This these sites, Metal Bank of America, a metal reclaimer in Phila- amount can be reduced by up to $94.6 million per unit if an out-delphia, could exceed amounts recognized by up to approxi- age to both units at Calvert Cliffs is caused by a singular inscred mately $7 million based on the highest estimate of costs in the physical damage loss. If accidents at any insured plants cause a range of reasonably possible alternatives. Although the cleanup short-fall of funds at the industry mutuals, BGE and all policy-costs for certain of the remaining sites could be significant, BGE holders could be assessed, with BGE's share being up to believes that the resolution of these matters wih not have a mate- $44.1 million.

rial effect on its financial position or results of operations.

Recoverability of Electric Fuel Costs Also, BGE is coordinating investigation of several former gas By statute, actual electric fuel costs are recoverable so long as the manufacturing plant sites, including exploration of corrective PSC linds that BGE demonstrates that, among other things, it has action options to remove coal tar. Howeser, no formal legal pro- maintained the productive capacity of its gererating plants at a ceedings have been instituted. BGE has recognized estimated reasonable lesel. The PSC and Maryland's highest appellate court environmental costs at these sites totaling $38.6 million as of have interpreted this as permitting a subjective evaluation of each December 31,1995. These costs, net of accumulated amortiza- unplanned outage at BGE's generating plants to detennine tion, have been deferred as a regulatory asset (see Note 5). The whether or not BGE had implemented all reasonable and cost technology for cleaning up such sites is still developing, and effective maintenance and operating control procedures appropri-potential remedies for these sites have not been identified. ate for preventing the outage. Effective January 1,1987, the PSC Cleanup costs in excess of the amounts recognized, which could authorized the establishment of the Generating Unit Performance be significant in total, cannot presently be estimated. Program (GUPP) to measure, annually, utility compliance with maintaining the productive capacity of generating plants at rea-Nuclear Insurance sonable levels by establishing a system-wide generating perfor-An accident or an extended outage at either unit of the Calvert mance target and individual performance targets for each base ,

Cliffs Nuclear Power Plant could hase a substantial adverse load generating unit. In future fuel rate hearings, actual generat- 1

'effect on BGE. The primary contingencies resulting from an ing performance after adjustment for planned outages will be incident at the Cahert Cliffs plant would involve the physical compared to the system-wide target and, if met, should signify

' damage to the plant, the recoverability of replacement power that BGE has complied with the requirements of Maryland law.

costs, and BGE's liability to third parties for property damage Failure to meet the system-wide target will result in review of and bodily injury. BGE maintains various insurance policies for each unit's adjusted actual generating perfonnance versus its these contingencies. The costs that could result from a major perfonnance target in detennining compliance with the law and accident or an extended outage at either of the Calvert Cliffs the basis for possibly imposing a penalty on BGE. Parties to fuel units could exceed the coverage limits. rate hearings may still question the prudence of BGE's actions or inactions with respect to any given generating plant outage, In addition, in the event of an incident at any commercial nuclear which could result in the disallowance of replacement energy power plant in the country, BGE could be assessed for a portion costs by the PSC.

of any third party claims associated with the incident. Under the provisions of the Price Anderson Act, the limit for third pany Since the two units at BGE's Calvert Cliffs Nuclear Power Plant claims from a nuclear incident is $8.92 billion. If third party utilize BGE's lowest cost fuel, replacement energy costs asso-claims relating to such an incident exceed $200 million (the ciated with outages at these units can be significant. BGE cannot amount of primary insurance), BGE's share of the total liability estimate the amount of replacement energy costs that could be for third party claims could be up to $159 million per incident, challenged or disallowed in future fuel rate proceedings, but such that would be payable at a rate of $20 million per year, amounts could be material.

BGE and other operators of commercial nuclear power plants in in October 1988, BGE liled its first fuel rate application for a the United States are required to purchase insurance to cover change in its electric fuel rate under the GUPP program. The claims of certain nuclear workers. Other non-governmentti resultant case before the PSC covers BGE's operating perfor-commercial nuclear facilities may also purchase such insunnee. mance in calendar year 1987, and BGE's filing demonstrated that Coverage of up to $400 million is prosided for claims against it met the system-wide and individual nuclear plant performance

, BGE or others irsured by these policies for radiation injuries if targets for 1987, in November 1989, testimony was filed on -

certain claims were made under these policies, BGE and all behalf of Maryland People's Counsel alleging that seven outages policyholders could be assessed, with BGE's share being up to

$6.08 million in any one year.

Baltimore Gas and Electric Company and Subsidiaries 47

f at the Calvert Cliffs plant in 1987 were due to management precautionary measure on May 6,1989 to inspect for similar l imprudence and that the replacement energy costs associated leaks and none were found. However, Unit I was out of service l with those outages should be disallowed by the PSC. Total for the remainder of 1989 and 285 days of 1990 to undergo replacement energy costs associated with the 1987 outages were maintenance and modification work to enhance the reliability approximately $33 million. On January 23,1995, the llearing of various safety systems, to repair equipment, and to perform Examiner issued his decision in the 1987 fuel rate proceeding required periodic surveillance tests. Unit 2, which returned to ser-and found that the Company had met the GUPP standard which vice on May 4,1991, remained out of service for the remainder establishes a presumption that BGE had operated the Plant at a, of 1989,1990, and the first part of 1991 to repair the pressurizer, reasonably productive capacity level. liowever, the Order found perform maintenance and modification work, and complete the that the presumption of reasonableness would be overcome by a refueling. The replacement energy costs associated with these showing of mismanagement and that such a showing was made extended outages for both units at Calvert Cliffs, concluding with with respect to the environmental qualifications outage time. In the return to service of Unit 2, is estimated to be $458 million.

l i mitigation for meeting the GUPP standard, the Hearing Examiner )

l disallowed replacement energy costs recovery for 15.5 days of In a December 1990 Order issued by the PSC in a BGE base rate the 66-day outage time. The llearing Examiner's Order was proceeding, the PSC found that certain operations and mainte- 1 i appealed to the PSC by both BGE and People's Counsel. If the nance expenses incurred at Calvert Cliffs during the test year

! PSC upholds the Hearing Examiner, the Company's earnings should not be recovered from ratepayers. The PSC found that this would be impacted by approximately $4.5 million. work, which was performed during the 1989-1990 Unit I outage and fell within the test year, was avoidable and caused by BGE In May 1989, BGE filed its fuel rate case in which 1988 perform- actions which were deficient.

ance was to be examined. BGE met the system-wide and nuclear plant performance targets in 1988. People's Counsel alleges that The Commission noted in the Order that its review and findings l

l BGE imprudently managed several outages at Calvert Cliffs, and on these issues pertain to the reasonableness of BGE's test-year

! BGE estimates that the total replacement energy costs associated operations and maintenance expenses for purposes of setting base with these 1988 outages were approximately $2 million. On rates and not to the responsibility for replacement power costs November 14,1991, a Hearing Examiner at the PSC issued a associated with the outages at Calvert Cliffs. The PSC stated that proposed Order, which became final on December 17,1991 and its decision in the base rate case will have no res judicata (bind-concluded that no disallowance was warranted. The Hearing ing) effect in the fuel rate proceeding examining the 1989-1991 Examiner found that BGE maintained the productive capacity of outages. The work characterized as avoidable significantly the Plant at a reasonable level, noting that it produced a near increased the duration of the Unit I outage. Despite the PSC's record amount of power and exceeded the GUPP standard. Based statement regarding no binding effect, BGE recognizes that the on this record, the Order concluded there was sufficient cause to views expressed by the PSC make the full recovery of all of the j excuse any avoidable failures to maintain productive capacity at replacement energy costs associated with the Unit I outage higher levels, doubtful. Therefore, in December 1990, BGE recorded ,a provi-sion of $35 million against the possible disallowance of such During 1989,1990, and 1991, BGE experienced extended out- costs. BGE cannot determine whether replacement energy costs ages at its Calvert Cliffs Nuclear Power Plant. In the Spring of may be disallowed in the present fuel rate proceedings in excess 1989, a leak was discovered around the Unit 2 pressurizer heater of the provision, but such amounts could be material.

sleeves during a refueling outage. BGE shut down Unit 1 as a Note 13. Fair Value of Financial Instruments The following table presents the carrying amounts and fair values of financial instruments included in the Consolidated Balance Sheets.

l l At December 31. 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value Un thousands!

Cash and cash equivalents $ 23,443 $ 23,443 $ 38,590 $ 38,590 Net accounts receivable 400,005 400,005 314,842 314,842 Other current assets 54,070 54,070 29,344 29,344 investments and other assets for which it is:

Practicable to estimate fair value 149,645 150,170 138,978 137,782 Not practicable to estimate fair value 73,042 - 69,514 -

Short-term borrowings 279,305 279,305 64,205 64,205 Current portions of long-term debt and preference stock 146,969 146,969 323,675 323,675

. Accounts payable 177,092 177,092 181.931 181,931 Other current liabilities 193,992 193,992 191,121 191,121 Long-term debt 2,598,254 2,694,858 2,584,932 2,417,625 j

Redeemable preference stock 242,000 254,809 279,500 281,478 48 Baltimore Oas and Electric Company and Sehsidiaries

l l Financial instruments included in other current assets include investments in financial partnerships totaled $50 million and trading securities and miscellaneous loans receivable of the $47 million at December 31,1995 and 1994, respectively, repre-Constellation Companies. Financial instruments included in senting ownership interests up to 10'7c. The aggregate assets of other current liabilities represent total current liabilities from the these partnerships totaled $6.3 billion at December 31,1994. The

)

Consolidated Balance Sheets excluding short-term borrowings, investments in solar powered energy production facility partner-current portions of long-term debt and preference stock, accounts ships totaled $23 million at December 31,1995 and 1994, repre-payable, and accrued vacation costs. The carrying amount of senting ownership interests up to 12%. The aggregate assets of current assets and current liabilities approximates fair value these partnerships totaled $83 million at December 31,1994 because of the short maturity of these instruments.

The fair value of fixed-rate long-term debt and redeemable Investments and other assets include investments in common and preference stock is estimated using quoted market prices where preferred securities, which are classirted as financial investments available or by discounting remaining cash flows at the current in the Ccnsolidated Balance Sheets, and the nuclear decommis- market rate. The carrying amount of variable-rate long-term debt sioning trust fund. The fair value of investments and other assets approximates fair value, is based on quoted market prices where available. It was not practicable to estimate the fair value of the Constellation Com- BGE and the Constellation Companies have loan guarantees on panies' investments in 23 financial partnerships which invest outstanding indebtedness totaling $22 million and $35 million, in nonpublic debt and equity securities or investments in four respectively, at December 31,1995 and $23.3 million and $17.0.

partnerships w hich own solar powered energy production facili- million, respectively, at December 31,1994 for which it is not ties because the timing and magnitude of cash flows from these practicable to determine fair value. It is not anticipated that these investments are difficult to predict. These investments are carried loan guarantees will need to be funded.

at their original' cost in the Consolidated Balance Sheets. The N:ta 14. Quarterly Financial Data (Unaudited)

The following data are unaudited but, in the opinion of Manage- periods generally occurring during the summer and winter ment. include all adjustments necessary for a fair presentation. months. Accordingly, comparisons among quarters of a year may BGE's utility business is seasonal in nature with the peak sales not be indicative of overall trends and changes in operations.

Quarter Ended Year Ended March 31 June 30 September 30 December 31 December 31 (in thousaruis, except per share amounts) 1995 Revenues $717,806 $642,500 $848,781 $725,712 $2,934,799 l Income from operations 148,222 120,920 299,744 126,8 % 695,692 Net income 70,854 50,889 163,335 52,929 338,007 Earnings applicable to common stock 60,902 40,937 153,104 42,486 297,429 Earnings per share of common stock 0.41 0.28 1.04 0.29 2.02 1994 Revenues $767,686 $651,152 $753,878 $610,20 $2.782,985 Income from operations 162,559 136,778 232,472 103 m 635,259 Net income 82,145 66,708 126,616 '- a 323,617 Earnings applicable to common stock 72,114 56,687 116,714 ,180 283,695 Earnings per share of common stock 0.49 0.39 0.79 0.26 1.93 Result _sfor theprst quarter of1994 npect a $10.0 million one-time bonus paid to er proyees in lieu of a generalincrease.

Resultsfor the thini quarters of1995 and I904 repect the $9.7 and $I1.0 million u rite <fs. n4ertively of certain Perryman costs (see hate IJ.

Certain prior-quarter amounts have been reclassiped to ccmform with the current resentation.

BaMimore Oas and Electric Company and subsidiaeles 49

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Directors and Officers Baltimore Gas and Electric Company Directors Christian H. Poindexter,57 Freeman A.HrabowskiIH,45 Herbert D. Coss, Jr.,61 Chairman of the Board and President, University of Maryland, Vice President, Gas Chief Executive Officer, BGE Baltimore County Charles H. Cruse,51 H. Furlong Baldwin,64 Nancy Lampton,53 Vice President, Nuclear Power Chairman of the Board and Chairman and Chief Chief Executive Officer, Executive Officer, Carserlo Doyle,53 American Life and Accident Vice President, Electric Mercantile Bankshares Corporation Insurance Company of Kentucky Interconnection & Transmission Beverly B. Byron,63 George V. McGowan,68 Jon M. Files,60 ,

'Former Congresswoman, Former Chairman of the Board and Vice President, U. S. House of Representatives Chief Executive Officer, BGE . Management Services J. Owen Cole,66 Chainnan of the Board, George L Russell, Jr., Esq.,66 Sharon S. Hostetter,51 Partner, Piper & Marbury Vice President, Blue Cross and Blue Shield of Maryland,Inc. ,

Marketing & Sales -

Michael D. Sullivan,56 ,

Chairman of the Board, Ronald W. Lowman,51 Dan A.Colussy,64 Lombardi Research Group Vice President, Fossil Energy ,

Chairman of the Board and Chief Executive Officer, Officers G. Dowell Schwartz, Jr.,59 UNC, Incorporated Christian H. Poindexter,57 Edward A.Crooke,57 Chairman of the Board and Chief Charles W. Shivery,50 President and F.xecutive OMeer Vice President, Chief Operating Officer, BGE Edward A.Crooke,57 Finance & Accounting James R. Curtiss, Esq.,42 President and Chief Financial Officer and Secretary Panner, Winston & Strawn Chief Operating Officer Joseph A.Tiernan,57 Jerome W. Geckle,66 George C. Creel,61 Vice President, Corporate Affairs Retired Chairman of the Board, Executive Vice President Richard M. Bange, Jr.,51 PHH Corporation Robert E. Denton,52 Controller and Martin L Grass,42 , Senior Vice President, Generation Assistant Secretary .

President and Thomas E Brady,46 Thomas E. Ruszin, Jr.,41 Chief Operating OtTicer, Vice President, Customer Sersice Treasurer and Assistant Secretary Rite Aid Corporation

& Distribution

• John R. Collins,38 Assistant Treasurer S0 saltimore Oas and Electric Company and subsidiaries

Directors and Officers Constellation Holdings, Inc. BGE Energy Projects BGE Home Products

& Services, Inc. & Services, Inc.

Directors Officers Officers Officers Edward A.Crooke Edward A.Crooke Edward A.Crooke Edward A.Crooke Chairman of the Board, Chairman of the Board, Chairman of the Board Chairman of the Board Constellation IIoldings; Constellation IIoldings President and Chief Stephen E Wood William H. Munn Operating Officer, BGE Bruce M. Ambler President and Chief President and Chief President and Chief Executive Officer Executive Officer Bruce M. Ambler Executive Officer, President and Chief Constellation Holdings Executive Officer, Constellation Holdings Randall M. Griffin Changes in Officers and Directors President,

11. Furlong Baldwin Effective January 1,1996, the following changes took place:

Constellation Real Chairman of the Board and Estate Group

• George Creel, former Senior Vice President-Generation, Chief Executive Officer, was elected Executive Vice President. Mr. Creel assumed Mercantile Bankshares James W. Jeffcoat the responsibilities of Chief Operating Officer of BGE Corporation President, until the completion of the merger.

Constellation Health . Robert E. Denton, former Vice President-Nuclear Power, Roger W. Gale Services was elected Senior Vice President-Generation, replacing President, Washington Mr. Creel.

International Energy Group en D. Kesler Jerome W. Geckle Constellation Investments ". ear ower Plant Department, was elected Vice Retired Chairman of the es n u ear wer, replackg W Denton.

Board, PHH Corporation John E Walter EtTective November 1,1995, the following changes took place:

President, Edward W. Kay Constellation Power . Stephen E Wood, former Vice President-Marketing &

Retired Co-Chairman and S les, w s elected President and Chief Executive Officer Chief Operating Officer, Robert E. Windham f BGE Energy Projects & Services,Inc.

Ernst & Young President,

. Sharon S. Hostetter, fonner Manager-Marketing, was Church Street Station elected to replace Mr. Wood as Vice President of George V. McGowan Marketing & Sales.

Former Chairman of the Board and Chief Executive . Thomas E. Ruszin, Jr., was elected Treasurer and Assistant Officer, BGE Secretary, replacing Lynne H. Church, who took a position with another company.

Christian H. Poindexter

. John R. Collins was elected Assistant Treasurer, replacing Chairman of the Board and Mr. Ruszin.

Chief Executive Officer, BGE Effective January 1,1996, Edward A. Crooke was elected Chairman of the Board of Constellation Holdings, Inc.

Mayo A. Shattuck Ill Effective September 14,1995, John E Walter was elected President and Chief President, Constellation Power, Inc.

Operating Officer, Alex. Brown Inc. Bernard C. Trueschler retired from the Board of Constellation Holdings, Inc., on March 31,1995.

8sitimore Oas and Electric Company and subsidiaries 51

Five Year Statistical Summary 1995 1994 1993 1992 1991 Common Stock Data Quarterly Earnings Per Share ,

First Quarter $ .41 5 .49 $ .38 $ .37 $.40 Second Quarter .28 .39 .31 .20 .38 Third Quaner 1.04 .79 1.01 .84 .84 Fourth Quarter '.29 .26 .14 .22 .05 Total $2.02 $1.93 $1.85 $1.63 $1.67 Dividends Dividends Declared Per Share $1.55 $1.51 $1.47 $1.43 $1.40 Dividends Paid Per Share 1.54 1.50 1.46 1.42 , 1.40 Dividend Payout Ratio 76.7 % 78.2 % 79.5 % 87.7 % 83.8 %

Market Prices liigh $29 $25M $27M $24X $22X Low 22 20M 22X 19X 17X Close 2(M 22M 25X- 23X 22%

Capital Structure Consolidated }

Long Term Debt 42.8 % 46.1% 47.4 % 46.1% 47.8 %

Short-Term Debt 4.4 1.0 - 0.2 3.8 Preferred and Preference Stock 8.5 8.9 9.2 9.8 10.1 Common Shareholders' Equity 44.3 44.0 43.4 43.9 38.3 Utility Only .

Long-Term Debt 40.4 % 43.6 % 44.5 % 42.9% 45.6 %

Short-Term Debt 5.2 1.2 - 0.3 3.4 Preferred and Preference Stock 10.0 10.5 10.9 11.6 12.1 Common Shareholders' Equity 44.4 44.7 44.6 45.2 38.9 The sum of the quarterly earnings per share ammmts may not equal the totalfor the year due to changes in the average number of shares outstanding thinugh-out the year.

1 e

l i

Shareholder Informatisn Common Stock Dividends and Price Ranges 1995 1994 Dividend Price Dividend Price Declared liigh Low Declared liigh Low First Quarter $ .38 $ 25 $ 22 $ .37 5 25 % $ 22%

Second Quarter .39 26 % 23 % .38 24% . 20 %

Third Quader .39 26% 24 % .38 23 % 20" Fourth Quarter .39 29 25 % .38 23 % 21%

Total $1.55 $ 1.51 Dividend Policy Annual Meeting The common stock is entitled to dividends when and as declared The annual meeting of shareholders will be held at 10:00 a.m.

by the Board of Direemrs. There are no limitations in any on Tuesday, April 23,1996, at the Sheraton inner Harbor llotel, indenture or other agreements on payment of dividends. Iloiders 300 South Charles Street, Baltimore, Maryland.

of preferred stock (first) and holders of preference stock (next),

however, are entitled to receive, when and as declared from the Form 10-K surplus or net profits, cumulative yearly dividends at the fixed Upon written request, the company will furnish, without preferential rate specified for each series and no more, payable charge, a copy of its Form 10-K annual report, including quarterly. They are also entitled to receive, when due, the financial statements, after it is filed with the Securities and applicable preference stock redemption payments before any Exchange Commission in March 1996. Requests should be dividend on the common stock shall be paid or set apart. addressed to Charles W. Shivery, Chief Financial Officer Dividends have been paid on the common stock continuously and Secretary, Vice President-Finance & Accounting, since 1910. Future dividends depend upon future earnings, the P. O. Box 1475, Baltimore, Maryland 21203-1475.

fm' ancial condition of the company, and other factors. Quarterly dividends were declared on the common stock during 1995 and Auditors 1994 in the amounts shown above. Coopers & Lybrand L.L.P.

Common Stock Dividend Dates Executive Offices Record dates are normally on the 10th of March, June, Gas and Electric Building September, and December. Quarterly dividends are customarily Charles Center mailed to each shareholder on or about the 1st of April, July, Baltimore, Maryland 21201 October, and January. Mail: P.O. Box 1475 Baltimore, Maryland 21203-1475 Dividend Reinvestment and Stock Purchase Plan The company's Dividend Reinvestment and Stock Purchase Plan Shareholders' Inquiries and Assistance provides an opportunity for holders of the company's common Shareholders desiring assistance with lost or stolen stock stock to acquire additional shares of such stock in a convenient certificates or dividend checks, name changes, address changes, and economical manner. Participants in the plan may reinvest stock transfers, or other matters should call the shareholder cash dividends on all or a portion of their shares of common sersices representatives on our toll-free telephone numbers.

stock and/or make optional cash payments.

h foHw% Wh W@ en a naim "8 "' " "#'" ""' "'"** E*

Stock Trading -

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The company's common stock, which is traded under the ticker symbol BGE, is listed on the New York, Chicago, and Pacific stock

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Outside of Maryland 1-800-258-0499 exchanges, and has unlisted trading privileges on the Boston, TTY /1DD flearing impaired 1-800-492-5539 Cmemnati, and Philadelphia exchanges. As of December 31,1995, there were 79,811 common shareholders of record. Letters should be address-d to:

Baltimore Gas and E'ectric Company Transfer Agent and Registrar Shareholder Services liarris Trust and Savings Bank P.O. Box 1642 Chicago, Illinois Baltimore, Maryland 21203-1642 i

f _ . .__ ._._r _ _ ..

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P.O. Box 1475 Baltimore, Maryland 21203-1475 h

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