ML20009F583

Forwards Annual Financial Rept 1980,per NRC Re Guarantee of Retrospective Premium

ML20009F583
Person / Time
Site:	Calvert Cliffs
Issue date:	07/28/1981
From:	Crooke E BALTIMORE GAS & ELECTRIC CO.
To:	Saltzman J NRC OFFICE OF STATE PROGRAMS (OSP)
References
NUDOCS 8107310332
Download: ML20009F583 (1)

Text

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BALTIMORE GAS AND ELECTRIC CHARLES CENTER P. O. BOX 1475 BALTIMORE, MARYLAND 21203 EDWARD A. CRooKE Vict PRC48(,C + ' *ND SECRETARY July 28, 1981

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Mr. Jerome Saltzman, Assistant Director e

State and Licensee Relations f

Office of State Programs I

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M/S AR-2016 United States Nuclear jm urog Regulatory Commission

'M washington, D.C.

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Subject:

Calvert Cliffs Nuclear Power Plant Units Nos. 1 an<l 2

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Dc,cket Nos. 50-317 and 50-318 Guarantee of Retrospective Premium

Dear Mr. Saltzman:

In accordance with Mr. B. II. Sherry's letter of June 30, 1977, our annual submittal date for the Guarantee is August 1.

Accordingly, we are enclosing herewith:

Exhibit I

- A copy of the 1980 Annual Report to Stockholders of Baltimore Gas and Electric Company containing certified financial statements.

Exhibit II

- A copy of quarterly financial statements as of June 30, 1981.

Exhibit III - A copy of Projected Cash Flow for the twelve months ended July 31, 1982.

Exhibit IV

- Narrative statement on curtailment / deferment of capital expenditures (if any) to ensure that retrospective premiums up to $10 million applicable to each of the two units would be available for payment.

Sincerely yours,

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The bright lights of Baltimom's new Harborplace foreshadow a dyna.ic futus for the city They also signal a growing need for energy in action. This expanding energy requirement is typm of the picture throughout BG&E's service area in Central Maryland. The Baltimore Gas and Electric Coinpany is committed to meet those requirements with appropriate actions in energy. Research and development continues to be emphasized; the latest in nuclear technology and the most efficient of coal-fired power production help BG&E meet its commitments. BG&E offers a bright energy outlook for home, office, factory and institution.

B ALTIMORE GAS AND ELECTRIC 1

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HIGHLIGHTS 1980 1979 1970 Eamings Per Sh'.re of Common Stock

$3.64 S3.40

$2.77 Average Shares of Common Stock Outstanding.....

32,258,000 31,356,000 16,645,000 Dividends Declared Per Share....

$2.50

$2.40

$1.82 Revenues Electric...

$ 857,264,000

$ 714,956,000

$ 229,063,000 Gas 354,736,000 287,074,000 95,920,000 Net income Aoplicable to Common Stock

$ 117,300,000 S 106,532,000

$ 46,082,000 Dividends-Ccmmon Stock 80,754,000 75,373,000 30,148,000 Earnings Reinvested in the Business

$ 36,546,000

$ 31,159,000 S

15,934,000 Electric Sales-thousands of kilowatthours 17,228,000 16,823,000 11,971,000 Gas Sales-dekatherms*

95,110,000 93,450.000 85,820,000 Investment in Utility Plant

$3,184,059,000

$2,974,653,000

$1,257,479,000

• or:e deksinerm (Oth) equals 1.000.000 British thermal units, or 1.000 cubic feet (Mct) of gas with a heat.ng value c? 1.000 8tu per cub;c foot.

DIVIDENDS PAID ON THE COMMON STOCK CONTINUOUSLY SINCE 1910-ALWAYS EARNED--NEVER REDUCED Earnings and Dividends Declared Per Share of Cor mon Stock

$4.00

$3.50 Contants

$3.00 l

Highhghts.1 T'.e Chairman's Letter. 2 The President's Report. 4

$2.50 Financial Performance. 6 Energy at Barg; o Pnces.10 Energy for the 80's.12

$2.00 Conservation and Gesearch for Today_and Tomorrow.16 Pubhc Leadersh p,18 BG&E Errpiovees Our Most Va!uable Asset. 20

$1.00 BG&E Service Area. 22 l

Common Stock Data. 23 Operating Statistics. 24 S.50 Setec,ed Financial Dah. 25 Management's Discussion and Ana'ysis. 26 0

Financia' Statements. 28 1970 71 72 73

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'75

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'80 Notes to Financial Statements. 23 I

I Earnings Per Share E-., - Dividends Declared Directors and Ottcers. 44 1

THE CHAIRMAN'S LETTER TO OUR STOCKHOLDERS BG&E opened the decade on a note of progress and strength. We improved eamings, increased our common stock dividend and won aporoval of much needed rate relief. These are no mean accomplishments in an economy as troubled as ours, yet I feel confident that our Company can sustain such achievements in the years ahead.

We have al.vays prided ourselves on providing responsible leader:, hip in the utility industry and, most importantly, in our community. That leadership will be more vital than ever in the 80's. Our country is in the throes of adjusting to new energy realities. Hampered by inflation, confused about the real nature of our energy problems, many Americans are fearful that our energy future must be bleak and cost'y. I _know that need not be true.

Existing and promising new technologies can provide plentiful energy at a price that will permit continued improvement in our standard of living.

With wise management, nuclear power, coal and domestically produced natural gas can easily esolve our short term difficulties, reduce the need for imported oil and bridge the gap to the technology of the 21st century.

As a provider of er.ergy, the Company is committed to helping our ctistomers understand that this country need not sacrifice growth bccause j

of a scarcity of resources.

l The Company has prospered in these difficult times because we have 1

instilled a tradition of leadership in our management team. BG&E has long i

recognized that for a utility to succeed, it must assert a measure of control over its destiny. We are unwilling simply to react to events that affect us. We seek instead to influt nce them. Yet in this increasingly volatile world we must be prepared for Oe unexpected. We need to remain flexible, keeping our minds and options e en to change.

We must be able to at 'r our plans quickly when political, economic or regulatory events so dictate. '980 was a year marked by economic uncer-tainties. We faced a volatile bad market, unprecedented short-term interest rates, and, of course, inflation. Yet because of the flexibility built into our financial planning, past decisions with respect to scheduling expansion of electric generating capacity, meintaining a sound capital strt.cture and aggressively seeking rate relief, we have e"engthened our financial position.

For the past few years this report has been describing the effects of inflation on the Company's expenses and earnings. In order to meet mount-ing costs and produce the level of earnings required to attract necessary new capital on reauonable terms, we have been forced to make repeated -

applications to the Public Service Commission of Maryland for higher rates.

The Nation's highly inflated economy drains each of us, business and individual alike. While the Company's operating income is being affected adversCy by continually higher operating costs, it is the capital intensive nature of electric utilities that makes our industry especialli vulnerable to inflation. The need to meet increasing demand for our services requires the addition of new facilities at costs that are dramatically higher than the averago cost of previously constructed facilities. This situation is further eggravc'ed by the unprecedented high financing costr demanded in today's capital markets.

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i The PuLlic Service Commission of %vjland recognizes that present rate proceedings do not provide an adequate remedy for the serious prob-lem of earnings attrition In response to our application filed in November l

l 1979, the Commission last June granted the Company 594 million in increased rates, the largest dollar figure it has ever awarded. But even this

%.3 amount represented only 64% of our actual request. Missing from the Order

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was a mechanism to offset inflation. As a partial solution, however, the

's Commission suggested in its Opinion that the Company file for additional

. )f relief under the make-whole provision of the Maryland statutes. We did so in l

, l Sapten,ber and on December 22, the Commissien gran'ed the Ccmpany l

$25 million of rate relief effective December 30,1980.

Unfortunately, the make-whcie proceeding is bcsed upon the same f

flawed assumptions as the regular rate case. It utilizes past costs to deter-f mine new rates, making it mathematically certain that the Company's earn-ings will not be sufficient to make up for continually rising costs. We believe i

that the Commission appreciates our need for a more realistic mechanism to 1

cope with infic

.n, and we are hopeful that such an approach will be I

I developed. Until then, it will remain our policy to pursue rate increases

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l actively whenever we deem them necessary.

We could not claim truly to influence our destiny if we did not participate g

act;vely in the pohtical arena Decisions,,2de at the Federal, state and local g

levels greatly affect our Coapany, our shareholders, our employees, and our cus'omers. BG&E works with community organizations, as well as legislative groups and regulatory agencies throughout the government, to 1

protect these interests. Through our cifices in Washington and in Annapolis, l

we are able to help develop the legislation that will affe',; the utility industry in general, and the Company in particular. BG&E intends that its voice and yours will be heard as the critical energy decisions of our time are made.

i The next ten years will be demanding. They will require that we continue to be flexible in response to change, efficient in managing our l

cconomic resources and creative in develeping and utilizing new technologies to serve our customers' needs. BG&E is prepared to grow

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with those challenges. Our greatest strength lies neither in our facilities nor l

our management philosophy. Our success rests on the efforts of the j

talented, motivated and loyal people who work for BG&E. The vast majority of them p;ay a dual ro!e for the Company as stockholders and employees.

Thanks to all of them, we have achieved many of our past goals and look forward to the future w;th confidence. it is to the employees of BG&E i

that this report is dedicated.

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l Feb;uary 4,1981 l

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THE PRESIDENT'S REPORT ON OPERATIONS TO OUR STOCKHOLDERS Our goals at BG&E have been and always will be to furnish a reliabic supply of electricity and gas at rates that are fair to both cur customers and our investors. I am pleased to report that within the restrictions placed upon us by cconomic events beyond our control, we have met those goals during 1980.

Our strength this year came from many sources. Our Calvert Cliffs Nuclear Power Plant is ranked near the top in performance among the Nation's nuclear facilities. I cannot overstate the importance of this ranking to the Company and to Central Maryland. Calvert Cliffs supplied 59%

of our customers' total efectric requirements in 1980, producing fuel-cost savings of maqy millions of do!!ars for our customers. This is one of the major ways the Company is helping its customers to fight inflation. BG&E is committed to achieving the highest level of efficiency at Calvert Cliffs.

The Company is also strongly committed to maintaining the safest possible operating conditions at our nuclear plant. Over the past year, we have aproved safeguards and refined operating procedures, all as part of our ongoing proc 6ss of review and modification at Calvert Cliffs.

Total sales of electricity in 1980 were up 2.4% over last year. On July 21, we recorded a new one-hour peak electric load of 3,969 mega-watts. The riew record, a direct result of Central Maryland's unusually hot summer weather, represents a 9.6% increase over the previous peak record set in 1979. Overall, the weather helped to produce a 9% increase in our residential sales. This partially compersated for the 1 % drop in commercial and industrial sales which reflected the slow down in business activity in our service area.

Calvert Cliffs gives a sufficient reserve margin so that we do 'ot have an ur9ent need to increase our electric generating capacity. Consequently, we have been able to develop a manageabic construction program to meet our customers' growth needs vier this next decade. We expect the two units at our Brandon Shores Power Plant, which will begin operating in 1984 and 1988, to meet our projected 3% annual peak-load growth for the ney.t ten years.

During that time, BG&E will have substantially reduced the use of oilin our generation mix. These efforts are already well under way. Both Brandon Shores Units are being equipped to burn coal as their primary fuel, and the test burn of both higher sulfur coal and refuse-derived fuel in the Com-pany's Charles P. Crane Power Plant has been successfully completed.

This latter accomplishment is particularly gratifying since it means that we will be able both to use lower-cost coal at Crane and assist Baltimore County with its waste disposal problern.

As a complement +o our strategy to replace oil, we are planning to expand our hydroelectric gcnerating capacity at Safe Harbor over the next few years. The Safe Harbor Water Power Corporation, which is two-thirds owned by BG&E, has received a 50-year renewal of its Federal licease to opaate a hydro power plant on the Susquehanna River in Pennsylvania. The license renewal also contains approval for Safe Harcor to expand its generat-ing capacity by 150.000 kilowatts and our customers will benefit from cur two-thirds share of the added hydro power.

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Our realistic construction program will allow us to hold our expenditures j

i for construction and nuclear fuel to reasonable levels. The Company expects f

to be able to generate :ntemally over 50% of the funds we will need, giving

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us excellent !!cribility to develop financing arrarigements for the remainder

.'g through the capital market, the Company's Dividend Reinvestment and h

I Stock Pu chase Plan and the Employee Stock Ownership Plan.

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The outlook for our gas business improved significantly in 1980. Since restrictions on our gas supply were lifted in 1979, we have been able to 1

i connect new residential customers for the first time in nearly five years.

ihus, although unit gas sales increased only 1.8% this year, reflecting 9

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customer conservation efforts and the general business conditions in our

, h, area, we expeci sales to improve in the future.

Although gas supplies are more plentiful, the cc _! of gas itself continues to increase. In past years, the Company's earnings nave had to absorb the impact of frequent price increases charged by our pipeline supplier since,

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under the terms of the Purchased Gas Adjustment Clause of the Company's Service Tariff, we weren't able to collect the extra costs from our customers immediately. Effective October 1,1980, the Company adoptad a revised l

Purchased Gas Adjustment Clause which allowed us to defer those costs.

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As a result, we were able to defer $12.6 million of gas costs, improving our earnings per share by 21c in 1980.

To help our customers hold down their utility bills, we are working with them in a number of conservation and research programs. BG&E was among l

the first utilities in the Nation to implement a home energy aucit service. By the end of 1980, wa had performed a total of 4,350 audits on Central Mary-land homes, a!! at no or nominal cost to the customer. The Company is i

currently tejing to determine whether solar hot water heating can be a cost-effective alternative in our area. Later sections of this report will discuss our l

other activities in energy conservation, research and development.

I invite you to read in the pages that foilow a more detailed discussion i

of BG&E's financial and corporate achievements in 1980 and our plans to f

meet the energy needs of the future. Based on the Company's performance i

during the past year, I believe we can look forward with confidence to the i

fulfillment of cur goals for the 80's.

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i February E.1981 1

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FINANCIAL PERFORMANCE 1980 FINANCIAL year, with no change in the rate of adopting this revised clause effec-ACHIEVEMENTS return and accounting practices tive October 1,1980, deterred previously authorized by the Com-

$12.6 rril! ion of gas costs at year-EARNINGS PER SHARE of common mission. After hearings, the Com-end, improving 1980 earnings per stock increased 7.1% over last

.nission authorized 13e Company to share by 21c.

year to $3 64.

increase its rates to produce $24.9 million of added revenue. The Construction Program THE QUARTERLY DIVIDEND on reduction from the Company's in 1980, we spent $225 million common stock was increased from request resulted primarily from for construction and $57.1 million 61c to 64c per share with the the Commission's decision to for nuclear fuel. Electric projects October payment, equating to an disallow prospective increases in accounted for $185.8 million of the annual dividend rate of $2.56 per wages, employce benefits and total arnount and $21.3 minion was

share, payroll taxes. The new rates expended for gas construction. The became effective December 30, 1981 construction budget is esti-RATE RELIEF of $93.6 million in 1980 and are designed to increase mated at $270 mill;on and ex-additional revenues was received annual ciectric ravenues by $1e ;

penditures for r,uclear fuel in 1981 in June.

million or 2.2%, gas revenues oy are expected to total $44 million.

$4.8 million or 1.4%, and steam revenues b $1.1 million or 7.6%.

Construction Expenditures FURTHER RATE RELIEF of $24.9

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million was granted to the Com-pany in December.

Purchased Gas Adjustment With the advent of a series of gov-R-te Rel!ef emment-instituted increases in the 3N As a result of an application for price of natural gas, the pnce of higher base service rates, filed in gas to the Company has t;een y

November 1979, the Public Service steadily increasing. The lag in col-Commission of Maryland awarded lecting such price increases l,

the Company $93 6 million of addi-through our Purchaced Gas Adjust-7 tional annual,3 venue. Of this ment has depressed the Company's y

amount, $74.0 million applied to earnings to a greater degree each o

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~83 electric, a 10.4% increase, $18 2 year The Public Service Commis-fl milhon was allocated to gas, a sion, recognizing that gas distribu-6.3% increase, and $1.4 million, an tion companies have little or no 11.2% increase, pertained tc our control over the cost of gas, issued stcam business. The new rates an Order in September 1980 author-became effective with service izing such companies to elect a rcndered on June 13,1980.

revised Purchased Gas Adjustment The Order, however, f ailed to Clause. The revised clause adopted provide a mechanism to offset our by the Company permits uncol-most serious financial problem, lected gas costs to be deferred for a earnings attrition. To meet this 12-month p6riod ending November problem, the Company filed a 30 and recoverca over the subse-make-whole application in Septem.

quent calendar year by adding an ber 1980 to further increase base actual cost adjustment to the com-rates to produce an additional puted Purchased Gas Adjustment

$38.4 million of annual revenue. In for each month of the year. This a make-whole rate proceeding, the procedure matches the cost of gas Maryland la.y permits the Company with gas revenues reported within to update its operating results by the period covered by the State-using a more recent historical test ment of Income. The Company, in 3((J%[,[7;!.fjf((QQ me,w rm p.m m. g r.um w e

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l Security Transactions Short-Term Borrowings Employee Stock Ownership Plan in September, the Company sold The Company, on an interim basis, The Investment Tax Credit Em- $75 million of 12W % First issues short-term debt to provide p!oyee Stock Ownership Plan Refunding Mortgage Bonds due financing for its construction pro-enables eligible Company em-September 15,1990. Also during gram and other corporate pur-p!oyees to acquire shares of the the year, the Company issued poses. Short-term capital needs C;mpany's common stock. The $15 mill;on of 6.80% First were financed during the year program is designed to give em-Refunding Mortgage Bonds due through the sale of commercial ployees a stronger interest in the September 15,2004. This issuance paper at interest rates ranging successful operation of the Com-covers a $15 millian withdrawal from 8.23% to 18.10%. pany. In 1980, the Plan accounted from the Trustee and represents f r an additional $3.5 million in Dividend Reinvestment Plan part of the proceeds from the sale c mm n eqwty. BG&E's Dividend Reinvestment and of $20 million of 6.80% Pollution Stock Purchase Plan provides ccm-Control Revenue Bonds by Anne mon stockholders the opportunity Total Utility Plant Arundel County in September to urchase additional shares of 1979. The remainder of the pro-commca stock directly from the ceeds will be available to the Compar.y without brokerage feat Company in 1981. The Pi b offers common stock-l During 1980,997,917 shares of holders ine chance to reinvest their ~ TT common stock were issued to cover cash dividends in additicnal shares conversions of Convertible Cumula-of common stock at a 5% discount g f tive Preference Stock and to pro-on the average market price. N 7[4c g* - i s-7 vide for new shares purchased Participants in the Plan may ako hN under the Dividend Reinventment maka quarterly cash investmuts to ,A sq q d) and Stock Purchase Plan and the purchase additional shares of u 3 h h h..h h Investment Tax Credit Employee common stock at market price. Stock Ownorship Plan-Presently, about 19.6% of common $ v4 h M f 3 y h ~l M T b N - N <- N Also during the year, bonds and stockholders are participating in the t c-7' ' 7 7' " ^ 7' '"* debentures amounting to $15.1 Plan and are reinvesti7g dividends million were retired through sinking on 18.8% of the outstanding funds and $20.1 million of bonds shares. This Plan generated a total were redeemed at maturity, of $16.8 million in 1980. How the Revenue Dollar for 1980 Was Spent k Costs Perr DoHar [ %' b' N y .ii i - x 5, Purchased Fue! & Energy 38BC h .l Y%g ' ' D Operate ns 176C ~ ' e noo A Mamtenance 62C + Depreciation 6.7C a Taxes 134C Tne esta y or of cracytou d pres t y BGRE n cress nd surdy tne powr neecs of he U trp _J Intemst & Preferred & g. e Preference Dnndends 9 SC systems aM omer not,e energy regs." erts As a s

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ENERGY AT BARGAIN PRICES 1 Electricity 1 t 1% On an average basis for the about 76% higher than the cost Although its price has risen over the eight cities, the cost of electricity of heating with gas. past decade, electricity for residen-was 36% more than in Baltimore. Our eight-city comparison for tial use remains a bargain in If New York were excluded, the natural gas shows that except for Central Maryland. This is true seven-city average would be 26% Wilmington, Delaware, which is despite the rate increases BG&E higher than Baltimore's average slightly lower, the average cost J l has received to combat the effects rate. gas for all uses is 5% to 48% l of inflation on the Company's higher elsewhere on the East Coast operating, constrettion and capital Average Rate Per Kilowatthour thar, in Baltimore. The seven-city costs. All customer Categories average price excluding New York Until the economic difficulties of Full Year 1980 was 14% above the price in the 70's, the cost of electricity had BALTIMORE 4.96g Baltimore. been going down. For the period Washington, D.C. 5.27 Norfolk, Va. 5.43 Average Rate Per Therm of Gas 1960 through 1970, the average Wilmington, Del. 5.9 All Customer Categories unit price of electricity decreased Atlantic City, N.J. 6.30 Full Year 1980 23% while the cost of living index Philadelphia, Pa. 6.35 Newar " for the Baltimore Metropolitan Area ,on M s's. ORE 3f.04 rose 31% Not until 1971 did the New York, N.Y. 10.48 Norfolk, Va. 39.03 average unit price first turn upward. Philadelphia, Pa. 40.64 8-CITY AVERAGE 6.76 By 1975,it had increased by little A$8" w,hing

n. D more than one third over the 1960 Newark, N.J.

45.01 Gas price. During the same time, the Boston, Mass. 50.48 BG&E has no control over the price New York, N.Y. 54.87 I cost of living inder jumped by 85% As the 70's progressed, the gap of natural gas received from its 8-CITY AVERAGE 43.82 between the average price of pipeline supplier. Price controls in-electncity.ad the cost of living stalled by the Federal government Resiciential Unit Price indices continued to widen. By in 1954 have held the f rice of Comparect With Cost-of-Uving 1980, the price of electricity was natural gas far below its true market Baltimore Area value, creating a serious gas short-in= 1960 muais 100 un 82% over the 1960 figure whac the cost of living index had soared age for the Nation. This shortage PERCENT 178 L prevailed through the 70's arid ulti-1 I "~ Thanks largely to the efficient N / en ns uted incmases in % operation of the Company's Calvert price of gas, resulting in the adop-u Chffs Nuclear Power Plant, BG&E's tion of a phased-in price deregula-A price for electricity over the past / / tion plan as a part of the National iso 20 years has increased less than b Energy Act of 1978. By 1980, the half as much as the cost of living continuing annual increases under 100 w in the Baltimore area. ~ the law forced the price of gas BG&E's average rate per kilo-delivered by BG&E to its residential 50 watthcur of electricity sold to all customers to increase by 182% customer categories for the year over the average price paid in 1960, ,'f,o u w.7, n.n n 73 n m n n 30 1980 was the lowest among major approximating the rise ir. cost-of-Consumer Price Index - East Coast cities from Norfolk to living index for the period. Baltimore Area-Allitems Boston. The average rCas else-Yet when compared to fuel oil for Residential Unit Costs-where exceeded BG&E's by per-

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Electric househeating purposes, BG&E's centages ranging from 6% t average residential price of gas remains a bargain. Househeating g

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ENERGY FOR THE SO's Most corporations need not plan We are lookirg primarily to coal Sales of Electricity decades ahead but an electric to fill the gap. The two-unit Charles $"' "* ' Kd **'th " utility must. We need from 10 to 15 P. Crane Power Plant, with a total lllll l year-to build a power plant. There-capacity of 400 MW, is expected 18 j fore, we must have some idea of to be converted to operate on q. 1 I I i 1 ,, l l l l,ll-lll l what the service needs of our coalin 1983 and the first of the two territory will be like 20 years in the Brandon Shores units will come on "l j j l [ j j l g l j future. Sir.co the energy crisis came line with coal in 1984. The cost 3', I I I I I I I I I I I l l l l l l l l }l gl l into focus in the early 70's, BG&E of converting Crane will involve a customers with our help have been 555 million investment in new l l finding ways to conserve. As a dust collection equipment. The net a c-result, growth in sales of electricity savings, after providing for an has slowed from a 7% growth increase in operating costs and rate in the late 60's and early 70's proper compensation to the Com-4 to an annual growth rate of 4%% pany for the additional plant invest. since 1975. This year, while saios ment, will be passed on to our to residenttil customers rose 9%, customers. We anticipate no prob-0

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] g'.h " 7' industrial sales dropped 1% supply of coal adequate to comply a i commercial influenced primarily by reduced with the changes in air quality Res,dentiar steel production. Our current regulations approved by the Envi-torecasts indicate an annual ronmental Protection Agency. growth rate of about 3.4%in total As important as coal is becom-electric sales through 1990 and ing, we believe that nuclear power that electric peak loads will grow offers the best so'ution to the at a 3% annual rate during the Nation's current energy problem, same period. BG&E'r experience at Calvert Cliffs Fu:1 Sources substantiates this pos; tion.1980 To serve this expected growth and marks the sixth year of outstanding still remain flexible will require a performance for Calvert Clifts. The varied generation mix. The Com. two nuclear units, with a total pany firmly believes, however, that generating capacity of 1.635.000 the backbone of our Nation's fuel kilowatts-about % of the Com-supply for electric generation must pany's total generating capacity-l be nuclear power and coal. Thase produced 59% of our customers' twa fuels are the only viable alter-total electric requirementr., for the natives to expensive and unreliable year. Since 1975, when our first foreign oil for the mass production nuclear unit was placed in com-of electricity. BG&E has been a mercial operation, the fuel savirgs utility industry leader in moving have totaled $1.2 billion, substan-away from oil. By 1990, we intend tially exceeding the initial phnt to cut our consumption well in investment of $778 million. excess of the 50% initiative an. Economy and efficiency are not nounced by former President the only reasons the Company I Carter in 1979. supports nuclear power. It is not a perfect technology, but we believe it is the safest and most environ-mentally sound way available now to produce large quantities of . s 2,v,w e y w ww ;w electricity. s * '.t r f L y t ' " h d P3 N le ) I la V k ' } of ( VP!h ed Litdai') (% fc g t wf 'oj.fj+ l. f j I-J

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l l l i Nuclear Safeguards our operators reduce that risk even Sales of Ges To ensure that Calvert Cliffs further. M"' D"*""* "O remains safe and efficient. we are continually modifying the plant's The Company's reserve generating wol l l ll,;,jl l l systems as improved technology capacity of 25% is enough to 90,,, 1 i becomes available. During 1980, meet new growth in our servico ,lllll l,Illll l l 1 I I I the Company spent $21 million on territory until 1984 when we expect modifications to the plant's op-to operate the first of the two 70 erating and safety equipment, g 620,000-kilowatt coal-fired units at i including upgrading the plant's

glll, lllll]l Pr ndon Shores. When the second fire protection system. Many of the begins operations in 1988, we wiIl 2

y additional safeguards were ordered have sufficient generating capacity by the Nuclear Regulatory Com- ,o to see us into the next decade. raission; some we designed and We est: mate the total cost of the 30 implemented on our own. Addi-Brandon Shores Power Plant to be

.o tional costs were incurred for more S1.1 billion. Of that figure, approxi-intensified training of nuclear per-m tely $250 million will be spent on sonnel and working with state equipping the plant to bum coal.

(79.n. agencies to develop emergency y, ..y .7, That amount would have been evacuation procedures. conhaW p had w g A plant simulator has also been E-1 Commercial originally designed the plant in ordered for Calvert Cliffs. Residential 1972 with the capability of burn.ing Scheduled to begin operation eitW oil or wat in late 1983, it will be an exact raplica o! the Calvert Cliffs control Gas room. We will be able to test new With the phased-in deregulation of operating procedures, provide natural gas prices instituted by the initial operator training and develop Federal government, the outlook refresber courses for experienced for gas supply, and therefore personnel, all under actual plant BG&E's gas business, has signifi-conditions. Perhaps most im-cantly improved. Our pipelino portantly, the simulator will allow supplier, Columbia Gas Tram..nis-us to prepare plant personnel sion Corporation, has assured us to function effectively under that it foresees no problem in emergency conditions. We know meeting its contract commitments that the human factor can play a for at least the next decade. arge role in the cor sequence; of Although our therm saies of gas an unusual occurrence in a nuclear in 1980 increased only 1.8% over plant. Through the use of a digital 1979, prelirninarv indica'in.- point computec, the sin' ulcor will allow to a higher growth potential over our people to practice er.,crgency tha next five years, coming from i procedures in "real" situations. conversions to gas from other The trainee will learn not only which heating fuels. Conservation efforts procadures oravide the most effec-reduced residential sales this year, tive response but also how to but the greater availability of gas respond to the pressures of an prompted a 4.7% rise in le.rge emergency. The chac.ces o' any commercial and indust-ial sales. In s!gr:ificant accident occurring at order to minimize Company invest-Calvert ClJis are already extremely mer.1in gas equipment, we are ,r luw. and we be!ieve that the simu-requiring all new custorners to pay to ' J ~b lator will be a vital tooi ir helping the full cost of any gas main ' 4; o Y extension.

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CONSERVATION AND RESEARCH FOR TODAY... A.ND TOMORROW CONSERVATION GG&E's Consumer Awareness RESEARCH AND Although we are confident that Program DEVELOPMENT nuclear power and coal can provide This comprises a myriad of activi-Another part of BG&E's responsi-an adequate and reliable supply of ties designed to inform customers bility as an energy provider is to electric energy and we seer.; at about the why and how of energy ensure that the energy supplies of present to have plenty of natural conservation. It includes our the future will be avaibble when gas, this country must expend more Speakers' Bureau, which should our customers need them. Inde-effort to use its energy supply most reach more than 60,000 people pendent!y and in collaboration with efficiently. To help our customers during the next few years, a Mobile the Electric Power Research Insti-use energy wisely, the Company Conservation Exhibit displaying tute and the Gas Research Institute, has imp'emented a comprehensive materia!s consuners can ourchase the Company is working on a five-year conservation plan.1980 and install on their own-we plan nurnber of projects to identify and was the first year. The plan features to show the exhibit at 125 locations develop potential energy sources five components: to an estimated audience of for commercial applications. In customms-and biH 1980, our research and develop-The Residential Conservration insats and mecia adstisements S:rvice Program ment e><penditures exceeded $5 detailing fuel costs and ways to million' ~fhe main teature of th.is program use energy nisely. is r. thorough, in-home energy Solar Energy audit. We expect to perform uo to Customer Education Programs Can solar power be a cost-effective 72,000 audits by 1985. These special programs are de-alternative in Central Maryland? To signed to fit the needs of specific answer taat question, BG&E has The National Energ) Watch industrial and commercial cus-rogram established a solar monitoring net-tomers. We a'so give instructional work to raeasure the amount of Developed for the electn.c utility courses to local officials to explain solar rad.ation available at various industry by the Edison Electric tt ramifications of the Department locations within the Baltimore area. Institute, this was t: e country s first of Energy's Building Energy Per-We are testing a solar water-heating nationally crganized conservation formance Standards as they evolve. system in u private residence as a effort. The program uses Company We are planning over 18 different supplement to an oil-fired water inspec. ors to certify new homes programs during the next four and businesses as energy effic:ent heater and have installed another ears-if they meet a set of strict thermal largs test system in one of om guidelines. By 1985, we hope that sory Suhs service centers to furnish hot water over 25,000 homes and businesses Company representatives partici-for work crews. The Company has will have qualified. pate on advisory committees for started a program of monitoring various official weatherization and customo-owned residential solar conservation prcmms in Maryland water heaters of various designs to and serve as energy consultants to determine what portion of the heat a number of commercial and is provided by salar means Mainte-industrial associations. nance records will provide a com-Over the next few years, the parison of reliability of perforiaance Company will be nerforming market surveys to determine the effective-ness of conservation efforts. From BG&E's perspective, helping our customers to conserve is a big part of meeting the energy needs of the 80's. 16

of the systems, and periodic inter-Converting Coal to Liquid and Gas Nuclear Research views with users will assess con-Though it may be our most plentiful in keeping with our commWnent to sumer acceptability. Ultimateiy, we resource, coa! does have environ-nuclear energy, the C,mpany has expect to meritor 30 installations mental drawbacks. It is not a clean also participated in the Clinch River for about two years. The findings fuel. It can, however, provide the Fast Breeder Reactor Project at from these studies will help base for clean synthetic fuels. Oak Ridge, Tennessee. Successful the Company-and cor customers BG&E is currently investigating a completion d this project would -determine the role solar energy number of 'hese synfuel develop the technclogy fnr con-( water heating should play in our technologies. struction of commercial breeder In conjunction with the Electric reactors, which would serve as Ambient Heat Power Research Institute, the Com-long-term sources of nuclear fuel in terms of space and water heat-pany will be participating in a pro. and provide a major opportur.ty ing, the Company's missinn is to gram to develop a successful toward attainment of national energy offer our cusa.ners the right energy means of converting coalinto a independence. This project has source and technology to fit their liquid fuel. The prccess has been delayed over the past few needs. Prelimina". results of our been operating on a small scnle at years due to lack of support and solar studies indicate that Ic. at Fort Lewis, Washington, with cr., fundino by the Federal government. least some residents in our terri-couraging results. The next stage h now appears that the new tory, solar hot water heating may of developr..eni will be a demon-Adrnnittration in Washington may not be economically feasible. To stration plant to be built at fdorgaq. take a inore enlighteneci approach assist them, the Company is cur-town, West Virginia, capab!e of to this project and, with Federal rently 4 ting the heat pump hot processing 6,0CU tons of coal per government support and funding, water heater utilizing the ambient day. BG&E has agreed to purchase the Company plans to continue its heat in the area in which the heater and test a portion of the plant's particjpation along with other electnc utilities. is ioct.ted. Our researchers are product liquid over a five-year hopeful that this device will be a period beginning in 1983. Our Future Cornmitmer.t cost-effective alternative for many The Company is one of cpproxi-We do not yet know which research of our customers. mately a dozen utilities to partici. projects will eventually perfect the Tha Fuel Cell pate in a five-year, C135 million technologies to give this country At the national levei, the Company comonstration plant project for the energy independence in ways that is participating in a three-ysar pro-conversion of coal to a low-energy will minimize harmful effects on gram sponsored by the United gas which can be used as a fuel to our environment. We do know that States Department of Energy and generate electricity. Developed by BG&E will continue to play an the Gas Research Inst;tute to test Allis-Chalmers, the process known active role in the development of and evaluate fuci cel!s for commer-as Kilngas uses a rotating kiln to clean, safe and econoinical energy cial use. Fueled by natural gas, convert the coal to gas. The technolcgy. these celis can effectively provide demonstration system will be ca-electric poveer and heat which can pable of processing about 600 tons be utilized at the cell location and of coal per day. Funding will be interconnected with an electric provided by Allis-Chalmars, the utility grid. The interconnection will Sta;a of lilinois ar'd the participat-allo a the fuel cell both to take ing utility companies, ;ncluding BG&E. energy from the grid when its production falls short and to sell it back when excess fuel cell p"wer is available. 1/

PUBLIC LEADERSHIP 1 The Company's role i.1 Central Effective Community Relations Speaking Out Maryland extends far beyond sup-The Company has long been But the Company is not involved plying energy. BG&E and its per-aware of the importance of effec-in politics simply to protect its own sonnel are leaders in the business tive communications in identifying interest.We are concerned about and civic life of Baltimore. and solving problers. BG&E has the economic health of our Nation Ours is a city in renaiscance, and experienced excellent results with and our service area. In the past, ye arc proud to be involved in its its personalized, neighborhood-we criticized the lack of manage-progress. In the traditional areas of based approach to Customer Rela-ment of our energy problems on econoniic development and urban tions and applies the same concept the Federallevel. We spoke out j revitalization, BG&E is helping indi-to civic involvement. Company sharply against the apparent efforts vidual businesses to expand and personnel at a!Ilevels meet regu-of the Carter Administration to de-state, county and cit / afficials to larly with leaders of citizens' orga-centralize energy production and to attract new industry-and new nizations to taik with them about rely on as yet unproven technot-jobs-to Maryland. how they perceive the Company ogies. Central station power plants and what BG&E can do to help fueled by nuclear powei and coal The Energy Coalition them address needs they encoun*,cr are, and will continue to be for the The Company has also taken in the community. foreseeable future, essential ele-i I some nontraditional approaches Realizing that Company em. ments for this country's industrial to community problems. As the ployees are leaders in a broad growth. BG&E knows that many energy crisis deepened, literally range of community affairs, BG&E jobe would be lost in Central dozens of groups in the Baltimore aw the opportunity to help them Maryland alone if the Company did ) area were trying to do something aid their follow citizens. Our Com. not have the generateg plants to munity Volunteer Program assists produce a reliable supply of power. BG& ated et I empi yees in recruiting other vol-As we move into the 00's, Baltimore Energy Coalition. Today, more than 40 govemment, busi- "".teers from the Company to par-BG&E and its employees are pre-ticipate in community organizations pared to continue the traditica of ness, institutional and civic organi-and provides any publicity the providing creative, dynamic leader-zations are working hgether to group might need. As usual, BG&E ship to the utility industry and to the develop conservation and energy pe pfe have been eager to share community. education programs and policies. their time and talent. Turning Waste into Energy Like many areas, Baltimore has a ^ ". ' " " "E*"I Being a community leader today shortage of landfill space. Working means involvement in the political with the Maryland Environmental ren. The Company works with Services and Baltimere County, the state legislators in Annapolis during Company developed a project to the General Assembly sessions. It turn some of the con murity's has expanded its Public Affa, irs waste into energy. During 1980, we test bumed over 2,300 tons of flice in Washington, D.C. Through its work on the state and Federal refuse-derivea fuel-processed levels, BG&E is contributing to the trash-at our Charles P. Crane devel pment of legislation and Power Plant. The in,tial rasults were p licies that will greatly influence encouraging and BG&E is hopeful en seg s4 that further tests will establish RDF's potential not only as a og uan cavia never functon our ewgv cheap, renewable source of fuel, government and ut im'"es won"tagerner BGSEs ^"d *""2Y " 0"'>' '" ' '*"9 '* S but as an important solution to the ccee, anon wan tne atryta >d iey< suture. ano -zi S '2"""*"'**'""5"'"'"d'C""'" solid waste problem. o'"wr"yana'has tne energy neeaed tar the L ure Snown on the r ght a the !.farylana Sende ro sesson - 18

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BG&E EMPLOYEES... OUR MOST VALUABLE ASSET I As a public utility, ours is essentially The employee stock ownership But at BG&E, career development a business of people serving peo-and savings plans encourage em-is not just for future managers. The ple. It takes many prcfessions, ployees to invest in the Company's Company offers programs to allow skills and talents, all directed to a future and provide a stimulus for its people to identify the level and common goal, to cr,sure that our increased individual productivity. kind of work right for them. In order f community has the energy it needs We are proud that more then 80% for them to be able to reach their l to grow and prosper. The 8,600 of our employees are BG&E share-eaals and potential, BG&E provides employees who work for BG&E are ho!ders. counseling, training programs and BG&E has always emphasized career planning. Further, the Job our most valuable asset. Unlike l machinery or capital, this asset education and career development. Oppo:tunities Plan, known as job doesn't show up on the balance Our employees recognize that the posting, keeps employees informed complexities of the modern energy of opp rtunities throughout the sheet, but it's there nonethekss. Credit for our achievements in 1980 industry require increasingly higher Company for advancement or i and every year goes to the efforts levels of knowledge, training and changes of career paths. During of the people of BG&E. competence. Over the years, thou_ the year,1,580 employees were We're proud that the community sands of our men and women have promoted or moved to other assign-l recognizes the dedication and made use of the Company's Educa-ments, resulting in improved pro-abihty of our employees. Each year, tional Assistance Plan to improve ductivity, higher morale, and greater thousands of customers contact the job-related skills, and to prepare self-deve!opment. j Company to praise the performance themselves for advancement. Dur-BG&E employees contribute j and attitude of BG&E workers, ing 1980,620 emp!oyees attended significantly to our community, as who ' -'N/ are rastoring service schools and colleges under the well as to our corporate goals. Their att 4 m i or some other plan and 29 received degrees. In leadership and services benefit j disase ' ' ;ust providing normal addition, hundreds of others par. many volunteer organizations in l services. ticipated in training programs Central Maryland such as chambers l In an era when productivity in provided within the Company. of commerce, schools, hospitals. 1 America is being criticized, BG&E These programs provide special-churches, local fire companies, and I employees continue to demonstrate ized training for plant operators, other civic and cultural endeavors. their characteristic ingenuity and linemen, welders, customer contact In 1980, they earned both the Honor dedication. In addition to substan. and service personnel and on-the-and Achievement awards for gen-tial untold savings which have job training for a host of other erous giving to the United Way, resulted from prudent managarial occupations. Broad job-related increasing their contDution by and supervis ory decisions made in educational courses in supervision, more than 14% over the previous the normal ccurse of business, economics, safety and public year. They donated nearly 2,750 work smarter uggestions from speaking are also conducted by pints of blood to the Red Cross individual employees, through the the Company. Blood Assurance Program, raising their total donations to more than Company's Employee Proposal The Company has comprehen-Plan, produced a record annual sive programs to recognize and 39,0C0 pints. savirgs of $200,000 in 1980. develcp future managers. BG&E in countlen ways, we are grateful l BG&E employees distinguished identifies its ablest peopic and pro-to our peoph for their service to themselves also in practicing safe vides them with a variety of experi. the Company, its customers and work procedures. Three major ences throughout the Company, the community. i departments each earned the They are also given responsibility, Edison Electric Institute-American both to help them grow and to { Gas Association Safety Award in allow our top management to 1980 for working 1,000,000 man-evaluate their poter,iioi. Making hours without a lost-time arcident. sure that the Company will always O " ' "m > s"eNhaMMV have a cadre of talented and experi-rr.u$$,Er2['N$$,MM m " e 'N o** *mW : "" enced managers is a responsibility Our wrecu are I co,wyc cammur unins BG&E takes very seriously in our cwm cm,., m, ye, m,s,

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Serving Central Maryland with ENERGY IN ACTION... ACTION IN ENERGY ep 8 e e o n s y t v i 4 h a l t settiment tiTV f h NIs Legend: Temtory served with electnctly 'v' l. Electnc transmission knes , ~ (*- Electnc generating plants interconnectxxis with otNT companies ^ i er

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MEETING THE GROWING DEMANDS OF A DIVERSIFIED ECONOMY Baltimore Gas and Electric Company supplies electric, population estimated at 1,778,000. Steam is produced gas and steam utility service to a major metropolitan for sale to 685 customers located in downtown region that is noted for an economic stability founded Baltimore on diversification of industry, growth in population. Balance likewise is a dominant characteristic of privately-financed urban renewal, and civic and cultural the Company's electric generating capability, advancement. comprising 5,010,000 kilowatts of installed capacity At year-end 1980, the Company served 836,989 and firm purchases. Of this total,33% (supplying 59% electric customers and 510,451 gas customers. of 1980 customer requirements) is nuclear; 33% is Total revenues amounted to $1.2 billion. Our residual fuel oil; 17% is coal; 11 % is light distillate 10 largest electric customers accounted for only 10% oil; 3% is gas-fueled; and 3% is hydroelectric. The of total 1980 electric revenues, and the 10 largest gas Company owns nine operating Central Maryland power customers provided 21% of total 1980 gas revenues. plants, with additional generating capacity provided The 20 largest customers overall were the source of by shared ownership of two mine-mouth plants and a 16% of corporate revenues for the year. small hydroelectric station, all in Pennsylvania, plus The diversity inherent in this broad revenue rase is membership in the Pennsylvania-New Jersey-Maryland reinforced, moreover, by the area's exceptional Interconnection, which affords access to pooled economic balance of industry.. commerce... capacity on advantageous economic terms. educational, medical, and other service facilities... Facilities for the production and storage of liquefied and government installations. This balance is reflected natural gas, synthetic natural gas, and propano gas are in the customer distribution of 1980 unit sales: on the maintained at three Company plants in Central May-electric side,35% residential,18% commercial, land, which supplement pipeline supplies of natural 47% industrial; for gas,40% residential,6% gas as the need arises. commercial,54% industrial. In 1980,70% of electric A steadily increasing population, attracted by desir-revenues and 60% of gas revenues were derived able living conditions coupled with exceptional cultural from sales outside the City of Baltimore-and recreational advantages, assures an abundant The total area served, which includes the City of manpower supply, especially noteworthy in the profes-Baltimore and extends into nine counties, approxi-sional and skilled categories, availability of which is a mates, for electricity,2,300 square miles, with some crucial factor in industrial expansion. 2,271,000 residents; for gas,600 square miles, with a COMMON STOCK DATA The Company's Common Stock is listed on the New entitled to receive, when and as declared, from the York, Midwest and Pacific stock exchanges and has surplus or net profits, cumulative yearly dividends at the unlisted trading privileges on the Boston, Cincinnati fixed preferential rate specified for each Series and no and Philadelphia exchanget. more, payable quarterly, before any dividend on the Common Stock shall be paid or set apart. Dividena Policy Dividends have been paid on the Common Stock The Common Stock is entitled to dividends when and continuously sin: e 1910. Quarterly dividends were paid as declared by the Board of Directors. There are no ("1 the Common Stock during 1980 and 1979 in the limitations in any indenture or other agreements on s mounts set forth in the accompanying table, payment of dividends; however, holders of Preferred Future dividenas depend upon future earnings, the Stock (first) and holders of Preference Stock (next) are financial condition of the Company and other factors. Common Stock Dividends and Price Ranges 1980 1979 Price Price Dividend Dividend Paid High Low Paid High Low First Quarter $.61 $22% $18% $.57 $26 $24% Second Quarter .61 24 % 19 .57 25 % 21 h Third Quarter .61 24 % 21 % .61 25 % 22 % Fourth Quarter .64 22 % 18 % .61 24 % 21 % Number of Common Stockholders of record as of December 31,1530..89,579. 23

OPERATING STATISTICS DALTIMORE GAS AND ELECTRIC COMPANY 1980 1979 1978 1977 1976 1970 j H r, m unts in Rousands) ELECTRIC OPERATING STATISTICS Revenues $' 342,796 $ 274,079 $ 270.536 $ 220,904 $ 205,188 $ 87,814 Residential, Commercial 198,936 174,157 171,363 140,323 132,600 64,249 Industrial 311,182 263.319 251,966 194,811 191,920 74,547 Other 4,350 3,401 3,308 2,520 2,348 2.453 Total. $ 357,264 $ 714,956 $ 697,173 $ 558,558 $ 532,056 $ 229,063 Sales - MWH Residential..... 6,005,110 5,496,737 5,434,958 5,231,317 4,887,793 3,664,564 Commercial 3,063,119 3,052.081 3,019,633 2,910.532 2,806,247 2,349,063 Industrial. 8,159,691 8,274,422 7,715,633 7,319,652 7,064,166 5,957,102 Total.. 17,227,920 16,823,240 16,170,224 15,461,711 14,758,206 11,970,729 Customers Residential. 760,203 747,699 734,186 722,080 708,135 618,381 Commercial 75,144 74,575 74,626 73,345 72,080 67,657 Industrial 1,642 1,416 1,355 1,306 1,297 1,000 Total 836,989 823,690 810.167 796,731 781,512 687,038 Average use per Residential Customer-KWH 7,956 7,413 7,465 7.320 6.965 5,989 GAS OPERATING STATISTICS Revenues Residential. $ 165,006 $ 146,598 $ 146,675 $ 124,357 $ 105 000 $ 57,952 Commercial 24,522 21,097 20,315 17,184 14,780 8,282 Indu3 trial. 69,689 54,767 54,315 44,497 38,405 17,487 Neeruptible Services-in&strial and Other. 92,478 61,816 40,569 31,502 25,817 10,313 Other 3,041 2,796 2,712 4.119 (588) 1,886 Total $ 354,736 $ 287.074 $ 264,586 $ 221,659 $ 184,314 $ 95,920 Sales - DTH Residential. 38,462,204 39,282,741 40,576,498 39,777,652 41,197,620 39,488,932 Commercial 5,490,367 5,320,010 5,417,140 5.335,081 5,514,194 5.260,243 Industrial 19,501,190 17,671,851 18,055,404 17,406,677 18,692,073 16,876,375 interruptible Services - Industrial and Other 31,656,568 31,175,052 20.439,595 17,543,597 21.392,706 24,194,642 Total 95,110,329 93,449,654 84.488,637 80,063,007 86,796,593 85,820,392 Customers Residential. 476,318 473,761 472,414 474.361 476,867 439,688 Commercial 29,625 28,569 28,790 29,049 29,468 28,380 Industrial 4,315 4,941 4,969 5,012 5,026 3,923 Interruptible Services - Industrial and Other. 193 185 184 188 189 108 Total.. 510,451 507,456 506,357 508,610 511,550 472,099 Average use per Residential Customer-DTH. 81.1 83.1 85.9 83.8 86.5 90.6 a

SELECTED FINANCIAL DATA BALTIMORE GAS AND ELECTRIC COMPANY 1980 1979 1978 1977 1976 1970 (in Thousands of Dollars)

SUMMARY

OF OPERATIONS Operating Revenues: Electric. $ 857,264 $ 714,956 $ 697,173 $ 558,558 $ 532,056 $ 229,063 354,736 287,074 264,586 221,659 184,314 95,920 Gas, Steam. 14,442 12,378 12,727 12,305 9,447 3.121 Total Operating Revenues 1,226,442 1,014,408 974,486 792,522 725,817 328,104 Operating Expenses: Purchased Fuel and Energy.. 478,836 338,464 321,266 245,469 257,645 81,100 Operations 217,009 182,055 161,981 140,774 124,896 62,936 Maintenance.. 75,827 64.913 55,083 49,892 35,587 19,686 83,181 80,338 78,063 68,449 59,448 27,941 Depreciation Income Taxes: Current 39,604 8,987 43,619 19,649 (1,603) 30,727 Deferred.......... 23,352 44,149 15,818 10,024 Investment Tax Credit Adjustments 13,852 16,593 17,88 13,613 27,120 588 Other Taxes 88,482 85,455 83,330 72,427 62,831 57,719 Total Operating Expenses 1,020,143 820,954 777,042 620,297 565,924 260,697 Operating income 206,299 193,454 197,444 172,225 159,893 67,407 Allowance for Other Funds Used During Construction 12,053 9,545 4,006 2,553 9,174 4,839 Net Otner Income and Deductions 2,851_ 1,L98 739 2,228 624 363 Income before Interest Charges 221,203 204.697 202,189 177,006 169,691 72,609 Interest Charges 93,828 86,159 83,228 76,230 70,645 24,652 Allowance for Borrowed Funds Used During Construction (12,024) (7,778) (3,580) (2,318) (7,771) (3,690) Net Interest Charges. 81,804 78,381 79,648 73,912 62,874 20.962 Net income 139,399 126,316 122,541 103,094 106,817 51,647 Dividends-Preferred & Preference Stock 22,099 19,784 18,177 18.381 18,771 5,565 Net income Applicab!e to Common Stock Dividends-Common Stock 117,300 106,532 104,364 84,713 88,046 46,082 80,754 75,373 69.467 63,743 58,985 30,148 Earnings Reinvested in the Business S 36,546 S 31,159 S 34,897 $ 20,970 S 29,061 S 15.934 Average Shares of Common Stock Outstanding (Thousands) 32,258 31,356 30,847 29,666 28,231 16,645 Earnings Per Average Share of Common Stock Dividends Declared Per Share of $3.64 $3.40 $3.38 $2.86 S3.12 $2.77 Comrm 1 Stock $2.50 S2,40 S2.25 $2.14 S2.08 S1.82 OTHER FINANCIAL STATISTICS Capitalization: Common Stock, Premium, Install-ments and Retained Eamings.. $1,010,941 S 953,161 S 906,421 S 861,463 S 790,716 S 416,088 Preferred and Preference Stock (Not Subject to Mandatory Redemption) 241,806 242,753 245,484 247,518 252,573 119,197 Redeemable Preference Stock 50,000 50,000 Long-Term Debt 1,304,970 1,250,132 1,207,896 1,145.656 1,069,527 518,744 Total $2,607,717 S2,496,046 $2,359,801 S2,254,637 S2,112,816 $1,054,029 Shares of Common Stock at end of year (Thousar'ds) 32,690 31,692 31,039 30,658 28,839 18,567 Book Value Per Share of Common Stock at end of year. $30.93 $30.08 S29.20 528.10 527.42 522.28 Common Stockholders at end of year. 89,579 89.698 89,249 88,795 87,106 53,480 Total Utility Plant. $3,184,059 S2,974,653 S2,831,219 S2,669,927 S2,499,035 S1,257,479 Accumulated Provision for Depreciation 678,819 608,293 541,618 470,969 410,836 228,945 Totel Assets. 3,0/3,013 2,855,384 2,673,754 2,528,972 2,324,624 1,145,561 Expenditures for Additions to Plant 225,003 160,917 172.402 182,205 165,936 206,077 l Employees at December 31... 8,672 8,485 8,459 8,306 8,087 7,631 25

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPER ATIONS Gas Sales (Dth) and Operating Revenues Earnings The percent change from the prior year in gas sales Earnings per share of common stock, on the increasing by class of customer was as follows: average number of shares outstanding in each period, 1980 1979 were $3 64 in 1980, up over the earnings of $3.40 Residential. (2.1)% (3.2)% experienced du;ing 1979 and C.38 in 1978. The Commercial 3.2 (1.8) adoption of deferred accounting for natural gas costs Q' g g; 1] h) increased earnings per share in 1980 by 21c (see Note 6). An annual base rate increase of $93.6 rr: lion Total gas sales increased 1.8% in 1980 and 10.6% authorized by the Public Service Commission of in 1979 due primarily to higher usage by firm industrial Maryland in June 1980, which increased the allowed customers during 1980 and by large interruptible industrial customers in 1979. The increases were rate of return from 9.11% to 9.55%, also contributed to the improvement. The impact of inflatbn ^, made possible by the total removal of delivery curtaiiments that had been imposed by the Company's operating and capital costs, along with rego ?".

g, continues to have a depressing effect upon the pipeline supplier since the winter of 1972-1973. In consequence, the Maryland Commission approved Company's earnings.

termination, as of May 4,1979, of the five-year mora-Electric Safos (Mwh) and Operating Revenues torium on new uses and customers that had been The percent change from the prior year in electric partially lifted in August 1978. In 1980, the increase sales by class of customer was as follows: was mitigated by lower residential customer usage 1980 1979 resulting primarily from conservation. The 1979 Residential. 9.2 % 1.1 % increase was offset partially by decreased usage on the part of residential and small commercial customers n sr () due to both conservation and warmer weather during The combined effect of these changes resulted.in the heating season. j increased total electric sales of 2.4% in 1980 and Future sales will be affected by the availability of 4.0% in 1979. The substantial increase in residential gas and the scheduled deregulation of gas prices, in sales in 1980 resulted from abnormally hot weather addition to the ongoing impact of such factors as experienced during the summer cooling period and a weather conditions, gas conversions and conservation greater number of electrically heated dwelling units, efforts by our customers, while such safes in 1979 sere adversely affected by Gas operating revenues increased each year as milder weather during both the cooling and heating ggigg,3 seasons. Industrial sales, particularly in steel related Increase (Decrease) industries. were down in 1980 due to the reduced level From Prior Year of business activ'ty in the Company's service territory-1980 1979 whereas higher industrial activity resulted in the 1979 (In Millions of Dollars) increase. Attributable to: u me s 5 ) Future electric sales will continue to be affected by ']eA A the overall economic situation and level of bus,iness Sa!cs Wumes. 2.3 3.7 activity in the Company's service territory, as well as by Net increases !67.7 S22.5 weather conditions, heating installations and customer =- conservation efforts. Ehective in October 1980, the Maryland Com-Electric operating revenues increased each year as mission authorized the Company to implement an follows: Actual C'st Adjustment provision to the Purchased Gas it' crease (Decrease) Adjustmunt Claw e containec i., the CompaT 's ces From Prior Ye:.E iW; This change, which prc /% a bdu mtching 1980 197u of ps expenses and associated revenues, will prevent (In Millions of Dollars) future crosion of earnings due to the anticipated Att ibuta e to continued increase in natural gas prices stemming 383 M6 Fuel Rate Adjustments 81.2 (8.4) from phewd-in deregulation (see Note 6). Maryland Electric Envire antal Surcharge (0.2) (0.9) Operat. ions and Maintenance Sa!cs Volumes 23.0 15.5 Total purchased fuel and energy expense increased in Net increases $142.3 517.8 both 1980 and 1979 as a result of higher fuel and natural gas prices, coupled with increased sales. See Note 6 for a discussion of the electric fuel rate clause which was implementet in October 1978-

increases in operations and maintenance expenses Plant and to the change in the calculation method reflect the higher cost, due in large part to inflation, effective mid-April 1979, whereby AFC is computed of payroll, employee benefits and materials. In 1980, on the total, instead of ona-half, of the Company's such expenses include S4.6 million in increased costs investmeni in that plant (see Note 4). at the Calvert Cliffs Nuclear Power Plant, resulting The 1980 increase in Net Other income and Deduc-in part from required modifications stemming from the tions was due principally to a $1,146,000 after tax gain Three Mile Island incident, end greater scheduled on debt reacquired through sinking fund operations. maintenance at various fossil-fuel generating plants. In Interest charges increased due to saMs of additional 1979, the increases reflected additional costs at Calvert securities. The issuance of 500,000 shares of Redeem-Cliff s due to more extensive inspections, mooifications able Preference Stock in July 1979 resulted in the and equipment repairs: more repair work related to increae in preferred and preference dividends in 1980 major storms; and higher uncollectible accounts. and 1979. See Notes 6 and 7 for a discussion of deferred expenses. LIQUIDITY AND CAPITAL RESOURCES During the period 1978-1980, the ComNny's internal generation of cash approximated 60% cf expenditures Federal income Taxes-Current increased in 1980 due to a higher level of taxable income and a decrease in Expenditures for these three years and the investment tax credits. The decrease in 1979 was attributable to the lower level of taxable income and the reduction in tax rate from 48% to 46%, which became effective January 1,1979, partially offset by lower Construction Nuclear Fuel Total investment tax credits (see Note 3). A proposed (In Millions of Dollars) deficiency asserted by the Internal Revenue Service in 1978 S172 $57 $229 2 connection with an audit of the years 1974 through h 8 1976 is being protested by the Company (see Note 14). 1981 271 44 315 Federal Income Taxes-Deferred are the result of 1982 364 53 417 changing in 1977 from flow-through to normalization These construction expenditures include an Allowance accounting for the tax benefits arising frcm liberalized for Funds Used During Construction (see Note 4). depreciation on 1976 and subsequent years property Actual construction and nuclear fuel expenditures additions and for ceitain other timing differences may vary from the estimates set forth abova because between tax and book income. The majority of the of a number of factors such as inflation, regulation and decrease during 1980 is due to the reduction of fuel legislation, rates of load growth, and environmental expense deferrals associated with the Company's protection standards, as well as the cost and avail-electric fuel clause partiahy offset by deferrals of ability of capital. Assuming timely and adequate unrecovered natural gas expenses under the Com-rate relief, the Company presently anticipates that pany's gas adjustment clause. rhe 1979 amount about 60% of these funds required for the years 1981 reflects tax deferrals applicable to maintenance and 1982 will be provided from internal sources. The expenditures at the Calvert Cliffs Nuclear Power Plant remainder will be provided through the capital market, and deferwd fuel ew.ises under the Company's the Company's Dividend Reinvestment and Stock electric fuel clause ne !?ote 3). Purchase Plan and the Employee Stock Ownership investment tax crat; ary from year to year as con-Plan as well as short tem commercial paper on an struction expenditures become eligible for the credit. interim basis. i Taxes other than income taxes increased in 1980 In addition, the Company estimates that approxi-due to higher property and capital stock taxes, payroll mately $158 million will be required for bond taxes and the Maryland Gross Receipts Tax, partially maturities and sinking fund payments during the period offset by a reduction in the Maryland Electric Environ-1981-1982. mental Surcharge and the repeal of the Pennsylvania The Company's capital structure as of December 31 Gross Receipts Tax on the sale of electricity to out-of-is presented below: state customers effective January 1,1980. The 1979 increase was primarily attributable to a higher taxable Long-Term Debt. 50 0 % 50 0 % wage base for social security taxes (see Note 8). Redeemable Preference Stock. 1.9 2.0 Preferred and Preference Stock Other income and income Deductions (not subject to mandatory redemption) 9.3 9.7 38.8 38.3 The increases in the Allowance for Funds Used During Common Equity. Construction (AFC) in 1980 and 1979 are attributable The hiph rate of inflation continues to be the Com-to continued construction at the Brandon Shores Power pany's and the Nation's majcc problem. Future rate increases will be required to cover increasing operating costs and to obtain an adequate retum on investment (see Note 18). n

STATEMENTS OF INCOME BALTIMORE GAS AND ELECTRIC COMPANY Year Ended December 31 1980 1979 1978 (in Thousands of Dollars) OPERATING REVENUES Electric. $ 857,264 S 714,956 $697,173 Gas 354,736 287,074 264,586 Steam, 14,442 12.378 12.727 Total Operating Revenues 1,226,442 1.014.408 974.486 OPERATING EXPENSES Purchased Fuel and Energy 478,836 338,464 321,266 Operations. 217,009 182,055 161,981 Maintenance 75,827 64.913 55,083 Depreciation...... 83,181 80,338 78,063 locome Taxes-Note 3 76,808 69,729 77,319 Other Taxes 88,482 85.455 83,330 Total Operating Expenses 1,020,143 820.954 777.042 OPERATING INCOME 206,299 193,454 197,444 ALLOWANCE FOR OTHER FUNDS USED DURING CONSTRUCTION-Note 4 12,053 9,545 4,006 NET OTHER lt.'COME PC DEDUCTIONS 2,851 1.698 739 INCOME BEFORE :NTERECT CHARGES 221,203 204.697 202.189 INTEREST CHARGES 93,828 86,159 83,228 ALLOWANCE FOR BORROWED FUNDS USED D!l31NG CONSTRUCTION-Note 4 (12,024_) (7.778) (3.580) NET INTEREST CHARGES 81,804 78,381 79.648 NET INCOME 139,399 126,316 122,541 DIVIDENDS-PREFERRED AND PREFERENCE STOCK 22,099 19,784 18.177 NET INCOME APPLICABLE TO COMMON ETOCK $ 117,300 S 106 532 $104.264 EARNINGS PER SHARE OF COMMON STO(.K $3.S4 S3.40 1.38 (Based on average chares outstanding) STATEMENTS OF RETAINED EARNINGS BALTIMORE GAS AND ELECTRIC COMPANY Year Ended December 31 1980 1979 1978 (in Thousands of Dollars) BALANCE AT BEGINNING OF PERIOD $335,136 $304,261 $269,414 NET INCOME 139,399 J6.316 122.541 Total 474,535 430.577 391.955 CASH DIVIDENDS DECLARED Preferred Stock (Cumulative) Series B (at the rate of 4W % per annum) 1,003 1,003 1,003 Series C (at the rate of 4% per annum) 276 276 276 Series D (at the rate of 5.40% per annum) 1,620 1 E20 1,620 Preference Stock (Cumulative) Convertible (at the rate of 6W % per annum). 519 635 784 1970 Series (at the rate of 8 75% per annurr) 2,625 2.625 2,625 1971 Series (at the rate of 7.88% per annum) 3,940 3,940 3.940 1972 Series (at the rate of 7.75% per annum) 3,100 3,100 3,100 1973 Series (at the rate of 7.78% per annum) 1,556 1,556 1,556 1974 Series (at the rate of 9 35% per annum).. 3,273 3,273 3,273 1979 Series (at the rate of 8.375% per annum) 4,187 1,756 Common Stock (at annual rates per share, $2.16 through April 1,1978, $2.28 through April 1,1979, $2.44 through July 1,1980, and 52.56 thereaf ter), 80,754 ia.373 69,467 OTHER CHARGES-Expenses in connection with issuance of stock 39 284 50 Tota' Charges 102,892 95.441 87.694 BALANCE AT END OF PEPIOD $371,643 5335.136 S304.261 see oc m va rma m -- nn v :%.e.ii I es

BALANE SHEETS BALTIMORE GAS AND ELECTRIC COMPANY ASSETS December 31 UTILITY PLANT 1980 1979 Plant in service (in Thousands of Dollars) Electric-at criginal cost Gas-at original cost, $2,250,921 S2,165,107 327,526 310,127 Steam-at cost 19,291 18,753 Common-at original cost. 101,325 92,042 l Total plant in service 2,699,063 2,586,029 Construction work in progress-at cost 481,257 384,885 Plant held for future use-at cost 3,739 3,739 Total utility plant 3,184,059 2.974,653 Accumulated provision for depreciation (678,819) (608,293) Net utilit/ p! art. Nuclear fuel-at cost (net of amortization of $154,759,000 and.................. 2,505,240 2,366,360 $83,893,000, respectively) 166,955 148,626 2,672,195 2,514,936 OTHER INVESTMENTS 8,008 7,775 CURRENT ASSETS Cash 2,660 4,281 Temporary cash investments -at cost 10,400 5,150 Special deposits and working funds 1,415 996 Accounts receivable: Customers' (net of provision for uncollectibles of $3,060,000 in both years) 115,657 90,964 Miscellaneous 2,799 6,776 Fuci stocks-at average cost.... 90,909 76,594 Materials and supplies-generally at average cost 55,380 46,344 Prepayments 40,301 34,196 Other, 4,056 3,672 323,577 268,973 DEFERRED DEBITS Deferred fuel costs 32,703 28,793 Other. 36,530 35,457 g 69,233 64,250 rOTAL ASSETS $3,073,013 S2,855,984 CAPITAL AND LIABILITIES COMMON STOCK AND RETAINED EARNINGS Common stock-Schedule, page 31. $ 638,820 $ 617,630 installments received on capital stock-common 321 238 Premium on preferred stock 157 157 Retained earnings 371,643 335,136 1,010,941 953,161 PREFERRED AND PREFERENCE STOCK NOT SUBJECT TO MANDATORY REDEMPTION Preferred stock-Schedule, page 31.. 59,185 59,135 Preference stock-Schedule, page 31. 175,000 175,000 Convertible preference stock-Schedule, page 31 7,621 8,568 241,806 242,753 REDEEMABLE PREFERENCE STOCK -Schedule, page 31 50,000 50,000 LONG-TERM DEBT Mortgage bonds-Schedule, page 32 1,271,570 1,215,732 Debentures-Schecule, page 32 33,400 34,400 Unamortized discount and premium..... (4,337) (3,Lt 1) Long-term debt estimated to be retired within one year (52,779) (33,214) 1,247,854 1,213.054 CURRENT LIABILITIES Accounts payable 108,875 76,802 Vacation costs accrued 13,744 11,901 Taxes accrued. 59,229 21,951 Interest accrued... 34,136 32,085 Dividends declared 26,441 24,866 Long-term debt estimated to be retired within one year 52,779 33,214 Other. 12,886 17,152 308,090 217,971 DEFERRED CREDITS Accumulated deferred investment tax credits 115,390 103,941 Deferred income taxes 93,344 69,991 Other. 5,588 5,113 214,322 179,045 COMMITMENTS AND CONTINGENCIES - Note 14 TOTAL CAPITAL AND LIABillTIE" $3,073,013 52,855,984 see no es and screJues - ra;es at terough 43 29

STATEMENTS OF CHANGES IN FINANCIAL POSITION DALTIMORd GAS AND ELECTRIC COMPANY Year Ended December 31 1980 1979* 1978* (In Thousands of Dollars) SOURCE OF FUNDS Funds from Operations: $139,399 $12E.316 $122,541 Net income.. 110,647 96,252 87,144 Depreciation and amortization investment tax creoit adjustments 11,450 13,989 15,396 Deferred income taxes. 23,352 44,149 15.818 Allowance for other funds used during construction (12,053) (9.545) (4,006) 281,795 271,161 236,893 Subtotal Funds from Outside Sources: Long-term debt 88,883 53,789 74,193 Common stcck 21,234 15,796 10,062 Preference stock (deduction-conversions) (947) 47,053 (2,035) Short-term debt-net (18,750) 336 296 414 Other - net Total $391,301 $388,095 $300,777 APPLICATION OF FUNDS Construction expenditures $225,003 $160,917 $172,402 Allowance for other funds used during construction (12,053) (9,545) (4,006) Purchase of nuclear fuel materials 57,135 57,956 57,253 Deferred nuclear maintenance 1,697 7,275 80,754 T5,373 69,467 Common stock dividends Preferred stock dividends 2,899 2,899 2,899 Preference stock dividends 9.200 16,885 15,278 Retirement of Sng-term debt .35,1fi2 12,764 12,760 Materials and supplies, principally fuel stock 23,351 19,462 (2.154) Deferred fuel costs 3,910 37,197 (4,578) Feoeral income taxes payable. (34,438) 26 758 (6,561) Other-principally ne; change in other working capital items (11,319) (19.846) (11,983) Total $331,301 $388.095 $300,777

• Resta!cd to conform with 1980 presentation.

See r10'es and Screddes - 03;e3 31 fr:roup 43 AUDITORS' REPORT f Coopers & Lybrand To the Stockholders of Baltimore Gas and Electric Company We have examined the balance sheets of Baltimore Gas in our opinion, the financial statements referred to above and Electric Company at December 31.1980 and 1979, and (pages 28 through the notes to financial statements on the related statements of incorne, retained earnings and page 43), present fairly the financial position of Baltimore changes in financial position for the years endec' December Gas and Electric Company at December 31,1980 and 1979, 31,1980,1979 and 1978. Our examinations were made in and the results of its operations and changes in its financial eccordance whh generally accepted auditing standards and, position for the years ended Uecember 31,1980,1979 and accordingly, included such tests of the accounting records 1978, in conformity with generally accepted accounting and such other auditing procedures as we considered principles applied on a consistent basis. necessary in the circumstances. Wf GA Baltimore. Maryland January 21.1981

SCHEDULES OF OUTSTANDING STOCKS l l BALTIMORE GAS AND ELECTRIC COMPANY December 31 1980 1979 (In Thousands of Dollars) COMMON STOCK - without par value - 45,000,000 shares authorized: 32,690,093 and 31,692,176 shares, respectively, outstanding $638,820 $617,630 (At the end of 1980,263,548 shares were reserved for conversion of Convertible Preference Stock,847,498 I shares for the Investment Tax Credit Employee Stock Ownership Plan and 888.935 shares for the Dividend Reinvestment and Stock Purchase Plan.) PREFERRED AND PREFERENCE STOCK NOT SUBJECT TO MANDATORY REDEMPTION Preferred Stock (Cumulative) - $100 par value - 1,000,000 shares s authorized: Series B 4% % -222,P"i shares outstanding $ 22,292 S 22,292 (Callable at $110 per sharc.) Series C 4% -b8,928 shares outstanding 6,893 6,89 (Callable at $105 per share.) Serics D 5.4 % - 300,000 shares outstanding 30,000 30,000 (Cal lable at $102.50 per share prior to April 1,1982 and at lesser amoun's 'nereafter.) Tctal Preferred Stock $ 59,185 5 59,185 Preference Stock (Cumulative)- $100 par value - 3,000,000 shares authorized: Convertible,6% % Series - 76,207 and 85,677 shares, respectively, outstanding $ 7,621 $ 8,568 (Callable at $100 per share; convertible into Common Stock of the Company at $28.98 per share.) 8.75 %,1970 Series - 300,000 shares outstanding 30,000 30,000 (Callable at $107 per share prior to October 1,1983 and at lesser amounts thereafter.) 7.88 %,1971 Series - 500,000 shares outstanding 50,000 50,000 (Callable at $107 per share prior to October 1,1981 and at lesser amounts thereafter.) 7,75 %,1972 Series - 400,000 shares outstanding 40,000 40,000 (Callable at $105.50 per share pnor to October 1,1982 and at lesser amounts thereafter.) 7.78 %, 1973 Series - 200,000 shares outstanding 20,000 20,000 (Callable at $105.50 per share prior to December 1,1983 and at lesser 1 mounts thereafter.) 9.35 %,1974 Series - 350,000 utiares outstanding 35,000 35,000 (Callable at 5110 per share prior to April 1,1984 and j at lesser amounts thereafter.) Total Preference Stock $182,621 5183,568 REDEEMABLE PREFERENCE STOCK (Cumulative)- $100 par value - 500,000 shares authoriiod: 8.375 %,1979 Series - 500,000 shares cutstanding $ 50,000 $ 50,000 Oce Notes 13 and 11 I 31

SCHEDULES OF OUTSTANDING BONDS & DEBENTURES BALTIMORE GAS AND ELECTRIC COMPANY December 31 1980 1979 (In Thousands of Dollers) FIRST REFUNDING MORTGAGE oONDS 4% % Series, due June 1,1980 9,361 Series W 2%%, due June 15,1980 10,695 Series U 2%%, due April 1,1981 39,0F3 39,063 10% Series, due July 1,1982.. 90,202 90,202 10%% Series, due September 15,1983..... 41,677 41,932 Series V 2%%, cue December 21,1984 19,123 19,123 Serier. X 2%%, due January 15,1986 24,317 24,317 Series Z 3%. due July 15,1989 36,754 36.754 12%% Series, due September 15,1990 75,000 3% % Series, due December 1,1990 29,682 29.682 4%% Series, due July 1E,1992 25,000 25,000 4% Series, due March 1.1993 24,095 24.095 4% % Series, due July 15,1994 29,989 29,089 5%% Seri s, due April 15.1996 26,680 26.680 6%% Series, due August 1,1997 24,967 24,967 5%% Installment Series, due August 15,1998 67,000 67.000 7% Series, due December 15,1998 28,705 28,705 8%% Series, due September 15,1999 22,198 22,198 8%% Series, due September 15.2000 11,433 11.433 ) 7%% Series, due April 15,2001 60,000 60,000 7%% Series, due September 1,2001 60,000 60,000 7W% Series, due January 1,2002 50,000 50,000 7% % Series, due July 1,2002., 50,000 50,000 5% % installment Series, due July 15,2002. 12,500 12,500 7%% Series, due Sep' ember 15,2002 50,000 50,000 8% % Series, due February 1,2004 74,986 75,Gi> 6.80% Series. due September 15,2004 15,000 9%% Series, due iugust 1,2005.. 15,639 17,036 8%% S3 ries, dur September 15,2006 75,000 75.000 8%% Series, dt e September 15,2027 75,000 75,000 9%% Series, due July 1,2008 62,560 75,000 6.90% Installmeit Serier due September 15,2009 55,000 55,000 Total Fi:.st Refunding Mortgage Bonds $1,271,570 $i,215,732 DEBENTURES 4%% Sinking Fund Debentures, due June 15,1986 $ 12,400 $ 12,800 4%% Sinking Fund Deber'.ures, due August 1,1990. 21,000 21,600 Total Debentures. $ 33,400 $ 34,400 See Nc 'e 12. 32

RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the integrity 'nd objectivity Coopers & Lybrand, independent certified public of the ( ompany's financial statements. The financial state-accountants, are engaged to examine the financial state-menti are prepared in accordance with generally accepted ments and express their opinion thereon. Their examination accounting prin,;iples based upon currently available facts is made in accordance with generally accepted auditing and circumstances and Management's best estimates and standards which include a review of intemal controls. Their judgments of known conditions. report appears on page 30. The Company maintains an accounting system arid The Audit Committee of the Board of Directors, which related system of internal controls wt ch are designed to consists of three outside Directors, meets periodically with i provide reasonable assurance that the financial records are Management, it temal auditors and Coopers & Lybrand to accurate and that the Company's assets are p,vtected. The review the activities of each in discharging their responsi-Company's staff of internal auditors, which reports directly isilities. The internal audit staff and Coopers & Lybrand to t'le Chairman of the Board, conducts periodic reviews to have free access to the Audit Committee at any time. maintain the effectiveness of internal control procedures. NOTES TO FINANCIAL :>TATEMENTS Accounting Policies: The accounti1g records of the Company are maintained in accordance with the Uniform Systems of Accounts prescribed by the Federal Energy Regulatory Commis-sion and the Public Service Commission of Maryland. The Company's principal accounting policies are described in Notes 1 through 7. NOTE 1 - Pension Plan: plan benefits and plan net assets for the Company's The Company maintains a noncontributory pension defined benefit plan, as of January 1, is presented plan covering its regular employees. The funding of the below: Com?any's pension plan is through a deposit adminis-1980 1979 tration medium with an immediate participa' ion guaran-(in Thousands of Dollars) tee feature, employing the aggregate ecst method. In Actu Pr v! c la an ben its-1980,1979 and 1978, the Corr; any's cost for pc.isions Vested $129,913 $111,066 totaled 516,167,000, $13,563,GJ ) and $13,412,000, Nonvested 6,571 5.367 respectively, of which $13,114,000, $11,081,000 and $136,484 S116.433 $10,720,000, respectively, were included in expenses. Net assets available for benefits $206,044 S181.256 The remainders were charged to construction. The increase in 1980 is the result of changes in benefits and The assumed inestment rate of return used in deter-higher payrolls, while the increase in 1979 is the net mining the s ".uarial present value of accu,nulated plan result of changes in benefits effective July 1,1979 and benefits was seven percent for both 1980 and 1979. higher payrolls, substantially offset by a decrease Based on the latest available actuarial report, as of resu!!ing from changes in actuarial assumptions effec-January 1,1980 there were no unfunded vested iive January 1,1979. A comparison of accumulated liabilities. 33

NOTE 2-Depreci;ti:n and M: int nanc3: as units of property are accounted for as Plant Additions The amounts set aside on the Company's books for and Retirements. When depreciable property is retired depreciation are generally based on composite or otherwise disposed of, the Accumulated Provision straight-line rates, determined and revised periodically for Depreciation is charged with the " original cost" of j by means of independer.t engineering studies, applied such property, together with the cost of removal, and is to the average investment in depreciable utility plant in credited with the salvage value or sale price and any service. The composite depreciation rate for nuclear other amounts recovered, such as insurance. electric properties includes a $36,000,000 provision for The investment in depreciable utility plant as of the decommissioning of the properties at the end of December 31 and the depreciation rates applied to their useful life. Such provision is subject to periodic each category are as follows: review for future changes in economic conditions and advances in technology, composi*e 1980 1979 Expenditures for maintenance and repairs, including Rate (In Thousands of Dollars) renewals of minor items of property (as distinguished Electric from units of property), are charged to operating -other than Nuclear 3.26 % $1,428,472 $1,353.555 expenses and/or clearing accounts, unless the replace. - Nuclear 3.45 788,842 777,949 ment of a minor item of property effects a substantial f,as h. h, eam betterment, in which event the excess cost of the common 3.00 (a) 9s.711 84.605 replacement over the estimated current cost of replace-Total s2,654.:46 $2.541.488 ment without betterment is charged to the appropriate 7, &,, ,0,,,,n,po,,,,,on ,,h,c,,, ,h,c,,,, g,n,,,,,,,,,,,,,,,,, property account. Replacements of items designated , :sg easjs. NOTE 3 -Income Taxes: 1980 1979 1978 (In Thousands of Dollars) Income Tax expense is composed of the following: Included in Operating Expenses: $39,604 $ 8,987 $43,619 [ income Taxes-Current. 23,352 44,149 15.818 Income Taxes-Defarred investment Tax Credit Adjustments 13,852 16,593 17, A92 Totai Charged to Operating income 76,808 69,729 77,319 2,049 1.047 453 included in Net Ott.er income and Deductions-Current Total income Tax Expense $78,857 $70.776 $77,772 Totalincome taxes currently payable consist of the following components: Federal Income Tax: Included in Operating Expenses $39,552 $ 8.959 $43,540 1,904 934 380 Included in Net Other income and Deductions.. State income Tax: 52 28 79 included in Operating Expenses included in Net Other income and Deductions. 145 113 73 $41,653 $10.034 $44,072 Total income Taxes Currently Payable The provision for deferred Federalincome taxes consists of the following tax effects of timing differences between tax and book incom r $17,796 $20,717 $18,770 Liberalized Depreciation Deferred Fuel Costs 1,798 17,281 (2,197) Spent Nuclear Fuel Storage Costs-Note 7 (3,352) (2,850) Pennsylvania Gross Receipts Tax-Note 8 (1,638) 6,329 2,804 3,733 Dercentagc Repair Allowance 781 3,347 Maintenance Expenditures-Calvert Cliffs $23,352 $44,149 $15.818 Total The Investment Tax Credit Adjustments, which substantially offset the reduction in Fed-eral income taxes resulting from the Investment Tax Credits, are derived as follows: Reduct:an in Federal Income Taxes due to credits arising from: Eligible property $15,639 $17,776 $18,554 Employee Stock Ownership Plan 2,403 2,604 2,486 Total 18,042 20,380 21,040 Credits allocated to income (4,190) (3,787) (3,158) Net Total $13,852 $16.593 $17.882 34 m

investment tax credits eccruing to the t> ' fit of resp ct to the credits provided under the Rsvenna Act employees result from the additional 1 % % 'dit of 1971 and subsequent years, and ov r thirty-year allowed by the internal Revenue Code to pr. is.3 stock periods with respect to the credits provided under prior for employees under the Investment Tax Cre Revenue Acts. Employee Stock Ownership Plan (ESOP). Total income tax expense was less than the amount All investment tax credits, except those rei, i to computed by applying the Federal income tax statutory ESOP, are being deferred and allocated to incs 'e rate te book income before tax. The reasons for this ratably over the lives of the subject property witi difference are as folle vs: 1980 1979 1978 (In Thousands of Dollars) Tax computed at statutory rate on book income before tax (46% in 1980 and $100,398 $90,66? $96,150 1979 and 48% in 1978).. Increase (Decreases) in tax from: Excess of tax over book depreciation-not normalized. (4,807) (7.478) (10,990) Allowance for Funds Used During Construction - Borrowed Funds ald (11,076) (7,969) (3,641) Other Funds (4,190) (3,787) (3,158) Investment Tax Credit allocated to income Net other items (1,468) (652) (589) $ 78,857 $70,776 $77,772 Total income Tax Expense The tax reductions resulting from the difference tax benefits arising from liberalized depreciation on between depreciation recorded on the Company's property additions in 1976 and subsequent years books and the depreciation taken for Federal income totalling $17,796,000 in 1980, $20,717,000 in 1979 tax purpoees amounted to $22.603,000 in 1980, and $18,770,000 in 1978 have been normalized. $28,195,000 in 1979 and $29,760,000 in 1978 of which See also Note 14. ) NOTE 4 - Allowance for Funds Used During ferred from the Statemer't of Income to Construction Construction: Work in Progress in the Balance Sheet. These The Allowance for Funds Used During Construction, a allowances are not taxable income. non-cash item, is an accounting procedu-by which in 1978, the allowance was computed at an 8.13% there are accrued allowances for the costs of borrowed rate applied to one-half of the construction expendi-funds and other funds us?d to finance construction, tures for the Company's Brandon Shores Power P' ant. segregated between other income and interest charges Since April 1979, the allowance has been computed in conformance with an Order of the Federal Energy at an 8.13% rate applied to the total construction Regulatory Commission. Such allowances are trans-expenditures for the Brandon Shores Plant. NOTE 5 - Safe Harbor Water Power Corporation: accounting for this investment. The investment in investment in Safe Harbor Water Power Corporation Safe Harbor was $7,567,000 at December 31,1980 represents two-thirds of the capital stock of that and $7,351,000 at December 31,1979. corporation, including one-half of the voting stock, The capital stock of Safe Harbor owned by the Com-and the Company's two-thirds interest in Safe Harbor's pany is pledged under the Mortgage under which the retained earnings, pursuant to the equity method of Company's Mortgage Bonds are issued. 35

NLTE 6-Deferred Fuel Costs: recoveries due primarily to the diffsrence betwstn the Since October 1978, the Company, by statute, has actual generation mix compared with the latest twelve-had in effect a zero-based electric fuel rate month generation mix used in the formula. During the clause designed to recover tha actual cost of fuel first nine months of 1978, the full cost of electric fuel used in generating electricity. Actual fuel costs are based on estimates was recovered in the month in recoverable so long as the Company continues to which such costs were charged to operaticas. The I demonstrate that it has used the most economical mix balance deferred as of December 31,1980 and 1979 l of all types of generation and purchase, made every was $20,060,000 and $28,793,000 ($10,894,000 and reasonable effort to minimize fuel costs and maintained $15,610,000 net after income taxes), respectively. ihe productive capacity of its generating plants at a in October 1980, pursuant to an Order of the reasonable level. As implemented by the Public Maryland Commission, the Company began to defer Service Commission of Maryland, the fuel rate the net over-or under-recoveries of purchased formula is based upon the latest twelve-month genera-gas costs resulting from the operation of the tion mix and the latest three-month average cost for Purchased Gas Adjustment Clause.The Comndssion's each tme of fuel. The fuel rate will not change unless Order further provided that any over-or under-l the tabulated fuel rate is more than 5% above or recoveries of purchased gas costs for the twelve belcw the fuel rate then in effect. To the extent that months ended November 30 each year shall be credited actual accumulated fuel costs are not recovered or charged to customers over the ensuing calendar through the fuel rate charge then in effect, they are year. The deferral as of December 31,1980 was deferred. In actuai operation, the fuel rate $12,643,000 ($6,827,000 net after income taxes). clause will result in under-recoveries and over-NGTE 7-Other Deferred Debits: 1978. The unamortized balance of these deferred costs Prior to May 1977, the cost of nuclear fuel reflected an as of December 31,1980 and 1970 was $12,331,000 assumed value for residual uranium less estimated and $9,934,000 ($6,659,000 and $5,324,000 net after shipping and reprocessing costs. However, starting income taxes), respectively. Future fuel costo will be with the monthly fuel rate in May 1977, the Company adjusted as spent fuel storage costs and reprocessing began billing as a cost of nuclear fuel the cost to pro-costs (if any) become known. ( vide for transportation and long-term off-site spent fuel in 1979 and 1980 the Compeny incurred a total of storage, with no credit for either residual uranium or $9,738,000 in maintenance expenditures for inspecting plutonium. and repairing seismic pipe supports to meet Nuclear Beginning in October 1978, post-reactor shipping Regulatory Commission requirements at the Calvert and disposal costs were deferred pursuant to an Order Cliffs Nuclear Power Plant. These costs were deferred - by the Public Service Commission of Marylano which and pursuant to the June 10,1980 Order of the i excluded these costs from the fuel rate computation. Maryland Commission are being amor'i7ed over in its June 10,1980 Order granting the Company an twenty-six years. The amount deferrec' Es of December increase in electric base rates, the Maryland Commis-31,1980 and 1979 was $8,973,000 and $7,275,000 sion included a provision for the recovery of post-($4,845,000 and $3,929,000 net after income taxes), reactor shipping and disposal costs currently charge-respectively. able to operations as well as the amortization, over a three-year period, of the costs deferred since October \\ 36

l N"+TE 8 - Other Tcmes: (a) In December 1977, the Pennsvivania Gross Receipts Taxes, other than taxes on income, were as follows: Tax law was amended, effectiv e retroactively to January 1,1977, to apply to e'ectricity produced in 1980 1979 1978 (In Thousands of Dollars) Pennsylvania and sold outside of that State. Counsel for the Company is of the opinion that this legisla- $22.874 $22.015 $21.504 Property.... 27,357 27.057 26.896 tion is invalid and unconstitutional, and the matter capital stock... agtad o s Receipts 24,117 19,915 19,170 is being contested in the courts. Legislation was 3.728 3.413 enacted in the Commonwealth of Pennsylvania Receipts (a) which repealed the tax on a prospective basis, M dano kent $1 surcharge. 13,182 11.473 9.882 effective January 1,1980. on 1 d39 2,199 3,442 social secu.-ity Miscellaneous 1,830 1.479 1,281 si,299 87,866 85.588 In 1978, the amount of the tax w is equivalent after Federal income taxes to 6c per common share, Arnount included above charged principally to based on the average number of shares outstano-taxes (2.817) (2.411) (2.258) ing. Pursuant to an Order from the Public Service Commission of Maryland, the Company began, in Total other Taxes $88,482 $85.455 $83 330 1979, to defer the tax until such time as its ultimate disposition has been determined. As a resutt, there was no effect on 1979 earnings. NOTE 9-Accounts Receivable: recognized practice of utility companies, are classified The balance in Customers' Accounts Receivable as current assets although in part they do not mature includes approximately $18,300,000 and $15,400,000 within one year. It is not practicable to determine the at December 31,1980 and 1979, respectively, amount of such installments which do not mature receivable from unmatured merchandise installment within one year. An annual interest rate of 18% is accounts which, in accordance with the generally currently being applied to installment sales. ) NOTE 10 - Changes in Ccmmon Stock and Preference Stock Not Subject to Mandatory Redemption: Cumulative Common Etock Preference Stock Shares Amount Shares Amount (DcNr Amounts in Thousands) 30,657,775 $591,772 1,883,335 $188.333 Balance at Decembar 31,1977. Year 1978 l Common Stock issued under: Dividend Reinvestment Plan 206,272 5.338 ESOP 106,354 2,806 Conversions of Convertible Preference Stock, 6% % Series, into Common Stock (decrease) 68.901 2,032 (20,346) (2,034) 31,039,302 601,948 1,862,989 186,299 Balance at Cecember 31,1978 Year 1979 C mmon Stock issued under: Dividend Reinvestment Plan. 403,691 9,454 ESOP 156,002 3,509 Conversions of Convertible Preference Stock, 6%% Series, into Common Stock (decrease) 93,181 2,719 (27,312) (2.731) Balance at December 31,1979 31,692,176 617,630 1,835,677 183,568 f Year 1980 ( Common Stock issued under: Dividend Reinvestment Plan 809,228 16,752 ESOP.. 156,164 3,494 Conversions of Convertible Preference Stock, 6%% Series, into Common Stock (decrease) 32,505 944 (9,470) (947) Balance t.t December 31, 1980 32,690,093 $638,820 1,826,207 $182,621 '7

NOTE 11 - Redeemable Preferenca Stock: 1989. This series is junior to Preferred Stock, ranks on in July 1979, the Company issued 500,000 shares of a parity with Preference Stock Not Subject to Manda-8.375% Cumulative Preference Stock,1979 Series tory Redemption and prior to Common Stock as to ($100 par value). The Company will redeem at par payment of dividends or assets available in the event 100,000 shares (510,000,000) of this seriec of of liquidetion. Preference Stock in each of tne years 1985 through NGTE 12 - Long-Term Debt: The Installment Series tdor' gage Bor:ds, due July 1b, The Mortgage Bonds are secured (A) by a valid and 2002 are payable as to principal on the fifteenth day of direct first mortgage lien on substantially all of the July in the years and the amounts as follows: principal properties and franchises owned by the Company and (B) by a pledge of 100,000 shares of Years Each Year Class A stock and 100,000 shares of Class B stock On Thousands of Dollars) of Safe Harbor Water Power Corporation. 1993... S 420 The Company is required to make an annual sinking 1994............... 430 fund payment to the Trustee under the First Refunding 1995 through 1997.... 605 Mortgage at the end of each period of one year, [0 "j n 0 ~ accounting from the first day of August, equal to 1% of 2002........ 6,725 the largest amount of Mortgage Bonds at any time during such yearly period outstanding under the The Installment Series Mortgage Bonds, due Mortgage. Such funds are to be used for the purchase September 15,2009 are payable as to principal on the S tember,n the year? and the i or redemption of an indeterminate principal amount of ou s as follo Mortgage Bonds, excluding the Installment Series Mortgage Bonds of 1998,2002 and 2009 and the Principal Amount Y'*'s Each Year 6.80% Series Mortgage Bonds of 2004 as provided in the Mortgage, at not exceeding the applicable On Thousands of Dollars) redemption prices. The payment to be made on 2005 through 2008 $ 3,250 2009 42,000 August 1,1981 is present'y estimated a' $13,000,000. The Installment Series Mortgage Bonds, due August The Company is also required to make annua: sink-15, %8 are peyable as to principal on the fifteenth day ing fund payments (in cash and/or Sinking Fund of August in the years and the amounts as follows: Debentures) to the Trustees under the Sinking Fund Debenture Indentures. The 4% % Debenture sinking Principal Amount Years Each Year fund payment. to be made on or before June 14 of each On Thousands of Dollars) year to and including 1985, is calculated to retire $400,000 principal amount of 4%% Sinking Fund $ 1,000 1984 through 1986 1987 through 1990. 2,000 Debentures per year; and the 4%% Debenture sinking El through 1995 3,000 fund payment, to be made on or before July 31 of each 3l-year to and including 1989, is calculated to retire jhand1997.. l $600,000 principal amount of 4%% Sinking Fund Debentures per year. In any year, at the Company's election, an additional sinking fund payment of up to $600,000 (noncumulative) may be made under the 4%% Sinking Fund Debenture Indenture. ( 38

NOTE 13 - Short-T:rm Borr: wings: (which are not restricted as to withdrawal). Borrowings The Compaay maintains bank line s of credit to provide under the lines are at the bank's prime interest rate or backup financing capacity for commercial paper notes under certain credit line arrangements at a fixed issued to satisfy interim financing requirements and to percentage over the London interbank Offered Rate. permit short-term borrowing flexibility, in support of Information concerning short-term borrowings outstand-such lines, the Company either pays commitment fees ing at December ?1,1980 and December 31,1979 and at a fixed rate or maintains compensating balances during each of the years then ended is set forth below: 1980 1979 At December 31 (In Thousands of Dollars) Shv-Term Borrowings Outstanding: Commercial Paper Notes (maturing in 90 days or less) Weighted Average interest Rate Unused Lines of Credit $140,000 $138,000 Compensating Balances $ 2,040 $ 3,355 Duling the Year Ended December 31 Maximum Aggregate Short-Term Borrowings S 75,450 $ *.),250 A verage Daily Short-Term Borrowings (a) $ 30,922 $ 3,109 Weighted Average Interest Rate (b) 12.64 % 10.19 % (1) The sum of dollar days of outstanding borrowings divided by actual ds,s in the period. (b) Actual accrued interest during the period uividr 1 by average daily borrowings. NOT514 - Commitments and Contingencies: Service is taking the position that the Plant initially The Comoany has made substantial commitments in qualified for tax depreciation in 1975, and not 1974 connection with its construction programs for 1981 and as claimed in the tax retum. A protest to this item, 5 subsequent years. which is strictly a timing difference, and other disputed Price-Anderson Act: adjustments has been filed and the ultimate disposition The Price-Anderson Act (Act) currently limits the is not expected to have a material effect on earnings. liability of an owner of a nuclear power plant to Leases. $560,000,000 for a single nuclear incident. The The Company has a lease agreement for a portion of Company is protected against this potential liability by the nuclear fuel presently installed in Units No.1 and 2 a combination of private insurance carried by the at the Calvert Cliffs Plant. Under the lease agreement, Company (currently limited to S160,000,000 through 1 3se payments for nuclear fuel commenced upon the nuclear :nsurance pools) and Federal govemmental consumption of the fue'in the operation of the Calvert indemnity agreements. In the event of a nuclear Cl.ffs P! ant and are designed to return to the lessor the 1 incident, as defined by the Act, causing damage to the accumulated investment in the nuclear fuel prior to public in excess of the limits of primary financial pro-commencement of burn-up (including original pur-tection, the Cortgany could be assessed up to the chase price, all subsequent processing payments made limit of $5,000,000 per reactor at the Company's Calvert and a financing charge) and a monthly carrying or Chffs Nuclear Power Plant. For one nuclear incident, financing charge on the unamortized accumulated therefore, the Company's maximum contingent liability investment. Lease payments for 1980,1979 and 1978 (retrcspective assessment) would be $10,000,000. totaled $13,624.000, $20,369,000 and $28,020,000, Under regulations issued pursuant to the Act, the respectively. The Company is responsible for taxes, Company's maximum contingent liability in any one insurance and other operating costs relating to the fuel. calendar year for payment arising from more than one As of December 31,1980, the estimated future pay-nuclear incident is limited to twice the retrospective ments under the nuclear fuel lease are not material. assessment per reactor, er $20,000,000. If the Company had accounted for the nuclear fuel Income Tax Audit: lease as a capital lease, both net assets and liabilities The internal Revenue Service completed an audit of would have been increased by $2,080,000 and the years 1974 through 1970 and has asserted a $14,901,000 at December 31,1980 and 1979, deficiency of $16543,000. The major issue pertains to respectively. However, no additional expenses would the p! aced-ineervice date for Unit No.1 at the Calvert have been incurred. Cliffs Nuclea-Power Plant resulting in a proposed Rental expense under other leasc:. currently in def1ciency of $15.906,000. The Internal Revenue effect is not material. 39

NOTE 15 - Segment Information: 1980 1979 1978 (in Thousands of Dollars) Electric Operating Revenues $ 85i,264 $ 714,956 $ 697,173 Operating Income before Income Taxes 249,510 236,024 240,661 Operating Income 182,149 173,160 173.639 Depreciation 73,743 71,355 69,415 Construction Expenditures (a) 198,034 143,780 155,781 t Identifiable Assets at December 31 (a) (b) 2,507,909 2,350,211 2,229,415 Gas Operating Revenues S 354,736 $ 287,074 S 264,586 Operating Income before income Taxes 33,747 27,091 34,321 Operating income 23,937 19,973 23,570 Depreciation 8,886 8,463 8,156 Construction Expenditures (a) 26,029 15,858 14,875 identifiable Assets at December 31 (a) (b) 292,491 269,634 261,500 Steam Operating Revenues 14,442 12,378 12,727 Operating income before income Taxes (149) 68 (219) Operating Income 213 321 235 Depreciation 552 520 492 Construction Expenditures (a) 940 1,279 1,746 Identifiable Assets at December 31 (a) (b) 15,030 14,808 14,042 Total Operating Revenues $1,226,442 $1,014,408 $ 974,486 Operating income before income Taxes 283,108 263,183 274,763 Operating income 206,299 193,454 197,444 Depreciation 83,181 80,338 78,063 Construction Expenditures 225,003 160,917 172,402 Identifiable Assets at December 31 (b) 2,815,430 2,634,653 2,504,957 Other Assets 257,583 221,331 168,797 Total Assets 3,073,013 2,855.984 2,673,754 (a) includes allocation of Common Utility Property. (b)P .ents Utility Plant and Materials and Supplies, excluding merchandise inventory of $3,054,000, $3,272,000 $2,582,000 at December 31,1980,1979 and 1978, respectively; merchandising activities are reported in Ott, Income. NOTE 16-Jointly-Owned Electric Utility Plant: Trans-The Company's ownership as a tenant in common of Ke;- Cone-mission undivided interests in the Keystone and Conemaugh stone maugh Line mine-mouth electric generating plants, located in (In Thousands of Dollars) western Pennsylvania, entitles the Company to 536 Ownership interest 20.93 % 10.56 % 7.00 % megawatts of iated capacity. Utility Plant in Financing and accounting for these prcperties are the Service $43,514 $23,106 $1,486 same as those for any other fully-owned property. The Accumulated Company's share of the direct expenses of the joint Provision for property is included in the corresponding operating Depreciation 12,739 6.919 324 expenses in the Statement of Income. Constmction Work The following data as of December 31,1980 n Proyess 558 490 represent the Company's proportionate share: c

NOYE 17 - Guarterly Financial Data (Unaudited): The business of the Company is seasonal in nature, l The following data are unaudited but, in the inion of and it is Management's opinion that comparisons the Company, include all adjustments (comprising only between quarters of a year do not give a true indication normal recurring accruals) necessary for a fair state-of overall trends and changes in operatione. ment of the operating results for the periods presented. Operating Net income Earnings Total income Applicable Per Share Operating plus Net to Common of Common Quarter Ended Revenues AFC(a) Income E'nck Stock (in Thousands of Dollars) March 31,1980 S 316,Ci 7 $ 51,694 $ 29,348 S 23,818 S0.75 June 30,1980 264,973 51,025 27,905 22,377 0.70 September 30,1980 341,898 77,844 55,997 50,474 1.56 December 31, 1980 303,554 49,813 26,149 20,62; 0.63 Total Year 1980 $1,226,442 S230,376 S139,399 S117,300 $3.64 March 31,1979 5 292.919 S 59,929 S 39,085 S 34,558 S1,11 June 30,1979 232,443 50,796 29,897 25,378 0.81 September 30,1979 245,377 60,445 39,284 34,082 1.08 December 31, 1979 243,669 39,607 18.050 12,514 0.40 Total Year 1979 S1,014,408 S210,777 $126,316 S106,532 S3.40 (a) Alicwance for Funds Used During Construction (for Borrowed Funds and Other Funds) is added to Operating income in determining operating income for rateraaking purposes in the State of Maryland. NOTE 18 - Supplementary Information to Disclose plant was acquired to the premnt, and differ from ) the Effects of Changing Prices (Unaudited): constant dollar amounts to the extent that specific The following supplementary information is supplied in prices have increased more or less rapidly than prices accordance with the requirements of Financial Account-in general. ing Standards Board Statement No. 33, Financial The current cost of utility plant, comprising all plant Reporting and Changing Prices, for the purpose of in service, construction work in progress, and plant providing certain information about the effects of he!d for future use, represents the estimated cost of changing prices. It should be viewed as an estimate of replacing existing plant assets and was determined by the approximate effect of inflation, rather than as a indexing the surviving plant by the Handy-Whitman precise measure. Index of Public Utility Construction Costs. The current Constant dollar amounts represent historical costs year's provision for depreciation on the constant dollar stated in terms of do!!ars of equal purchasing power, and current cost amounts of utility plant was determined as measured by the Consumer Price Index for All by applying the Company's depreciation rates to the Urban Consumers. Current cost amounts reflect the indexed plant amomts. Changes in specific prices of plant from the date the 41

Statement of income From Continuing Operations Adjusted for Changing Prices For the Year Ended December 31,1980 (In Thousands of Dollars) Conventional Constant Dollar Current Cost Historical Average Average Cost 1980 Dollars ,1980 Dollars Operating Revenues 51,226,442 S1,226,442 51.226,442 Purchased Fuel and Energy. 478,836 484,569 479,469 292,836 292,83G 292,836 l Operations and Maintenance Depreciation 83,191 176,448 198,727 Taxes 165.290 165.290 165.290 Total Opvating Expenses 1,020,143 1,119,143 1.136.322 Operating income 206,299 107,299 90,120 Other Income (including AFC) 10,904 14,904 14,904 Income Before Interest. 221,203 122,203 105.024 Interest Expense (net of AFC) 81,804 81,804 81,804 income From Cantinuing Operations (excluding adjustment S 139.399 S 40.399(a) S 23.220 to net recoverable cost) I increase in Specific Prices (Current Cost) of Utility Plant and l Nuclear Fuel Hetd During the Year (b) S 3f 3,130 Adjustment to Nt; i:ecoverable Cost S (208,976) P9,874 Effect of increase in General Price Level (583.877) Excess of increase in General Price Level Over increase in Specific Prices After Adiustment to Net Recourable Cost 0 91,873) l Gain from Decline in Purchasing Power of Not Amounts Owed 163,751 163,751 5 (45.225) S (28,122) Net (a) Including the adjustment to net recoverable cost, the loss from continuing operations on a constant dollar basis would have been $168.577,000. (b) At December 31,1980, current cost of utility plant and nuclear fuel, net of accumulated depreciation and amortization, was $5,117,360,000, wNle historical cost or not cost recoverable through depreciation and amortization was 52,672,195.000. Nuclear fuel material and its related effect on tarms of constant dollars or current cost over the purchased fuel and energy expense has been adjusted historical cost of plant is not presently recoverable in in a manner sin, Mar to utility plant for constant dollar rates, and is reflected as an adjustment a net recover-amounts and at current marke; prices for current cost. able cost. While the ratemaking proces, gives no Fuel inventories (other than nuclear fuel), the cost recognition to the current cost of replacing utility plant of fuel used in generation and gas purchased for and nuclear fuel, based on past practices, the Company resaie generally represent recent acquisitions and believes it will be allowed to earn on the increased cost have not been restated from their historical cost in of its net investment when replacement of facilities rjominal dollars. The ratemaking process limits the actually occurs, recovery of fuel and purchased oas costs to historical To properly reflect the economics of rate regulatic i cost. For these reasons, fuel irrories'(other than in the Statement of income from Continuing Operations, nuclear fuel) have been classified as monetary assets. the adjustment to net utility plant and nuclear fuel As prescribed in Statemerit No. 33, income taxes should be combined with the gain from the decline in were not adjusted. purchasing power of net amounts owed. During a Under the ratemaking prescribed by the Public period of inflation, holders of monetary assets suffer a Service Commission of Maryland, the Company is loss of general purchasing power while holders of genera!!y limited to the recovery of historical cost of monetary liabilities experience a gain. The gain from plant in service and nuclear fuel in revenues as depre-the decline in purchasing power of net amounts owed is ciation and amortization. During periods of inflation, primarily attributable to the substantial amount of long-such amoums will be recovered in dollars having less term debt outstanding which will be repaid with dollars purchasing power than the historical dollars invested. that are worth less than the dollars received when such Therefore, the excess of the cost of plant stated in securities were issued.

Five-Year C:mparison of Selected Suppl:mentary Financial D:ta i Adjusted for Changing Prices l (in Thousands of Dollars) 1980 1979 1978 1977 1976 Operating Revenues Historical .31,226,442 $1,014,408 $ 974,486 $ 792,522 $ 725,817 In Average 1980 Dollars .31,226,442 $1,152,058 $1,231,323 $1,078.092 $1,051,051 H!:tirical cost information adjusted for general inflation (in average 1980 dollars) Income from Continuing Operations (excluding adjustment to net recoverable cost). 40,399 $ 56,689 income Per Common Share (after dividend requirements on preferred and preference stock and excluding adjustroent to net recoverable cost) $.57 S1.09 Net Assets at Year-End at Net Recoverable Cost .. $1,195,144 $1,28.* 346 Curr:nt cost information (in average 1980 dollars) Income from Continuing Operations (excluding adjustment to net recoverable cost) .. $ 23,220 $ 23,644 Ircome Per Common Share (after divider ~ auirements on $.03 $.04 preferred and preference stock) Excess of increase in General Price Level Over increase in Specific Prices After Adjustment to Net Recoverable Cost. $ 191,873 $ 227,461 Net Assets at Year-End at Net Recoverable Cost. ... $1,195.144 $1,284,346 General information Gain from Decline in Purchasing Power of Nei Amounts Owed (in average 1980 dollars) .$ 163,751 $ 182,767 Cash Dividends Declared Per Common Share $ 2.50 $ 2.40 $ 2.25 $ 2.14 $ 2.08 Histor:mI in Average 1980 Dollars $ 2.50 $ 2.73 $ 2.84 $ 2.91 $ 3.01 Market Price Per Common Share at Year-End $19.75 $22.13 $24.38 $26.63 $26.75 Historical $18.84 $23.76 $29.66 $35.32 $37.89 in Average 1980 Dollars. 246.9* 217.4 195.4 181.5 170.5 Average Consumer Price Index Year.End Consumer Price Index 258.8* 229.9 202.9 186.1 174.3

• Estimated 1

A3

I DIRECTORS OFFICERS J. OWEN COLE BERNAFsD C. TRUESCHLER Chairman of the Board. First Maryland Bancorp Ba:timore Chairman of the Board and Chief Executive Officer (Bank Holding Company) LESLIE B. DISHAROON President and Chief Operating Officer Chairman of the Board and President, Monumental Corporation, f Ba:timore (Insurance) NORMAN J. BOWMAKER " 9* *" " SISTER KAThLEEN FEELEY, S.S.N.D. President Co!lege of Notre Dame vi Maryland, Baltimore RAYMOND C. BRYANT (Education) Vice President. Censumer Services JEROME W. GECKLE EDWARD A. CROOKE Chairman cf the Board and President, PHH Group, Inc., Baltimore Vice President Finance and Accounting. and Secre.,ry (veh.cle and Personnel Services) RALPH G. HOFFMAN Vice President, General Services Attorney-at-Law, Westminster JOHN A. LUETKEMEYER Vice President, E!ectric interconnect;on and Operations D, rector. Equ.tabte Trust Comp y (former Chairman of the Board, Equ: table Bancornoration), Ba:t.more (Banking) ARTHUR E. LUNDVALL, JR. GEORGE V. McGOWAN President of the Company, Batt.more HENRY H. MH LER CHARLES S. SANFOhD, JR. Executive Vice President, Bankers Trust Company, New York CHRIS li. POINDEXTER (Banking) Vice President. Eng;neenng and Construction JOHN P. SIPPEL ALFRED H. I: NERS Vice Chatrman of the Board. The Citlens National Bank, Laurel Treasurer and Ass:stant Secretary ( " "9' HENRY E. LENTZ HENRY F. SNYDER, JR. Ass;stant Secretary and Assistant Treasurer General Manager. Product Line P; ann:ng and Management. Western E:ectnc Comp. y, Morristown, N J. (Communications CHARLES W. SfilVERY Equipment $ Ass:stant Treasurer WALTER 5ONDHEIM, JR. Cha,rman of the Board. Charles Center-Ener Harbor Management. Inc., Ba?timore (Dantcwn Renews Projects) BERNARD C. TRUESCHLER Chairman of .e Board of the Company, Baltimore C. EDWARD UTERMOHLE, JR. Chairman of the Executive Committee of the Boar 4 Ba!timore GEORGE W. VELENOVSKY Chairman of the Board.The Annapo!;s Banking and Trust Company, Annapchs (Banking) HARRY K. WELLS Chairman cf the Board, McCormick & Ccmpany, !nc., Ba:timore (Food Procesring. Spices, etc.) e ~ NEW DIRECTOR NEW OFFICERS At its November meeting, the Board of Directors elected Effective September 1, Alfred H. Inners was elected Jerome W. Geckle, Chairman of the Board and - Treasurer and Assistant Secretary and effective President of PHH Group, Inc., to fill the vacancy created November 1, Charles W. Shivery was elected by the death of Julian S. Neal. Mr. Neal was an out-Assistant Treasurer. standing director of our Company for 15 years. u

i f t Executive Offices Gas and Electric Building. Charles Penter P.O. Box 1475, Ba:timore, Maryland 21203 Annual Meeting The annual meeting of stockholders will be held at 2.00 P.M. on April 24,1981, at the Company's Executive Offices, Ba:timore, Maryland. C inversion Agents Convertib!e Preference Stuck Chemical Bank, New Erk Mary.a.id National Bank, Balt;more Registrars Preferred and Preference Stock The Chase Manhattan Bank, N.A., New York Union Trust Company of Maryland, Baltimore Common and Conve%ble Preference Stock Morgan Guaranty Trust Company of New York Union Trust Company of Mary!and, Ba!timore Tr nsfer Agents Preferred, Preference, Convert;ble Preference and Common Stock Chemical Bank, New York Maryland National Bank, Baltimore i i 1 Upon written request to Alfred H. Inners Treasure' P.O. Box 1475, Baltimore, Md. 21203, th 3 Company will furnish without charge a copy of its Form 10-K annua' report !;ft:r it is filed with the Securit.es and Exchange Commission in March,1981.

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BALT!MORE GAS AND ELECTRIC COMPANY STATEMENT OF INCOME IIALANCE SIIEET Three Months Ended Siu Wnths Ended Twelie Montin Er June 30 June 30 June 30 June 30 1981 19M0 1981 1980 1981 1980 1981 19% tThousands of Inollars) ASSETb. tThousands of Inolltra) Operating Revenues Utility Plant.. $3,411,483 $3,213,861 Electric.. $208,665 $187,236 $126,135 $373,601 $ 309,795 $ 7 9,1 Less Accumulated Depreciation. 714.511 640.614 Gas..... 102,441 75,055 E60,580 198,852 416,465 317,31,* $2J26.939 $2,573.2C Steari.. 3,083 2.6H2 11.877 8.M4 17384 13.124 8.125 $ 7.890 Other 'ovestments.. Tota; Operating Rev?nues. $314.152 $2G1.973 $698.592 $580.990 $1.31-1.nli $1.070fG6 Currer.t Assets Operating Expenses Cash. 2,509 $ 4,187 Purchased Fuel and Energy. $125,732 $ 98,415 $297,052 $ 240,363 $ 535,524 $ 398,2P2 Accounts Receivable., 125,M3 111,874 59,287 51,402 117,672 102.568 232,115 !!Ni,210 Matedals.:nd Suppher. 146,674 134,809 Operations... '" 323 16,469 42,325 35,989 82,1G1 72,352 Other. 11,R16 12.181 Maintenance. 19,725 19.381 41,199 39,503 &t,87ti 80,797 $ 286.912 $ 263.051 Depreciation.. Deferred Fuel Costs. $ 45.142 $ 9.813 u t. 14,253 21,462 22,908 18,683 43,828 426 Other Deferred Debits. $ 39.139 $ 42.144 (2,603) (13,515) 11,619 2.396 32,576 39,851 Deferred. Investment Tax Credit Adjustments. 5,247 2,909 9,361 7,479 15,'"7 16,221 Total Assets. $3.106g 12.896.145 21.nt8 20,330 46.075 42.8:r-91.'La 85.215 CAPITAL AND LIABILITIES Other Taxes. Total Operating Expenses... $265.012 $219.853 $588.211 $189 H13 $1.118.514 $ 889.241 Common Stock and Retained Earnings Operating Income...... -. $ 49,110 $ 45,120 $110,378 $ 31,177 $ 225,500 $ 1x0,742 Common Stock. -.... $ 651,467 $ 629,035 Allowance for Other Funds Premium on Preferred Stock. 157 157 Used During Construction. 3,431 2,993 6,750 5,850 12.953 11,628 Retained Earnings... 396.526 312,203 Net Other Income and Deductions. 328 3?2 1.191 1.310 2332 2Ji49 $1.412.150 $ 971.395 - Income Before Interest Charges. $ 52.902 $ 48.435 $118.319 8 98.337 $ 211.185 $ 198.419 Preferred and Preference Stock $ 24,885 $ 23,442 $ 50,128 $ 46,776 $ 97,180 $ 90,234 Not Sul>ct to Mandatory Redemption Interest Charges... Allowance for Borrowed Funds Preferred Stock. $ 59,185 $ 59,185 Used During Construction.. (3.425) (2.912) (6.733) (5.692) (13.065) (10.402) Preference Stock.. 175,000 175,000 Convertible Preference Stock.. 7.214 8.033 Net Interest Charges. $ 21.460 $ 20.530 $ 43,395 $ 41.084 $ Rt.115 $ 79.832 $ 241.399 $ 242.218 $ 31,442 $ 27,905 $ 74,924 $ 57,253 $ 157,070 $ 114,587 Net Income.. Dividends-Preferred Redeemable Preference S och. $ 100f>00 $ fA 00 and Preference Stock. 6.897 5.528 12.413 11.058 23.455 21,795 Long-Term Debt Net Income Applicable to Common Stock. $ 21.515 $ 22,377 $ 62.511 $ 46.195 $ 133,615 $ 92,792 Mortgage Bonds and Debentures.. $1,269,865 $1,239,076 Unamortized Discount and Premium... (4,271) (3,935) Common Shares Outstanding (Thousands) Long-Term Debt estimated to be Average During Penod... 33,213 32,140 33,070 31,998 32,791 31,775 retired within one year.. (13,1r4) (51321) At End of Penod.. 33,277 32,212 33,277 32,212 33,277 32,212 $1.ro2A28 $L183A20 Earnings Per Common Share Current Liabilities (Average Shares). 0.74 0.70 1.89 1.44 $ 4.07 $ 2.92 Notes Payable.. $ 26.250 $ 35,900 SALES VOLUMES (Thousands) Accounts Payable.. Taxes Accrued.. 68,777 57,276 22,458 33,083 Electric-MWH.. 4,010 3,833 8,636 8,280 17,585 16,776 Interest Accrued and Gas-DTH.. 23,936 19,901 62,226 55,935 101,402 93,783 Dividends Deciared.... 63,017 57,212 376 362 1,143 1,141 1,995 1,956 Steam-M lb.... Long-Term Deb; estimated to be retired within one year.. 13,166 51,721 Other. 35.753 21.126 $ 229.421 $ 256.318 Def' - i Investment Tax Credits... $ 122,994 $ 109373 ne above interim statement contabs apportwnments and estimates of some items subjec. *ofinal adjustment at the calendar year-end_ Deferred Income Taxes.. $ 141.963 $ 72.387 Other Deferred Credits.. $ 12.902 $ 10.634 Total Capital and Liabilities.... .. p.106,257 $2.896,145

= - EXIIIBIT III Internal Cash' Flow Projection Page 1 of 2 for Calvert Cliffs Nuclear Power Station Percentage Ownership in All Operating Calvert Cliffs Unit No. 1 100.00% Nuclear Units Calvert Cliffs Unit No. 2 100.00% Maximum Total Contingent Liability ($000) $20,000 Twelve Months Twelve Months Ended 6/30/81 Ended 7/31/82 Non-Cash Expenses ($000) Depreciation and Amortization $133,792 $155,525 Deferred Income Taxes and Investment Tax Credits 45,797 28,923 Total $179,589 $184,448 Percentage of Total to Maximum Total Contingent Liability 897.9% 922.2% Retai'ad Earnings ($000) Net ^!ncome After Taxes $157,070 Less Allowance for Funds Used During Construction 26,018 Less Dividends Paid 85,039 Total $ 46,013 Total Internal Cash Flow $225,602 Percentage of Total Internal Cash Flow to Maximum Total Contingent Liability ,1128.0% State of Maryland) )SS: City of Baltimore) Mr. E. A. Crooke makes oath and says that he is Vice President of Baltimore Gas and Electric Company; that the above Projected Cash Flow was prepared under his direction and in go. a faith in accordance with the stated Underlying Assumptions; that he has examined the above projection, and to the best of his knowledge it is a fair representation of cash flow for the twelve months ended July 31, 1982. lAO".D

f. - --

l subscribed and sworn to befor - .c a Notary Public, in and for the State and { City above named, this f fC(y day of ( , 1981.. v' My Commission expires h /j/fD A (Atl IA i'.]A t<u

EXIIIBIT III PAGE 2 of 2 Baltimore Gas and Electric Company Underlying Assumptions for Projected cash Flow (1) Projected Cash Flow does not include an estimate of retained earnings. Ilowever, Internally Generated Funds without retained earnings are well in excess of the maximum possible retroactive premiums. The Company is expected to realize retained earnings net af Allowance for Funds Used During Construction during the projected period. (2) Depreciation accruals based on composito straight line rates of 3.26% for electric 3 property other than nuclear, 3.45% for nuclear property, 2.6% for gas, 2.!5% for steam and 3% for common utility property. (3) Estimates of Federal income taxes and other tax expense are based upon existing tax laws and any known changes thereto. (4) Accounting policies consistent with those in effect June 30, 101.

EXIIIBIT IV Baltimore Gas and Electric Company o'urtailment of Capital Expenditures Estimated construction expenditures in"luding nuclear fuel for the twelve months ended July 31, 1982 are $350 million. To insure that retrospective premiums under the Price Anderson Act would be available during the aforementioned '.welve month period without additional funds from external sources, construction curtail-ments would affect all construccion expenditures rather than impacting a specific project. _}}