ML20126K055

Annual Financial Rept 1980

ML20126K055
Person / Time
Site:	Calvert Cliffs
Issue date:	02/04/1981
From:	BALTIMORE GAS & ELECTRIC CO.
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NUDOCS 8105110192
Download: ML20126K055 (46)

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The bright lights of Baltimore's new Harborplace foreshadow a dynamic future for the city. They also signal a growing need for energy in action. This expanding energy requirement is typical of the picture throughout BG&E's service area in Central Maryland.The Baltimore Gas and Electric Company 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 A LTIMORE GAS AND ELECTRIC

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HIGHLIGHTS 1980 1979 1970 Earnings Per Share of Common Stock

$3.64

$3,40

$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 Applicable to Common Stock

$ 117,300,000

$ 106,532,000 46,082,000 Dividends - Common Stock 80,754,000 75,373,000 30,148.000 Earnings Reinvested in the Business 36,546,000

$ 31,159,000 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

'one deka'herm (Dth) equais 1,000.000 Bnt sh thermal units, or 1,000 cubic feet (Mcf) of gas w.th a heating value of 1,000 Blu per cubic foot.

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

$4 00

$350 contents

$3.00 Hig%ghts 1 The Chairman's Letter. 2 The President's Report. 4

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Financia! Statements. 28 1970

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'80 Notes to Fnanciat Statements. 33 I

I Earnings Per Share Iz.

il Dividends Declared 4

orectors and omcers 44 1

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THE CH AIRM A N'S LETTER TO OUR STOCKHOLDERS BG&E opened the decade on a note of progress and strength. We improved earnings, increased our common stock dividend and won approval 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 always prided ourselves on providing responsible leadership 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 costly. 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 domeshcally produced natural gas can easily reso!ve 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 energy, the Company is committed to helping our customers understand that this cour,try need not sacrifice growth because of a scarcity of resources.

The Company has prospered in these difficult times because we have instilled a tradition of leadership in our management team. BG&E has long recognized that for a utihty 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 influence them. Yet in this increasingly volatile world we must be prepared for the unexpected. We need to remain flexible, keeping our minds and options open to change.

We must be able to alter our plans quickly when political, economic or regulatory events so dictate.1980 was a year marked by economic uncer-tainties. We faced a volatile bond market, unprecedented short-term interest rates, and, of course, in!!ation. Yet because of the flexability built into our financial planning, past decisions with respect to scheduling expansion of electric generating capacity, maintaining a sound capital structure and aggressively seeking rate relief, we have strengthened 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 reasonable 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 adversely by continually higher operating costs, it is the capital intensive nature of electric utilities that makes our industry especially vulnerable to inflation. The need to meet increasing demand for our services requires the addition of new facihties at costs that are dramaticaly higher than the average cost of previously constructed facilities. This situation is further aggravated by the unprecedented high financing costs demanded in today's capital markets.

The Public Service Commission of Maryland 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 g

1979, the Commission last June granted the Company $94 million in "iF increased rates, the largest dollar figure it has ever awarded. But even this s

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

was a mechanism to offset inflation. As a partial solution, however, the Commission suggested in its Opinion that the Company file for additional g

relief under the make-whole provision of the Maryland statutes. We did so in ff September and on December 22, the Commission granted the Company

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

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l Unfortunately, the make-whole proceeding is based upon the same flawed assumptions as the regular rate case. It utilizes past costs to deter-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 that the Commission appreciates our need for a more realistic mechanism to cope with inflation, and we are hopeful that such an approach will be developed. Until then, it will remain our policy to pursue rate increases actively whenever we deem them necessary.

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

actively in the political arena. Decisions made at the Federal, state and local levels greatly affect our Company, our shareholders, our employees, and our customers. BG&E works with community organizations, as well as I

legislative groups and regulatory agencies throughout the government, to protect these interests. Through our offices in Washington and in Annapolis, we are able to help develop the legislation that will affect the utility industry in general, and the Company in particular. BG&E intends that its voice l

and yours will be heard as the critical energy decisions of our time are made.

The next ten years will be demanding. They will require that we continue to be flexible in response to change, efficient in managing our economic resources and creative in developing and utilizing new technologies to serve our customers' needs. BG&E is prepared to grow with those challenges. Our greatest strength lies neither in our facilities nor our management philosophy. Our success rests on the efforts of the I

talented, motivated and loyal people who work for BG&E. The vast majority of them play a dual role for the Company as stockholders and employees.

Thanks to all of thern, we have achieved many of our past goals and Icok forward to the future with confidence. It is to the employees of BG&E I

that this report is dedicated.

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f Chairman of tne Board February 4,1981

THE PRESIDENT'S REPORT ON OPERATIONS TO OUR STOCKHOLDERS Our goals at BG&E have been and always will be to furnish a reliable supply of electricity and gas at rates that are fair to both our custcmers and our investors. I am pleased to report that within the restrictions placed upon us by economic 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 C!iffs supplied 59%

of our customers' total electric requirements in 1980, producing fuel-cost savings of many millions of dollars for our custorners. Thb is one of the major ways the Company is helping its customers to figFt inflation. BG&E is committed to achieving the highest level of efficiency at Calvert Cliffs.

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

Total sales of electr1 city 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 new record, a direct result of Central Maryland's unusually hot summer weathe., 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 compensated for the 1 % drop in commercial and industrial sales which reflected the slow down in business activity in our service area.

Calvert Chffs G ves a sufficient reserve margin so that we do not have i

an urgent need to increase our electric generating capacity. Consequently, we have been able to develop a manageable construction program to meet our customers' growth needs over this next decadc. 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 next ten years.

During tnat 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 fuelin the Com-pan /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 Crano and assist Baltimore County with its waste disposal problem.

As a complement to our strategy to replace oil, we are planning to expand our hydroelectric generating capacity at Safe Harbor over the next few years. The Safe Harbor Water Power Corporation, which is two-thirds l

owned by BG&E, has received a 50-year renewal of its Federal license to operate a hydro power plant on the Susquehanna River in Pennsylvania. The license renewal also contains approval for Safe Harbor to expand its generat-ing capacity by 150.000 kilowatts and our customers will benefit from our two-third 3 share of the added hydro power.

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I Our realistic construction program will allow us to hold our expenditures for construction and nuclear fuel to reasonable levels. The Company expects to be able to generate internally over 50% of the funds we will need, giving us excellent flexibility to develop financing arrangements for the remainder

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through the capital market, the Company's Dividend Reinvestment and l

Stock Purchase Plan and the Ernployee Stock Ownership Plan.

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

Thus, although unit gas sales increased only 1.8% this year, reflecting l

customer conservation efforts and the general business conditions in our area, we expect sales to improve in the future.

Although gas supplies are more plentiful, the cost of gas itself continues 1

to increase. In past years, the Company's earnings have had to absorb the 6

f impact of frequent price increases charged by our pipeline suppher since, under the terms of the Purchased Gas Adjustment Clause of the Company's

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Service Tanff, we weren't able to collect the extra costs from our customers immediately. Elfective October 1,1980, the Company adopted a revised Purchased Gas Adjustrnent Clause which allowed us to defer those costs.

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 a

them in a number of conservation and research programs. BG&E was among

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the first utilities in the Nation to implement a home energy audit service. By the end of 1980, we had performed a total of 4,350 audits on Central Mary-land homes, all at no or nominal cost to the customer. The Company is currently trying to dclermine whether solar hot water heating can be a cost-3 effective alternative in our area. Later sections of this report will discuss our other activities in energy conservation, research and development.

1 invite you to read in the pages that follow a more detailed discussion of BG&E's financial and corporate achievements in 1980 and our plans to i

meet the energy needs of the future. Dased on the Company'; performance during the past year, I believe we can look forward with confidence to the fulfillment of our goals for the 80's.

I President l

February 6,1981

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, deferred previously authorized by the Com-

$12.6 million 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 mission authorized the 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, employee benefits and total amount and $21.3 million 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 million and ex-additional revenues was received annual electric revenues by $19.0 penditures for nuclear fuel in 1981 in June.

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

$4.8 million or 1.4%, and steam FURTHER RATE RELIEF of $24.9 revenues by $1.1 million or 7.6%.

Construction Expenditures

• • "**D""S' million was granted to the Com-pany in December.

Purchased Gas Adjustment With the advent of a series of gov-Rite Relief ernment-instituted increases in the 3@

As a result of an application for price of natural gas, the price of g

higher base service rates, filed in gas to the Company has been

_M-2, November 1979. the Public Service steadily increasing. The lag in col-

,ye7 %,

g Commission of Maryland awarded lecting such price increases the Company $93.6 rnillion of addi-through our Purchased Gas Adjust-g"J g tional annual revenue. Of this ment has depressed the Company's W

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

P electric, a 10.4% increase, $18.2 year. The Public Service Commis.

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a 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 to our control over the cost of gas, issued steam business. The new rates an Order in September 1980 author-became effective with service izing such companies to elect a rendered on June 13,1980.

revised Purchased Gas Adjustment The Order, however, failed 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 attntion. To meet this 12-rnonth period ending November 30 and recovered over the subse-problem, the Company filed a m Ae-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 law 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 7

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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 12% % First issues short-term debt to provide ployee 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-ployees to acquire shares of the the year, the Company issued poses. Short-term capital needs Company's common stock. The

$15 million 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 operetion of the Com-covers a $15 million 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 common equ4 BG&E's Dividend Reinvestment and of $20 million of 6.80% Pollution Stock Purchase Plan provides com-Control Revenue Bonds by Anne mon stockholders the opportunity Total Utility PLmt Arundel County in September to purchase additional shares of 1979. The remainder of the pro-su common sM M.cuy hom me ceeds will be available to the Company without brokerage fees.

Company in 1981.

The Plan offers common stock-

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N conversions of Convertible Cumula-of common stock at a 5% discount

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debentures amounting to $15.1 Plan and are reinvesting dividends a vi 72 73 n n 7s 77 vs 79 w 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.

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l ENERGY AT

' BARGAIN PRICES ElIctricity 111%. 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 Marylad. 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 of has received to combat the effects rate.

gas for all uses is 5% to 48%

of inflation on the Company's higher elsewhere on the East Coast operating, construction and capital Average Rate Per Kilowatthour than 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.

5.90 All Customer Categories unit price of electricity decreased AUantic City, N.J.

6.30 Full Year 1980 23% while the cost of living index Philadelphia, Pa.

6.35

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8 for the Baltimore Metropolitan Area

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3.04 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

'lD 4j Auani w,blng n more than one-third over the 1960 Newark, N.J.

45.01 Gas price. During the same time, the Boston, Mass.

50.48 cost of living index jumped by 85%.

BG&E has no control over the price New York, N.Y.

54.87 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-electricity and the cost of living stalled by the Federal government Residential Unit Price indices continued to widen. By in 1954 have held the price of Compared With Cost-of-Living 1980, the price of electricity was natural gas far below its true market Baltimore Area up 82% over the 1960 figure while value, creating a serious gas short-Ir*x 1960 ewam 100 the cost of living index had soared age for the Nation. This shortage P RCFNT 178 %.

prevailed through the 70's and ulti-j m tely forced a series of Govern-(

Thanks largely to the efficient 30 ment instituted increases in the operation of the Company's Calvert rice of gas, resulting in the adop-200 Cliffs Nuclear Power Plant, BG&E's tion of a phased-in price deregula-

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price for electricity over the past

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tion plan as a part of the National tso 20 years has increased less than

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Energy Act of 1978. By 1980, the

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half as much as the cost of living continuing annual increases under too 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 2

watthour of electricity sold to all customers to increase by 182%

customer categories for the year over the average price paid in 1960, i9w u 3.n 3 3 3 3 3 77 3 3 3o 1980 was the lowest among major approximating the rise in cost-of-Consumer Price Index -

East Coast cities from Norfolk to living index for the period.

Baltimore Area - All items i

Boston. The average rates else-Yet when compared to fuel oil for Residential Unit Costs-where exceeded BG&E's by per-

~ ^ - Electric househeating purposes, BG&E's contages ranging from 6% 1 average residential price of gas remains a bargain. Househeating yy

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ENERGY FOR TH E 8.O's Most corporations need not plan We are looking primarily to coal Sales of Electricity decades ahead but an electric to fill the gap. The two-unit Charles yHa na f KH watthours) utility must. We need from 10 to 15 P. Crane Power Plant, with a total lllllllllll years to build a power plant. There-capacity of 400 MW, is expected 8l jl j l l l l f'l j

fore, we must have some idea of to be converted to operate on l l I I I I I I I I

a "l l ll l ql ql [;t 4 4 l d -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

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result, growth in sales of electricity savings, after providing for an has slowed from a 7% growth increase in operating costs and

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since 1975. This year, while sales ment, will be passed on to our 7

to residential customers rose 9%,

customers. We anticipate no prob-0 reflecting the hot summer weather, lems in obtaining a long-term y

• j'ind strial industrial sales dropped 1%

supply of coal adequate to comply commercial influenced primarily by reduced with the changes in air quality M Residential steel production. Our current regulations approved by the Envi-forecasts indicate an annual ronmental Protection Agency.

growth rate of about 3.4%in total As important as coal is becom-clectric sales through 1990 and ing, we believe that nuclear power that electric peak loads will grow offers the best solution to the at a 3% annual rate during the Nation's current energy problem.

same period.

BG&E's experience at Calvert Cliffs Full Sources substantiates this position.1980 To serve this expected growth and marks the sixth year of outstanding still remain flexible will require a performance for Calvert Cliffs. The varied generation mix. The Com.

two nuclear units, with a total pany firmly believes, hc vever, that generating capacity of 1,635,000 the backbone of our Nat,an's fuel kilowatts-about % of the Com-supply for electric generation must pany's total generating capacity-be nuclear power and coal. These produced 59% of our customers' two fuels are the only viable alter.

total electric requirements 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 savings utility industry leader in moving have totaled $1.2 billion, substan-away from oil. By 1990, we intend tially exceeding the initial plant 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 tho only reasons the Company Carter in 1979.

supports nuclear power. It is not a l

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Nuclear Safeguards our operators reduce that risk even Sales of Gas To ensure that Calvert Cliffs further.

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remains safe and officient, we are ConstmcHon continually modifying the plant's The Company's reserve generat,ng 0ol { ]

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by the Nuclear Regulatory Com-to see us into the next decade, mission; some we designed and 30 We estimate the total cost of the implemented on our own. Addi-Brandon Shores Power Plant to be 20 tional costs were incurred for more

$1.1 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 burn coal.

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cons & raw higher had we not A plant simulator has also been rigin ly des,gned the plant in i

ordered for Calvert Cliffs.

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• th the capability of burning Scheduled to begin operation ch o.d or coal in late 1983, it will be an exact replica of 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 refresher 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 pipeline portantly, the simulator will allow supplier, Columbia Gas Transmis-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.

large role in the consequences of Although our therm sales of gas an unusual occurrence in a nuclear in 1980 increased only 1.8% over plant. Through the use of a digital 1979, preliminary indications point computer, the simulator will allow to a higher growth potential over our people to practice emergency the next five years, coming from 1

procedures in "real" situations.

conversions to gas from other The trainee willlearn not only which heating fuels. Conservation efforts i

procedures provide 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 large emergency, The chances of any com nercial and industrial sales, in significant accident occurring at order to minimize Company invest-Calvert Cliffs are already extremely ment in gas equipment, we are

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CONSERVATION AND RESEARCH FOR TODAY... AND TOMORROW CONSERVATION BG&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 seem 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 available 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 pendently and in collaboration with officiently. 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 implernented a comprehensive materials consumers can purchase the Company is working on a five-year conservation plan.1980 and install on their own-we plan number of projects to identify and was the hrst 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 100,000 customers-and bill Tha Residential Conservation 1980, our research and develop-inserts and media advertisements S:rvice Program roent expenditures exceeded $5 detailing fuel costs and ways to million' The main feature of this prograrn use energy wisely.

is a thorough, in home energy Solar Energy audit. We expect to perform up 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? l'o signed to fit the needs of specihc answer that question, BG&E has Th2 National Energy Watch industrial and commercial cus-established a scly monitoring net-Program tomers. We abo give instructional work to measure the amount of Developed for the electn,c utility courses to local officials to explain solar radiation available at various industry by the Edison Electric the ramifications of the Department locations within the Baltimore area Institute, this was the country's first of Energy's Building Enetyy Per-We are testing' a solar water-heating nationally organized conservation formance Standards as they evolve.

system in a private residence as a effort. The program uses Company We are planning over 18 different supplernent to an oil-fired water inspectors to certify new homes programs during the next four heater and have installed another and businesses as energ' y efficient Y

larger test system in one of our if they meet a set of strict thermal A

sory SeMees service centers to furnish hot water guidelines. By 1985, we hope that Company representatives parh.ci-f or work crews. The Company has over 25,000 homes and businesses p te on advisory comrnittees for started a program of monitoring will have qualified.

various official weatherization and customer-owned residential solar conservation programs 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 solar n,earis. Mainte-industrial associations.

nance records will provide a com-Over the next few years, the parison of reliability of performance Company will be performing 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.

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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 commitment to surner acceptability. Ultimstely, we resource, coal does have environ-nuclear energy, the Company has expect to monitor 30 installations mental drawbacks. It is not a clean also participated in the Clinch River for about two years. The findings fuel. It can, t aver, provide the Fast Breeder Reactor Project at from these studies will help base for clean synthetic fuels.

Oak Ridge, Tennessee. Successful the Company-and our customers BG&E is currently investigating a completion of this project would

-determine the role solar energy number of these synfuel develop the technology for 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 opportunity ing, the Company's mission is to gram to develop a successful toward attainment of national energy offer our customers the right energy incans of converting coalinto a independence. This project has source and technology to fit their liquid fuel. The process has been delayed over the past few needs. Preliminary results of our been operating on a small scale at years due to lack of support and solar studies indicate that for at Fort Lewis, Washington, with en_

funding 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 development will be a demon-Administration in Washington may not be economically feasible. To stration plant to be built at Morgan _

take a more enlightened approach assist thern, the Company is cur-town, West Virginia, capable of to this project and, with Federal rently testing the heat pump hot processing 6.000 tons of coal per g vernment 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 p rticipation along with other is located. Our researchers are product liquid over a five-year electric utilities.

hopeful that this device will be a period beginning in 1983.

Our Future Commitment cost-effective alternative for many The Company is one of approxi.

We do not yet know which research of our customers.

mately a dozen utilities to partici.

projects will eventually perfect the The Fuel Cell pate in a five-year, $135 million technologies to give this country At the national level, the Company demonstration plant project for the energy independence in ways that is participating in a three-year 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 Institute to test Allis-Chalmers, the process known active role in the development of and evaluate fuel cells for comrner.

as Kilngas uses a rotating kiln to clean, safe and econornical energy cial use. Fueled by natural gas, convert the coal to gas. The technology.

these cells can effectively provide demonstration system will be ca-electric power 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-Chalmers, the utihty grid. The interconnection will State of Illinois and the participat.

allow the fuel cell both to take ing utility companies, including energy from the grid when its BG & E.

produchon falls short and to sell it back when excess fuel ce!I power is available.

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P'UBLIC LEADERSHIP i

f The Company's role in Central Effective Community Relations Speaking Out Maryland extends far beyond sup-The Company has long been But the Company is not involved piying ener0y. BG&E and its per-aware of the importance of elfec-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 problems. BG&E has the economic health of our Nation Ours is a city in renaissance, and experienced excellent results with and our service area. In the past, we are 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-mont of our energy problems on economic development and urban tions and applies the same concept the Federal level. We spoke out revitalization, BG&E ls helping indi.

to civic involvement. Company sharply against the apparent efforts vidual businesses to expand and personnel at alllevels meet regu-of the Carter Administration to de-state, county and city officials to larly with leaders of citizens

• orga-ce 1tralize energy production and to attract new industry-and new nizations to talk with them about rei / on as yet unproven technol-jobs-to Maryland.

how they perceive the Company ogas Central station power plants and what BG&E can do to help fueh i by nuclear power and coal The Energy Coalition them address needs they encounter are, and will continue to be for the The Company has also taken n the community.

foreseeable future, essential ele-some nontraditional approaches Realizing that Company em, ments for this country's industrial to community problems. As th growth. BG&E knows that many ployees are leaders in a broad range of community affairs, BG&E jobs would be lost in Central i

energy crisis deepened, literalty dozens of Oroups in the Baltimore saw the opportunity to help them Maiyland alone if the Company did area were trying to do something aid their fellow citizens. Our Com.

not have the generating plants to munity Volunteer Program assists produce a reliable supply of power.

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BG& n ated th etrop li n employees,n recruiting other vol-As we move into the 80's, i

Baltimore Energy Coalition. Today, unteers from the Company to par-BG&E and its employees are pro-more than 40 government, busi-ticipate in community organizations pared to continue the tradition of ness, institutional and civic organi-nd provides any publicity the providing creative, dynamic leader-zations are working together to group might need. As usual, BG&E ship to the utility industry and to the develop conservation a id energy pe pie have been eager to share community.

education programs and pohcies.

their time and talent.

Turning Waste into Energy An involved Company Like many areas, Baltimore has a Being a community leader today shortage of landfill space. Working means involvement in the political with the Maryland Environmental arena. The Company works with Services and Baltimore County, the state legislators in Annapolis during Company developed a project to the General Assembly sessions. It tum some of the cornmunity's has expanded its Public Affairs waste into energy. During 1980, we office ir Washington, D.C. Through test burned over 2,300 tons of its work on the state and Federal refuse-derived fuel-processed levels, BG&E is contributing to the trash-at our Charles P. Crano development of legislation and Power Plant. Thn initial results were pohcies that will Orcally influence encourag!ng and BG&E is hopeful the entire energy industry.

that further tests will establish RDF's potential not only as a cu %n mm ne, racma%m-w cheap, renewable source of fuel, fygag'jg,"ygyg but as an important solution to the uwnunmanrnoc e aten neanu solid weste problem.

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BG&E EMPLOYEESi.

OUR MOST VALUABLE ASSET 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 professions, ployees to invest in the Company's Company' offers programs to al'on skiks and talents, all directed to a future and provide a stimulus for its people to identify the level ano common goal, to ensure that our increased individual productivity.

kind of work right for them. In order community has the energy it needs We are proud that more than 80%

tur thern to be able to reach their to grow and prosper, The 8,600 of our employees are BG&E share-goals and potantial, BG&E provides employees who work for BG&E are holders.

counseling, training programs and BG&E has always emphasized career planning. Further, the Job our most valuable asset. Unlike machinery or capital, this asset education and career development.

Opportunities Plan, known as job doesn't show up on the balance Our employees recognize that the posting, keeps employees informed sheet, but it's there nonetheless.

complexities of the modern energy of opportunities throughout the industry require increasingly higher Company for advancement or Credit for our achievements in 1980 and every year goes to the efforts levels of knowledge, train'ag and changes of career paths. During of the people of BG&E.

cornpetence. 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-recognizes the dedication and made use of the Company's Educa-ments, resulting in improved pro-ability of our employees. Each year, tional Assistance Plan to improve ductivity, higher morale, and greater J

thousands of customers cc*.;t the job-related skills, and to prepare self-development.

Company to preise the cerarmance themselves for advancement. Dur-BG&E employees contribute and attitude of GG&E workers, ing 1980,620 crnployees attended significantly to our community, as whether they are restoring service schools and colleges under the well as to our corporate goals. Their after a storm or some ca,er plan and 29 received degrees. In leadersnip and services benefit disaster, or just providing normal addition, hundreds of others par-many volunteer organizations in services.

ticipated in training programs Central Maryland such as chambers In an era when productivity in provided w; thin the Company, of commerce, schools, hospitals, America is being criticized, BG&E These progrtms provide special.

churches, local fire companies, and 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 bcth the Honor dedication. In addition to substan.

and service oersonnel 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 managerial occupations. Brcad job-related increasing their contribution by p

and supervisory decisions rnade in educational courses in supervision, more than 14% over the previous the normal course of business, economics, safety and public y; < They donated nearly 2,750 work smarter suggestions from speaking are also conducted by

,JnL 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 39.000 pints.

savings of S200,000 in 1980.

develop future managers. BG&E in countless ways, we are grateful BG&E employees distinguished identifies its ablest people and pro-to our people for their service to themselves also in practicing safe vides them witn a variety of experi-the Company, its customers and work procedJres. Three major onces thrcughout the Compary, the community.

departments ehch earned the They are also given responsibility, Ediscn Electric institute-American both to help them grow and to Cas Association Safety tuvara in eHow our top management to 1980 for working 1,000,000 man-eva!uate their potential, Making

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sure that the Corr any will always N c== = wd ev neo.cero mv have a cadre c. wented and experi-eEEM((%%$'$$

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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, cflective mid-April 1979, whereby AFC is computed of payroll, employee benefits and materials. In 1980, on the total, instead of one-half, of the Company's such expenses include $4.6 million in increased costs investment in that plant (see Note 4).

at the Calvert Cliffs Nuclear Power Plant, resulting The 1980 increase in Not 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, and greater scheduwd on debt reacquired through sinking fund operations.

maintenance at various fossil-fuel renerating plants. In Interest charges increased due to sales of additional 1979, the increases reflected additional costs at Calvert securities. The issuance of 500,000 shares of Redeem-Cliffs due to more extensive inspections, modifications able Preference Stock in July 1979 resulted in the and equipment repairs; more repair work related to increase 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 Company's internal generation of cash approximated 60% of expenditurec r.. Oderal Income Taxes-Current increased in 1980 due for construction and nuclear fuel.

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 estimated expenditures for construction and nuclear attributable to the lower level of taxable income and the fuel for 1981 and 1982 are set forth below:

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

$172

$57

$229 connection with an audit of the years 1974 through h

2}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 from 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 certain other timing differences may vary from the estimates set forth above because between tax and book income. The majority of the of a number oi 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 partially 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. The 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 expen2ures at the Calvert Cliffs Nuclear Power Plant remainder will be provided through the capital market, and deferred fuel expenses under the Company's the Company's Dividend Reinvestment and Stock electric fuel clause (see Note 3).

Purchase Plan and the Employee Stock Ownership Investment tax credits vary from year to year as con-Plan as well as short-term commerciai paper on an struction expenditures become eligible for the credit.

interim basis.

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 Suicharge and the repeal of the Pennsylvania The Cc npany's capital structure as of December 31 Gross Rece, pts Tax on the sale of electricity to out-of-i

.is presented Wow:

state customers effective January 1,1980. The 1979 1980 1979 increase was primarily attributable to a higher taxable wage base for social security taxes (see Note 8).

[edIem ference 'S'tEk'..

le Pr erred nd efere c ock Other income and income Deductions The increases in the Allowance for Funds Used During Common Equity.

38.8 38.3 Construction (AFC) in 1980 and 1979 are attributable The high rate of inlation continues to be the Com-to continued construction at the Brandon Shores Power pany's and the Nation s major problem. Future rate increases will be required to cover increasing operating costs and to obtain an adequate return on investment (see Note 18).

STATEMENTS OF INCOME BALTIMORE GAS AND ELECTRIC COMPANY Year Ended December 31 1980 1979 1978 (In Thousands of Dollars)

OPERATING REVENUES Electric.........

$ 857,264 '

$ 714.956

$697,173 Gas....................................,

354,736 287,074 264,586 Stea m...............

14,442 12.378 12.727 j

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 income 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 INCOME AND DEDUCTIONS.

2,851 1.698 739 INCOME BEFORE INTEREST CHARGES..

221,203 204.697 202.189 INTEREST CHARGES....

93,828 86,159 83,228

' ALLOWANCE FOR BORROWED FUNDS USED DURING 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 STOCK

$ 117,300

$ 106.532 S104,364 EARNINGS PER SHARE OF COMMON STOCK

$3.64

$3.40

$3.38 (Based on average shares 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 139,399 126,316 122.541 Total 474,535 430,577 T91.955 CASH DIVIDENDS DECLARED Preferred Stock (Cumulative)

Series B (at the rate of 4% % per annum) 1,003 1,003 1.003 Series C (at tN rate of 4% per annum)...

276 276 276 Series D (at the rate of 5.40% per annum) 1,620 1.620 1,620 Preference Stock (Cumulative)

Convertible (at the rate of 6h % per annum).

519 635 784 1970 Series (at the rate of 8.75% per annum) 1971 Series (at the rate of 7.88% per annum) 2,625 2,625 2,625 3,940 3,940 3,940 1972 Series (at the rate of 7.75% per annum) 1973 Series (at the rate of 7.78% per annum) 3,100 3,100 3,100 1,556 1.556 1.556 1974 Series (at the rate of 9 35% per annurn).

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

$2.56 thereafter) 80,754 75,373 69,467 OTHER CHARGES-Expenses in connection with issuance of stock 39 284 50 Total Charges.

102.892 95.441 87,694 BALANCE AT END OF PERIOD,

$371,643

$335,136 5304.261 see notas and 4nedutes - tages 31 inrough 43 26

l BALANCE SHEETS BALTIMORE GAS AND ELECTRIC COMPANY ASSETS December 31 UTILITY PLANT 1980 1979 Plant in service (In Thousands of Dollars)

Electric-at original cost

$2,250,921

$2,1 C5,107 Gas-at original cost 327,526 310,127 Steam - at cost 19,291 18,753 Common-at original cost 101,325 92,042 Total plant in service 2,699,063 2,586,029 481,257 384,885 Construction work in progress-at cost.

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 utility plant.....

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 2,514,986 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 Fuel stocks - at average cost.....

90,909 76,594 Materials and supplies-generally at average cost 55,380 40,344 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 69,233_

64,250 TOTAL ASSETS

$3,073,013

$2.855.984 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 371,6_43_

335,136

,,_1,010,941 953,161 PREFERRED AND PREFERENCE STOCK NOT SUBJECT TO MANDATORY REDEMPTION Preferred stock - Schedule, page 31..

59,185 59,185 Preference stock-Schedule, page 31.

175,000 175,000 Convertible preference s'ock - Schedule, page 31 7,621 8.568 241,806 242,753 I

AEDEEMABLE PREFERENCE STOCK-Schedule, page 31 50,000 50.000 I

LONG-TERM DEBT i

Mortgage bonds-Schedule, page 32 1,271,570 1,215,732 Debentures - Schedule, page 32 33,400 34,400 Unamortized discount and premium.

(4,337)

(3,864)

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 24,836 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 j

Deferred income taxes 93,344 69,991 i

Other,

5,588_

5,113 214,322 179,045 COMMITMENTS AND CONTINGENCIES - Note 14 TOTAL CAPITAL AND LIAB!LITIES

$3,073,013

$2 855.984 cee rm am e rewt

-t w,31 m ;.n d

STKfEMENTS OF CHANGES IN FINANCIAL POSITION BALT MORE GAS AND ELECTR:C COMPANY Year Ended December 31 1980 1979*

1978*

(In Thousands cf Dollars)

SOURCE OF FUNDS Funds from Operations:

Net income....

$139,399

$126,316

$122,541 Depreciation and amortization 119,647 96.252 87,144 Investment tax credit 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)

Subtotal.....

281,795 271,161 236,893 Funds from Outside Sources:

Long-term debt 88,883 53,789 74,193 Common stock 21,234 15,796 10,062 Preference stock (deduction-conversions)

(947) 47,053 (2,035)

Short term debt-net (18,750)

Other - not 336 296 414 1

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 Common stock dividends 80,754 75.373 69,467 Preferred stock dividends 2,899 2,899 2,899 Preference stock dividends 19,200 16,885 15.278 Retirement of long-term debt 35,162 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)

Federal income taxes payable (34,438) 26,758 (6,561)

Other - principally net change in other working capital items (11,319)

(19.846)

(11.983)

Total

$391,301

$388.095

$300.777

• Restated to conform with 1980 presentation.

see nues ana acheues - rages m m s o AUDITORS' REPORT 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 income, retained earnings and page 43), present fairly the financial position of Baltimore changes in fnancial position for the years ended December Gas and E!ertric 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 accordance with generally accepted auditing standards and, position for the years ended December 31,1980,1979 and accordingly, included such tests of the accoun:ing records 1978 in conformity with generally accepted accounting and such other auditing procedures as we considered principles applied on a consistent basis.

necessary 'n the circumctances.

6 WLV f G.,AM1.'l Baltimore, Maryland January 21.1981 o

)

M' SCHEDULES'OF OUTSTANDING STOCKS 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 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 authorized:

Series B 4W % -222,921 shares outstanding

$ 22,292

$ 22,292 (Callable at $110 per share.)

Series C 4 % - 68,928 shares outstanding 6,893 6,893 (Callable at $105 per share.)

Series D 5.4 % - 300,000 shares outstanding 30,000 30,000 (Callable at $102.50 per share prior to April 1,1982 and at lesser amounts thereafter.)

Total Preferred Stock

$ 59,185

$ 59,185 Preference Stock (Cumulative) - $100 par value - 3,000,000 shares authorized:

Convertible,6W % 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 thereaf ter.)

7,75 %,1972 Series - 400,000 shares outstanding 40,000 40,000 (Callable at $105.50 per share prior to October 1,1982 and at lesser amounts thereafter.)

7.78 %,1973 Series - 200,000 shares outstanding 20,000 20,000 (Cellable at $105.50 per share prior to December 1,1983 and at lesser amounts thereaf ter.)

9.35 % 1974 Series - 350,000 shares outstanding 35,000 35,000 (Callable at $110 per share prior to April 1,1984 and at lesser amounts thereafter.)

Total Preference Stock

$182,621

$183,568 REDEEMABLE PREFERENCE STOCK (Cumulative)-

$100 par value - 500,000 shares authorized:

8.375 %,1979 Series - 500,000 shares outstanding

$ 50,000

$ 50,000 See Notes 10 and 11 31

SCHEDULES OF OUTSTANDING BONDS & DEBENTURES DALTIMORE GAS AND ELECTRIC COMPANY December 31 1980 1979 (In Thousands of Dollars)

FIRST REFUNDING MORTGAGE BONDS 4%% Series, due June 1,1980 S

9,361 Series W 2%%, due June 15,1980 10,695 Series U 2%%, due Apnl 1,1981 39,063 39,063 10% Series, due July 1,1982 90,202 90,202 10W % Series due September 15,1983 41,677 41,932 Series V 2%%, due December 21,1984 19,123 19,123 Series X 2%%, due January 15,1986 24,317 24,317 Series Z 3%, due July 15,1989 36,754 36,754 12W % Series, due September 15,1990 75,000 3% % Senes, due December 1,1990 29,682 29,682 4%% Series, due July 15,1992 25,000 25,000 4% Series, due March 1,1993 24,095 24,095 4% % Series, due July 15,1994 29,989 29,989 5%% Series, due Apr!! 15,1996 26,680 26,680 6% % Series, due August 1,1997 24,967 24,967 5%% Installment Senes, due August 15,1998 67,000 67,000 7% Series, due December 15,1998 28,705 28,705 8% % Series, due September 15,1990 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 7W % Series, due July 1, 2002 50,000 50,000 5% % Installment Senes, due July 15.2002 12,500 12,500 7W % Series, due September 15,2002 50,000 50,000 8b % Series, due February 1, 2004 74,986 75.000 6.80% Series, due September 15,2004 15,000 9% % Series, due August 1,2005 15,639 17,036 83/8% Series, due September 15,2006 75,000 75,000 8% % Series, due September 15,2007 75,000 75,000 9%% Series, due July 1, 2008 62,560 75,000 6 90% !nstanment Series, due September 15.2009 55,000 55.000 Total First Refunding Mortgage Bonds

$1,271,570 51.215.732 DEBENTURES 4ra % Sinking Fund Debentures, due.'une 15,1986

$ 12,400 S 12.800 4%% Sinking Fund Debentures, due August 1,1990 21,000 21.600 Total Debentures

$ 33,400

$ 34,400 see Nme u e

RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the integrity and objectivity Coopers & Lybrand, independent certified public of the Company's financial statements. The financial state-accountar,ts, are engaged to examine the financial state-ments are prepared in accordance with generally accepted ments and express their opinion thereon. Their examination accounting principles 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 internal controls. Their judgments of known conditions.

report appears on page 30.

The Company maintains an accounting system and The Audit Committee of the Board of Directors, which related system of internal controls which are designed to consists of three outside Directors, meets periodically with provide reasonable assurance that the financial records are Management, internal auditors and Coopers & Lybrand to accurate and that the Company's assets are protected. The review the activities of each in discharging their responsi-Company's staff of internal auditors, which reports directly bilities. The internal audit staff and Coopers & Lybrand to the 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 STATEMENTS Accounting Policies:

The accounting 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 covenng its regular employees.The funding of the below:

Company's pension plan is through a deposit adminis-1980 1979 tration medium with an immediate participation guaran-(In Thousands of Dollars) tee feature, employing the aggregate cost method. In Actuarill present value of 1980,1979 and 1978, the Company's cost for pensions fehd ate pl n benefits:

totaled $16.167,000, $13,563.000 and $13,412,000, Nonvested 6,571 5.367 respectively, of which $13,114,000, $11,081,000 and

$136,484 5116 433

$10,720,000 respectively, were included in expenses.

Net assets availab!e for benefits

$206,044 5181,250 The remainders wete charged to construction. The increase in 1980 is the result of changes in benefits and The assumed investment rate of return used in deter-higher payrolls, while the increase in 1979 is the net mining the actuarial present value of accumulated 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 resulting from changes in actuarial assumptions effec-January 1,1980 there were no unfunded vested live January 1,1979. A comparison of accumulated liabilit:es, b

l NOTE 2 - Depreciatirn and Maintenanc3:

as units of property are accounted for as Plant Additions <

l The amounts set aside on the Company's books for and Retirements. When depreciable property is retirod 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 by means of independent 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 i

their useful life. Such provision is subject to periodic each category are as follows:

i

' review for future changes in economic conditions and advances in technoagy.

Composite 1980 1979 l

Expenditures for maintenance and repairs, including nate (In Thousands of Dollars)

(

renewals of minor items of property (as distinguished Electric i

from units of property), are charged to operating

-Other than Nuclear 3.26 %

si,428,472 $1,353.555 j

3

- Nuclear 3.45 788,842 777.949 l

expenses and/or clearing accounts, unless the replace.

ment of a minor item of property effects a substantial fgeam p 6 as i

. betterment, in which event the excess cost of the common 3.00 (a) 93,711 84.605

, replacement over the estimated current cost of replace-Total s2.6s4.346 s2.541,488

)

ment without betterment is charged to the appropriate (a)Except tor transportation vehicles, which are generatty depreciated property account. Replacements of items designated on a usage basis.

t NOTE 3 -Income Taxes:

1980 1979 1978 (In Thousands of Dollars)

Income Tax expense is composed of the following:

Inc'uded in Operating Expenses:

Income Taxes-Current..

$39,604

$ 8,987

$43.619 income Taxes-Deferred 23,352 44,149 15,818 investment Tax Credit Adjustments 13.852 16.593 17,882 l

Total Charged to Operating Income.....

76,808 69,729 77,319 f

included in Net Other locome and Deductions-Current 2,049 1.047 453 Total Income Tax Expense

$78,857

$70.776

$77,772 Total income taxes currently payable consist of the fol'owing components:

Federal Income Tax:

Included in Operatirig Expenses...

$39,552

$ 8,959

$43,540 Included in Net Other income and Deductions..

1,904 934 380 State income Tax:

Mcluded in Operating Expenses 52 28 79 Included in Net Other income and Deductions..

145 113 73 Total income Taxes Currently Payable

$41,653

$10.034

$44.072 The provision for deferred Foderalincome taxes consists of the following tax effects of timing differences between tax and book income:

Liberalized Depreciation

$17,736

$20,717

$18,770 Deferred Fuel Costs 1,798 17,281 (2,197)

Spent Nuclear Fuel Storage Costs-Note 7 (3,352)

(2,850)

(1,638)

Pennsylvania Gross Receipts Tax-Note 8 Percentage Repair Allowance 6,329 2,804 3,733 l

781 3.347 Maintenance Expenditures-Calvert Cliffs Total.

$23,352

$44.149

$15.818 I

The investment Tax Credit Adjustments, which substantia'ly offset the reduction in Fed-eral income taxes resulting from the Investment Tax Credits, are derived as follows:

Reduction in Federal income Taxes due to credits arising from:

$15,639

$17,7/6

$18,554 Eligible property....

Employee Stock Ownersnip Plan.

2,403 2,604 2.486 Total..

18,042 20.380 21,040 (4,1 90)

(3.787)

(3.158)

Credits allocated to income Net Total.

$13,832

$16.593

$17,882 34

)

1

1 Investment tax credits accruing to the benefit of respect to the credits provided under the Revenue Act employees result from the additional 1 % % credit of 1971 and subsequent years, and over thirty-year allowed by the Internal Revenue Code to provide stock periods with respect to the credits provided under prior for employees under the Investment Tax Credit Revenue Acts.

Employee Stock Ownership Plan (ESOP).

Totalincome tax expense was less than the amount Allinvestment tax credits, except those related to computed by applying the Federal income tax statutory ESOP, are being deferred and allocated to income rate to book income before tax. The reasons for this ratably over the lives of the subject property with difference are as follows:

1980 1979 1978 (In Thousands of Dollars)

Tax computed at statutory rate on book income before tax (46% in 1980 and 1979 and 48% in 1978)

$100,398

$90,662

$96,150 Increases (Decreases) in tax from:

Excess of tax over boc. depreciation - not normalized (4,807)

(7,478)

(10,990)

Allowance for Funds Used During Construction - Borrowed Funds and Other Funds (11,076)

(7,969)

(3,641)

Investment Tax Credit allocated to income (4,190)

(3,787)

(3,158)

Net other items (1,468)

(652)

(589)

Total Income Tax Expense

$ 78,857

$70,776

$77,772 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 Federalincome totalling $17,796,000 in 1980, $20,717,000 in 1979 tax purposes 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 Ote 14.

NOTE 4 - Allowance for Funds Used During ferred from the Statement of Income to Construction C:nstruction:

Work in Progress in the Balance Sheet. ihese The Allowance for Funds Used During Construction, a allowances are not taxable income.

non-cash item, is an accounting procedure 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 used to finance construction, tures for the Company's Brandon Shores Power Plant.

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.

NOTE 6-D:f;rred Full Cists:

recoveries due primarily to the difference between ne

- Since October 1978, the Company, by statute, has actual generation mix compared with the latest twel/e-

-had in effect a zero-based electric fuel rate month generation m'ix used in the formula. During the clause designed to recover the 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 operations. The demonstrate that it has used the most economical mix balance deferred as of December 31,1980 and 1979 of alltypes 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 af ter income taxes), respectively.

the 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 Commission's each type of fuel. The fuel rate will not change unless Order further provided that any over-or under-the calculated fuel rate is more than 5% above or recoveries of purchased gas costs for the twelve below the fuel rate then in effect. To the extent that months ended November 30 each year shall be credi'ed actual accumulated fuel costs are not recovered or charged to customers over the ensuing calendar through the fuel rate cnarge then in effect, they are year. The deferral as of December 31,1980 was

' deferred. In actual operation, the fuel rate

$12,643,000 ($6,827,000 net after income taxes),

clause will result in under-recoveries and over-NOTE 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 1979 was $12,331,000

'I

~

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 costs will be with the monthly fuei 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 Company incurred a total of storage, with no credit for either residual uranium or

$9,738,000 in maintenance expenditures for inspecting and repairing seismic pipe supports to meet Nuclear plutonium..

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 Maryland which and pursuant to the June 10,1980 Order of the excluded these costs from the fuel rate computation.

Maryland Commission are being amortized over in its June 10,1980 Order granting the Company an twenty-six years. The amount deferred as 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

NOTE 8 - Oth:r Tax:s:

(a) In December 1977, the Pennsylvania Gross Receipts

- Taxes, other than taxes on income, were as follows:

Tax law was amended, effective retroactively to anuary 1. N, to apply to electricity produced in 1980 1979 1978 (In Thousands of Dollars)

Pennsylvania and sold outside of that State. Counsel or the Company is of the opinion that this legisla-Property........

$22,874

$22.015

$21,504 Capital stock..........

27,357 27,c57 26 896 tion is invalid and unconstitutional, and the matter Maryland Gross Receipts.....

24,117 19,915 19.170 is being contested in the courts. Legislation was Pennsylvania Gross Mag,nd Ei 3,728 3.413 enacted in the Commonwealth of Pennsylvan.ia Receipts (a) which repealed the tax on a prospective basis, g on nent surcharge..

1,939 2.199 3.442 social security..

13,182 11,473 9.882 effective January 1,1980.

Miscellaneous 1,830 1,479 1,281 91,299 87,866 85.588 in 1978, the amount of the tex was equivalent after Federalincome taxes to 6c per common share, Arnount included above charged principally to based on the average number of shares outstand-

.I.,

(2,817)

(2.411)

(2.258) ing. Pursuant to an Order from the Public Service taxes 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 result, 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 Common Stock and Preference Stock Not Subject to Mandatory Redemption:

Cumulative Common Stock Preference Stock Shares Amount Shares Amount (Dollar Amounts in Thousands)

Balance at December 31,1977.....................

30,657,775

$591,772 1,883,335

$188,333 Year 1978 Common Stock issued under:

Dividend Reinvestment Plan.

206,272 5,338 ESOP 106,354 2,806 Conversionc of Convertible Preference Stock, 6% % Series, into Common Stock (decrease) 68,901 2,032 (20.346)

(2,034)

Balance at December 31,1978 31,039,302 601,948 1,862,989 186,299 Year 1979 Common 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 Year 1980 Common Stock issued under:

Dividend Ruinvestment Plan 809,228 16,752 ESOP 156.164 3.494 Conversions of Convertible Preference Stock, 6W % Series, into Common Stock (decrease) 32,525 944 (9,470)

(947)

Balance at December 31,1980.

32.690,093

$638,820 1,826.207 5182.621 37 t

NOTE 11 -Redrm ble Pr:,fsr:nco 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 ($10,000,000) of this series of of liquidation.

Preference Stock in each of the years 1985 through NOTE 12 - Long Term Debt:

The Installment Series Mortgage Bonds, due July 15, The Mortgage Bonds are secured (A) by a valid and 2002 are payable as to principal on the fif teenth 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 Principal Amount 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 (in Thousands of collars) of Safe Harbor Water Power Corporation.

1993

$ 420 430 The Company is required to make an annual sinking 1994..........

fund payment to the Trustee under the First Refunding g thr u h 1997 d

9 Mortgage at the end of each period of one year, 2000 and 2001 865 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 September 15,2009 are payable as to principal on the Mortgage. Such funds are to be used for the purchase

• e or redemption of an indeterminate principal amount of gu s as follo v Mortgage Bonds, excluding the Installment Series Mortgage Bonds of 1998,2002 and 2009 and the Principal Amount Years Each Year 6.80% Series Mortgage Bonds of 2004 as provided

(!n Thousands of Dollars) in the Mortgage, at not exceeding the applicable redemption prices. The payment to be made on 2005 through 2008

$ 3,250 2009 42,000 August 1,1981 is presently estimated at $13,000,000.

The Installment Series Mortgage Bonds, due August The Company is alsn required to make annual sink-15,1998 are payable 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 Principal Arnount 8

eshg Years Each Year fund payment, to be made on or before June 14 of each (in Thousands of Dollars) year to and including 1985, is calculated to retire

$400,000 principal amount of 47/8 % Sinking Fund 1984 through 1986

$ 1,000 1987 through 1990 2,000 Debentures per year; and the 4%% Debenture sinking 1991 through 1995 3,000 fund payment, to be made on or before July 31 of each and 1997 year to and including 1989,is calculated to retire 3

$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.

.l

NOTE 13 - Shirt Tdrm B:rrcwings:

(which are not restricted as to withdrawal). Borrowings The Company maintains bank lines 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 31,1980 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 Dec.mber 31 (In Thousands of Dollars)

Short-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 During the Year Ended December 31 Maximum Aggregne Short Term Borrowings

$ 75,450

$ 20,250 Average Daily Short-Term Borrowings (a)....

$ 30,922

$ 3,109 Weighted Average Interest Rate (b).............

12.64 %

10.19 %

(a) The sum of dollar days of outstanding borrowings divided by actual days in the period.

(b) Actual accrued interest during the period divided by average daily borrowings.

NOTE 14 - Commitments and Contingencies:

Service is taking the position that the Plant initially The Company 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 return. A protest to this item, subsequent years, which is strictly a timing difference, and other disputed Price-Anderson Act:

adjustments has t een 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 $160,000,000 through lease payments for nuclear fuel commenced upon the nuclear insurance pools) and Federal governmental consumption of the fuelin the operation of the Calvert indemnity agreements. In the event of a nuclear Cliffs Plant and are designed to return to the lessor the 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 Company 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 Cliffs 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 (retrospective 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 fuellease are not material.

l assessment per reactor, or $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 1976 and has asserted a

$14,901,000 at December 31,1980 and 1979, deficiency of $16,546,000. The major issue pertains tn respectively. However, no additional expenses would the placed-in-service date for Unit No.1 at the Calvert have been incurred.

Cliffs Nuclear Power Plant resulting in a proposed Rental expense under other leases currently in deficiency of $15,906,000. The Internal Revenue effect is not material.

39

NOTE 15 -SigmInt infsrmatign:

1980 1979 1978 (In Thousands of Dollars)

Electric ~ Operating Revenues

$ 857,264

$ 714,956

$ 697,173 Operating income before Income Taxes..

249,510 236,024 240,061 Operating Income.

182,149 173,160 173,639 Depreciation 73,743 71,355 69,415 Construction Expenditures (a) 198,034 143.780 155,781 Identifiable Assets at December 31 (a) (b).

2,507,909 2,350,211 2,229,415 GIs Operating Revenues

..... $ 354,736

$ 287,074

$ 264,586 l

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 1

Steam Operating Revenues 14,442 12,378 12,727 i

Operating Income before Income Taxes...

(149) 68 (219)

Operating Income 213 321 235 Depreclation.

552 520 492 Construction Expenditures (a) 940 1,279 1,746 Identifiable Assets at December 31 (a) (b).

15,030 14,808 14,042 Tctal 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) Represents Utility Plant and Materials and Supplies, excluding merchandise inventory of $3,054,000, $3,272,000 and $2,582,000 at December 31,1900,1979 and 1978, respectively; merchandising activities are reported in Other Income.

NOTE 16-Jointly Owned Electric Utility Plant:

Trans-The Company's ownership as a tenant in common of Key-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 20.99 %

10.56 %

7.00 %

megawatts of rated capacity.

Utility Plant in Financing and accounting for these properties are the Service

$43,514

$29,106

$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 6,913 324 l

expenses in the Statement of Income.

Construction Work l

The following data as of December 31,1980 in Progress 558 490

)

l represent the Company's proportionate share:

40

NOTE 17 - Qu:rt:rly Fin:ncial Dat:: (Unrudit;d):

The business of the Company is seasonalin nature, The following data are unaudited but, in the opinion 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 operations, 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 Stock Stock (In Thousands of Dollars)

March 31,1980 S 316,017

$ 51,694

$ 29,348

$ 23,818

$0.75 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 20,631 0.63 Total Year 1980

$ 1,226,442

$230,376 5139,399

$117,300

$3.64 March 31,1979

$ 292,919

$ 59,929

$ 39,085

$ 34,558

$1.11 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

$1,014,408

$210,777

$126,316

$106,532

$3.40 (a) Allowance for Funds Used During Construction (for Borrowed Funds and Other Funds) is added to Operating Income in determining operating income for ratemaking purposes in the State of Maryland.

NOTE 18 - Supplementary Information to Disclose plant was acquired to the present, and differ from th3 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 held 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 measura, index of Public Utility Construction Costs. The current Constant donar amounts represent historical costs year's provision for depreciation on the constant dollar stated in terms of dollars 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 amounts, changes in specific prices of plant from the date the

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Stat: ment cf inc;m; Fr:m C:ntinuing Op;rati:ns Adjust:d far Chrnging Pricis 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....

$1.226,442

$1.226,442

$1.226,442 Purchased Fuel and Energy..

478,836 484,569 479,469 Operations and Maintenance..

292,836 292,836 292,836 Depreciation 83,181 176.448 198,727 Taxes 165,290 165,290 165,290 Total Operating Expenses 1.020.143 1,119.143 1,136,322 Operating income 206,299 107,299 90,120 Other Income (including AFC) 14,904 14,904 M,00$

Income Before Interest 221,203 122,203 105.024 Interest Expense (net of AFC) 81.804 81,804 81,804 income From Continuing Operations (excluding adjustment to net recoverable cost).

$ 139,399

$ 40,399(a)

$ 23.220 increase in Specific Prices (Current Cost) of Utility Plant and Nuclear Fuel Held During the Year (b)

$ 363,130 Adjustment to Net Recoverable Cost

$ (208,976) 28,874 Effect of Increase in General Price Level (583,877)

Excess of increase in General Price Level Over increase in Specific Prices After Adjustment to Net Recoverable Cost (191,873)

Gain from Decline in Purchasing Power of Net Amounts Owed 163,751 163,751 Net..

$ (45.225)

$ (28,122)

(a) Including it 9 adjustment to net recoverable cost, the loss from continuing operations on a constant dollar basis would have been 5168,577,000.

(b) At December 31, 1980, current cost of utility plant and nuclear fuel, net of accumulated depreciation and amortization, was $5,117,360,000, while historical cost or net cost recoverable through depreciation and amortization was

$2,672,195,000.

Nuclear fuel material and its related effect on terms 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 similar to utility plant for constant dollar rates, and is reflected as an adjustment to net recover-amounts and at current market prices for current cost.

able cost. While the ratemaking process 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 resale generally represent recent acquisitions and believes it will be allowed to eam on the increased cost have not been restated from their historical cost in of its net investment when replacement of f acilities l

nominal dollars. The ratemaking process limits the actually occurs.

i recovery of fuel and purchased gas costs to historical To properly reflect the economics of rate regulation cost. For these reasons, fuel inventcries (other than in the Statement of Income from Continuing Operations, nuclear fuel) have been classified as monetary assets, the aajustment to net utility plant and nuclear fuel As prescribed in Statement 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 raiemaking prescribed by the Public period of infiation, holders of monetary assets suffer a l

Service Commission of Maryland, the Company is loss of general purchasing power while holders of generally limited to the recovery of historical cost of monetary liabilities experience a gain. The gain from i

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 amounts will be recovered in dollars having Im term debt outstanding which will be repaid with dollars purchasing power than the historical dollars inestec that are worth less than the dollars received when such Therefore, the excess of the cost of plant stated in securities were issued.

c

Fiv:-Yccr C:mp:ris:n cf S:lict:d Suppl:m:nt:ry Financi:1 DatJ Adjusted for Changing Prices (In Thousands of Dollars) 1980 1979 1978 1977 1976 Operating Revenues Historical

. $1,226,442 $1,014,408 $ 974,486 $ 792,522 $ 725,817 In Average 1980 Dollars

. $1,226,442 $1,152,058 $1,231,323 $1,078,092 $1,051,051 Historical 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 requiremerts on preferred and preference stock and excluding adjustment to net recoverable cost)

$.57

$1.09 Net Assets at Year-End at Net Recoverable Cost

...... $1,195,144 $1,284,346 Current cost information (in average 1980 dollars)

Income from Continuing Operations (excluding adjustment to net recoverable cost).

23,220 $ 23,644 Income Per Common Share (after dividend requirements on preferred and preference stock)

$.03

$.04 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 G:neral information Gain from Decline in Purchasing Power of Net Amounts Owed (in average 1980 dollars)

.$ 163.751 $ 182,767 Cash Dividanas Declared Per Common Share Historical

$ 2.50

$ 2.40

$ 2.25

$ 2.14

$ 2.08 in Average 1980 Dollars

$ 2.50

$ 2.73

$ 2.84

$ 2.91

$ 3.01 Market Price Per Common Share at Year-End Historical

$19.75

$22.13

$24.38

$26.63

$26.75 In Average 1980 Dollars

$18.84

$23.76

$29.66

%35.32

$37.89 Average Consumer Price Index 246.9*

217.4 195.4 181.5 170.5 Year-End Consumer Price index 258.8*

229.9 202.9 186.1 174.3

• Estimated

\\

DIRECTORS OFFICERS J. OWEN COLE BERNARD C. TRUESCHLER Chairman of the Board, First Maryland Bancorp, Baltimore 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 Corporat.on, Baltimore (Insurance)

NORMAN J. BOWMAKER "9*

SISTER KATHLEEN FEELEY, S.S.N.D.

President, College of Notre Dame of Maryland, Baldmore RAYMOND C. BRYANT (Education)

Vice President, Consumer Services JEROME W. GECKLE EDWARD A. CROOKE Chairman of the Board and President, PHH Group, Inc., Baltimore Vice President, Finance and Accounting, and Secretary (Vehicle and Personnel Services)

VERNON R. EVANS RALPH G. HOFFMAN y,ce President, General Services Attorney-at-Law, Westminster JOHN W. GORE, JR.

JOHN A. LUETKEMEYER Vice President. Electric Interconnection and Operations Director. Equitable Trust Company (former Chairman of the Board. Equitable Bancorporation), Baltimore (Banking)

ARTHUR E. LUNDVALL, JR.

• ** **' 6###

GEORGE V. McGOWAN President of the Company, Baltimore HENRY H. MILLER

'**'d*"

S

CHARLES S. SANFORD, JR.

Exocutive Vice Precident. Bankers Trust Company, New York CHRIS H. POINDEXTER (Banking)

Vice President, Engineering and Construction JOHN P. SIPPEL ALFRED H. INNERS Vice Chairmn (? the Board, The Citizens National Bank, Laurel Treasurer and Assistant Secretary (Banking)

HENRY E. LENTZ HENR / F. SN / DER, JR.

Assistant Secretary and Ass lstant Treasurer General Manager. Product Line Planning and Management, Western Electnc Company, Morristown, N.J. (Communications CHARLES W. SHIVERY Equipment)

Assistant Treasurer WALTER SONDHEIM, JR.

Chairman of the Board, Charles Center-inner Harbor Management, Inc., Baltimore (Downtown Renewal Projects)

BERNARD C. TRUESCHLER Chairman of the Board of the Company, Baltimore C. EDWARD UTERMOHLE, JR.

Chairman of the Executive Comrnittee of the Board. Baltimore GEORGE W. VELENOVSKY Chairman of the Board, The Annapolis Banking and Trust Company, Annapolis (Banking)

HARRY K. WELLS Chairman of the Board, McCormick & Company, Inc., Balt;more (Food Procesung, Spices, etc )

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.

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Executive Offices <-

s Gas and Electric Building, Charles Center, P.0; Box 1475, 1

Baltimore, Maryland 21203; i Annuel Meeting ^.....

, The annual meeting of stockholders will be held at 2:00 P.M.

q on ' April 24,1981, at the Company's Executive Offices, Bamtree, Maryland.:

. C:nversion Agents '.....

Convertible Preferer ce Stock Chemical Bank, New York -,

. Maryland National Bank, Baltimore --

' Registrars t

': Preferred and Preference Stock..

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. The Chase Manhattan Bank N.A., New York.

Union Trust Company of Maryland, Baltimore -

-/bommon and Convertible Preference Stock....

i

'; Morgan Guaranty Trust Company of New York.

t Union Trust Company of Marylandi Baltimore.

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.. Trinsfer Agents i -..

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- Preferred / Preference; Convertible

Preference and Common Stock,

i Chemical Bank, New York 1 Maryland National Bank, Baltimore i

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Upon written request to :

- Alfrrd H, inners, Treasurer :

P.O. Box 1475;. Baltimore, Md. 21203,.

th3 Company will furnish without chargo :

...a copy of its Form 10-K annual report -

Eftar it is filed with the Securities and <

Exchange Commission in March,1961, I

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