ML20148C773

Baltimore Gas & Electric Co 1987 Annual Rept

ML20148C773
Person / Time
Site:	Calvert Cliffs
Issue date:	12/31/1987
From:	Mcgowan G BALTIMORE GAS & ELECTRIC CO.
To:
References
NUDOCS 8803230076
Download: ML20148C773 (56)

Text

Ba timore Gas anc E ectric Com3any

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w HIGHLIGH15 Percent 1987 1986 Change IMLTIMORE GAS Earnings Per Share of Comrnon Stock i

AND ELECTRIC l'tility Operations...

$3.30

$2.83 16.6 %

COMPANY Constellation Companies.

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.32 (46.9)%

Total...

$3.47

$3.15 10.2 %

Dividends Declared Per Share of Common Stock.

$1.875 81.775 5.6 %

Average Shares of Common Stock Outstanding..

78,861,000 78,627,000 0.3 %

Operating Revenues Electric...

$ 1,393,73 5,000

$ 1,388.251,000 0.4 %

Gas.

415,456,000 445.769.000 (6.8)%

Total..

$ 1,809,191,000 51,834,020,000 (1.4)%

= i Net income.

$ 300,098,000

$ 274,619,000 9.3 %

Earnings Applicable to Common Stock.

$ 273,692,000 3 247,743,000 10.5 %

Electric Sales-megawatt hours 22,575,000 21,236,000 6.3 %

Gas Sales-dekatherms 102,941,000 97,376,000 5.7 %

Total Assets.

$ 4,509,992,000 54,370,428,000 3.2 %

Net l'tility Plant.

$ 3,691,691,000 53,567,676.000 3.5 %

j Construction Expenditures.

$ 254,530,000

$ 254,142,000 0.2 %

CONSTELIATION Revenues.

S 30.405,000 5 24,876.000 22.2 %

Net income.

13,669,000 5 24,825,000 (44.9)%

Total Assets

$ 479,281,000

$ 409,8x8,000 16.9 %

BG&E's investment.

$ 205,080,000

$ 192,075,000 6.8 %

i Dividends Paid on the Common Stock Continuously Since 1910- AlwayS Earned-Never Reduced t

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Computer generated graphics a treatmentfor the 9mptoms txtter to Shareholders.

2 Financial Review 6

ofmolecules like the one on the of the common cold.

(l coter help scientists at Ibe Notn ITilb locations in both the Our Sen ce Territory 8

Characteristics of the 13usiness.

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Pharmaceutical Corporation Holabird Industriallurk and unrates complex structure-the Francis Scott Key.Ifedical

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actitity relationships. The goal Center, Nota is typical of the Managing Change

.I2 of their research is the dis-biotech industries that are Financial Content <

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cotery ofneu drugs by using becoming a significantfactor Constellation Sula iaries..

.50 modern moleadar technolo-in the Baltimore-%bington 0ificers

. 5l gles One of theprojects under corridor and changing the floard of Directors and Committees,

.52 uny at Notu note is deteloping character of our customer base.

Shareholder information.

.inside 13ack Cover

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i HIS IIEPOllT focuses on a view of BG&E that most people-even shareholders-rarely see. It will tell you how and why we made certain decisions in 1987. It will tell you about some of the things that happened-

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some planned and some unexpected.

1987 was a momentous year in the life of your Company-a year of transitions, j

innovations, successes, questions and problems. As a whole, it was a demanding year as well as a rewarding one.

As eventful as it was, the real story of 1987-and of this report-is not the events themselves, but the ways in which they were managed: how we coped with an unexpected loss of transmission capacity during a period of peak demand; how our human resource planning process prepared us to make smooth transitions of leadership at several levels; how strategic planning identified emerging business opportunities; and how corporate planning helped sharpen our commitment to customer service. This is the story of an 1

organization at work and working well. The following pages give you a look at management involved in the day-to-day job of managing in a changing environment.

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I Our roots are deep in the utility changes, so sball tre. But one business. They go back orer fact uill remain constant:

170 years to the t ery beginnings BG&E uill maruage change as of the utility industry in the it altrays bas-bead-on and Nete tTorld. As our industry bands-on.

matured, so did u'e; and as it i

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1 Letter to reduction was primarily attributable Shareholders to the pass.ihtough ofine tax s2vings "For a n#mber of yggyg ygyp, bgfh fhg associated with the Tax Reform Act of he pace of change accelerated in 1986 and to the establishment of our

/1rOCCSS 0[Ch##g6 1987-in the economy, the industry rate of return at 9.78 % -down from and the Company. I'm proud to report the 10.96% allowed previously.

lUlbeNlllIlf that we responded well and that we For over a decade the Calvert Cliffs

/HdNS/TJ ##dthe are positioned to grow with the Nuclear Plant has been the hea t of d6hdl6 Over //S increasing changes to come.

our generating system. In 1987 d/TCC//On have been The end of 1987 marked five years Calvert Cliffs stepped into the inter-of continuous recovery in the U.S.

national spotlight by becoming the

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economy, the longest period of first plant in the t'nited States to host peacetime expansion since World an Operational Safety Review Team forecast for 1989. Indications are that War II. Central 31aryland and BG&E (0SART)of theInternational Atomic demand for energy will continue to be have certainly benefitted: electric Energy Agency (IAEA). The finalIAEA strong.

sales growth over thelast five years report termed Calvert Cliffs a "well Brandon Shores l' nit No. 2 is cur-averaged over 5 %; gas sales growth managed and operated plant," particu-rently scheduled for service in 1992 averaged less than 1 %. In 1987, total larly impressive in the areas of mana-and will be a key element in meeting electric sales increased by more than gerial approach, personnel training this new demand growth. We have 6% while gas sales rose over 5 %.

programs and emergency planning.

also reached an agreement with the Those figures are the result of favor-While the five-year period of Pennsylvania Power & Ught Company able weather combined with the economic expansion improved our to purchase a mix of energy and improvement in heavy manufacturing bottom line, its pace was not entirely capacity over an eleven-year period locally, the continued growth in new expected. From 1983-1986, we experi-beginning in 1990. This agreement, homes using heat pumps, and in the enced substantial growth in our peak which is discussed further in the case of gas, the continuing popularity load, averaging 180 megawatts each "Operations Review," will help of our Delivery Service tariff.

year, but in 1987 the peak grew by maintain adequate reserve margins The success of our utility opera-572 megawatts. There were several throughout the next decade. The tions last year brought total Company elements at work here: the price of agreement also increases our flex-earnings in 1987 to a record high of our service has been declining over ibility in selecting future generation

$3.47 per share, a 10.2 % increase the past several years; this price technologies and scheduling power over 1986 earnings. The Board of trend, together with the consumer's plant additions for the latter half of Directors voted to increase quarterly continued confidence in the economy the nineties.

common stock dividends to 47.5 cents and the pent-up consumer demand We have been equally aggressive a share effective with the dividend accumulated during a more challeng-over the past decade on behalf of our payable July 1,1987. This represents a ing economic period, have led to less natural gas customers, working before 10-cents-per-share annual increase to constrained energy use. The new peak federal agencies and in the courts, 2

the new yearly rate of $1.90 per share.

demand-5,190 megawatts, achieved when necessary, and with suppliers List Stay the Public Service Com-onJuly 21st-responded also to a and producers to keep gas a com-mission of Staryland ordered the weather pattern w hich normally petitive fuel. As part of that strategy, Company to lower its base rates to occurs only once in ten years. After xe are building a 38-mile, 20-inch produce a $78.3 million (4.4 %)

making adjustments for the unusual pipeline to connect our territory with decrease in annual revenue. The rate weather, the 1987 peak matched our the Consolidated Gas Transmission

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Corporation. This project is well under way. The fact that both we and Consolidated are determined to forge ahead has already overcome many

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.i potential regulatory obstacles.

1987 saw our non-utility sub-g sidiaries clearly establish their iden-tities, focusing on four distinct areas i

of business: real estate, senior living i

and health care, energy and environ-pg mental projects, and investments and a

financial services. The Constellation Companies' section in the following pages will explain their activities for you in more detail.

Constellation's earnings in 1987 decreased from 1986 to $14 million, been carefully groomed for their cur-in this area, but also urging that the contributing 3.17 per share. The rent and future positions. Very few Commission exercise caution in re-decrease stemmed primarily from companies are able to handle a turn-structuring the industry. As we relax realized losses from one sector in over of this magnitude internally. We regulations, it is imperative to keep our securities portfolio during last could because we regularly plan for our ultimate goal of economic effi-l October's stock market decline. We succession at alllevels of the Com-ciency in mind and make certain that are also undergoing a planned transi-pany. Our management systems are all new policies contribute to, rather i

tion in the mix of our assets. Money centered around the idea that human than detract from, its achievement.

has been moved from liquid short-resources are BG&E's most valuable Our overall strategy in the face of term-yield-oriented investments to asset. The other components in change is, as always, to preserve as fund the development and construc-our success-economical facilities, much flexibility as possible for as tion of energy and real estate projects quality service, state-of the-art tech-long as possib!e. We are doing that by with significant longer-term yield nology, strategic planning-all stem exploring options, developing our i

and capital appreciation oppor-from our basic commitment to hiring workforce and remaining involved in I

tunities. Current income production and developing the right people.

the issues-in short, by planning.

from these funds has necessarily For a number of years now, both With your support and the continued been interrupted. On the whole, we the process of change in the utility dedication of our people, we are

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are satisfied with Constellation's pro-industry and the debate oser its moving eagerly toward a new era in gress and co'afident about its future.

direction have been intensifying.

the utility world.

BG&E's new management team is At the heart of the discussion is the now entirely in place. Over the last issue of deregulation. last fall, the two years, due to normal retirements, Federal Energy Regulatory Commis-

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3 we replaced nine of our r!even officers sio;i announced a new policy to pro- [

j in a smooth and orderly transition.

mote competition in the bulk-power l

None of our new officers is i.eu to market. At that time, I wrote to George V. McGowan fj BG&E All are products of our iluman Chairman Martha liesse indicating Chairman of the Board Resource Planning System, and have our support for increased competition February 1,1988 l

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l Christian 11. Poindexter Edward A. Crooke l

President and Chief Eveculite Officer-President and Chief Operating Officer-Constellation iloidings. Inc.

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Christian 11. Poindexter has been Edward A. Crooke became President and Chief Executive President and Chief Operating Officer of Constellation iloidings Officer of BG&E's l'tility Opera-since 1985 and was elected a tions on January 1,1988, and was l

Director of BG&E's Board effective also elected a Director of BG&E January 1,1988. Before joining effective that date. Mr. Crooke Constellation, Mr. Poindexter had previously served as Vice had served as Vice President of President of Finance and l

Engineering and Construction Accounting and Secretary 4

t BG&E since 1980.

since 1978.

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Bernard C. Trueschler "One of thefinest legacies l<ft to me u ben I became Chairman tras a systern of management that is superior to any thing i hur seen elseu bere.11 all cidminates in lluman Resource 11anning ilike to say that uben ur bire somebody, ut are notjust giting him or ber ajr>b, ur are i

offering that person a canvr.

'Otvr the last 20 years, ut hur practically rebuilt our physicalplant, and uv's e introduced outstanding technicalinnotations. All of this is tital, but none ofit trorks uithout goodpeople at allletels. tTe need results-oriented people uith a broad corporate tietr. The detelopment, training and sekclion ofpersonnel is the real secret to continued success.'

-Employees' Quarterly Communications Meeting, October 28,1987 m a m When Bernard Trueschler joined had fallen into recession and the January 1 of this year Mr. Trueschler 3

BG&E in 1948, the Company and the utility industry had entered a difficult retired as BG&E's Chairman of the utility industry were well positioned period of transition. Mr. Trueschler's Board. We will miss his daily influ-to enjoy the long period of rapid decisise leadership during the ence, but since he will continue as a l

growth and increasing efficiency that eighties strengthened our utility Director and Chairman of the Execu-lay ahead. By 1980, when he was business while guiding BG&E to a tive Committee, BG&E and its share-elected Chairman of the Beard and new era of diversified growth. On holders will be assured of his valued Chief Execittive Officer, the economy counsel in the exciting years ahead.

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FinancialReview swo In Brief Company's diversified subsidiary. Per Enrn/ngs PerSbare ofCommon share earnings from utility operations Stock-increased 10.2 %.

and Constellation were as follows:

. Quarterly Dlvidend Rate-increased 1987 1986 5.6%.

Utility 0perations

$3.30 $2.83 s200-Construction Evpenditu es-89%

constellation companies

,17 32 Total 53,47 53.15 of funds internally generated.

Rate Adjustments-lower base rates The 1987 increase in utility earn-effective in May,1987.

6. u ings was due primarily to a 6.3 %

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Financings-cost of capital continues M untruaion RBI.uc to be aggressively controlled.

ing the combined effects of favorable weather, particularly the above Construction Expenditures ota!>ons of Douars) normal temperatures in the summer s3 so months, and the contmued growth m all classes of customers.

Construction Expenditures Earnings from Constellation During 1987, the utility's con-33 gg lloidings, Inc. w ere down from 1986 struction expenditures amounted due to several factors. During 1987, to $255 million, including $31 million s230 Constellation's increased 1ctivity in Allowance for Funds Used During m project-oriented businesses, Construction (AFC). Electric facilities x

s2.co principally in the real estate and alter-required expenditures of $230 million, native energy areas, required a shift while $25 million was expended for of capital from short term invest-gas facilities. An additional $53 million sl. sod ments to potentially higher-yielding was spent on nuclear fuel. Current assets which develop and mature estimates indicate that 1988 construc-s t.co-over a longer period of time. Constel-tion expenditures will amount to lation's 1987 earnings also reflect

$325 million, including $35 million in reduced tax benefits as a result of the AFC. An additional $45 million is

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Tax Reform Act of 1986 and securities expected to be spent for nuclear fuel.

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N 9 oi losses incurred in one ofits profes-During 1987, approximately 89 %

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sionally managed securities accounts of the funds required for construction thends Iwi2nd EZ3 Earnings during the October stock market decline. and nuclear fuel expenditures were Earnings and Dividends Declared provided by the internal generation of Per Share of Common Stock cash related to utility operations.

1)i idend Rate 6

IlG&E increased its quarterly dividend Earnings rate on common stock from 45 cents Rate Adjustments Earnings per share of common stock to 47 % cents per share effective On July 25,1986, the Public Service were $3.47 in 1987, a 10.2 % increase with theJuly 1,1987, payment. The Commission of Maryland instituted an over the $3.15 earned in 1986. This increased dividend is equivalent to an investigation into the reasonableness increase is attributable to the con-annual rate of f1.90 a share,10 cents of the Company's base rates. This tinued growth in utility earnings, higher than the previous annual rate.

investigation was undertaken in view partially offset by lower income from This marks the twelfth consecutive of the changes in the cost of capital Constellation iloidings, Inc., the year that ilG&E has raised its common subsequent to May 1981. w hen the stock dividend.

1987 Financing Transactions Amount Company's base rates were last set, further enhanced by as well as the anticipated savings establishing a $100 million S$rst Refunding stortgage Bonds.

stoo.0 from the Tax Refotm Act of 1986 Sledium-Term Note Program 6.95 % Cumulative Preference Stock.

50.0 On 5tay 5,1987,-the 51aryland under which unsecured 6.75 % Cumulaute Preference Stock.

50.0 Adjustable Rate Pol'ution Control loans 4.6 Commission issued an order author-notes, ranging in maturity Common Stock issued under the Dividend (Zing lower base rates. The new rates from one to fifteen years, Reinvestment and Stock Purchase Plan were designed to reduce annual can be sold as corportte and the Emplo)ee stock ownership Plan 8.9 electric revenues by approximately requirements dictate. BG&E's snM

$76.3 million and annual gas 1987 financing transactions REDE>lPT!0Ns/ RETIRE 3 TENT 5/REPL'RCHASEs revenues by $2.0 million and were are shown in the accom-14 % % First Refunding 31ortgage Bonds. I 39.3 9%% First Refunding hjortgage Bonds.

12.1 effective on Stay 27,1987. The panying table.

5% % First Refunding Stortgage Bonds revenue decrease is attributable (Installment Series) 1.4 primarily to a decrease in the federal Tax Reforrn j

c n d us ng Fun ntu p,

9 income tax rate used in establishing Provisions of the Tax Reform 12 % Cumulative Preference Stock.

6.8 service rates from 46% to 36% and Act of 1986 (Act) included 9.35 % Cumulatise Preference Stock.

35.0 8m Cumulause Preference stock.

30.0 to the reduction in the rate of return an overall reduction in cor-to 9.78% from the previously porate income tax rates, the authorized 10.96 %.

elimination of the invest-ment tax credit, changes in depre-visions, thereby diminishing the Financings ciation rates and lives, and various Company's ability to defer the pay-l Again in 1987, BG&E's financial other provisions which affect the ment ofincome taxes untillater strength and flexibility allowed the Company. Although the Company is years. The effects of the Act on 1987 Company to aggressively control the paying income taxes at a lower rate, financial results are more fully cost of capital. This was done its ability to generate cash internally discussed on page 30 under the through the retirement of higher-cost will be reduced primarily due to the heading "Taxes."

securities and the timely issuance of reduction in service rates reflecting fixed-rate securities under existing tax reform, the loss of the investment shelf registrations. In addition, the tax credit and certain other tax pro-Company's financial flexibility was E

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Average Rate Per Kilowatthour of Electricity Aniong the targest lis. Ques with lmestor ow ned l'ubties M1 Customer Categories 12 Wnths Ending Nmember 19C (Cmts per Kilowatthour) 1

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\\eN nry Characteristics of the Business altimore Gas and Electric Com-Calvert Cliffs Nuclear Power Plant natural gas producers. To supplement pany is an investor-owned utility which has consistently ranked as one this supply of natural gas, the Com-engaged primarily in the business of of the top-performing nuclear plants pany maintains facilities at three producing and selling electricity and in the country. The Company also plants in Central.\\laryland for the l

purchasing and selling natural gas.

maintains shared ownership of production and storage ofliquefied The Company, which was the first gas generating facilities in Pennsylvania, natural gas, substitute natural gas utility and one of the first electric consisting of two mine-mouth plants and propane.

utilities in the United States, has and Safe liarbor Water Power Cor-In addition to its regulated utility 8,767 employees serving an area poration, a producer of hydroelectric business, the Company sells electric i

which includes Baltimore City and all power. In addition, the Company is a and gas appliances.

or part of nine Central 31aryland member of the Pennsylvania New Constellation iloidings, Inc., a

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counties. The area served with elec-Jersey-51aryland Interconnection wholly owned subsidiary, directs the g

tricity approximates 2,300 square w hich affords access to pooled capac-Company's expanding diversification miler with 2,420,000 residents, while ity on favorable terms. Electric efforts. This corporation holds the the area served with gas includes generation by fuel type for 1987 was stock of five other companies engaged 600 square miles with a population 42 % nuclear,43 % coal,4 % oil, in such diversificd activities as real of 1,861,000.

4 % hydro and 7 % net interchange.

estate development, senior living and To service this area, the Company The Company obtains substantially health care, energy and environmen-operates ten electric generating plants all of the natural gas it sells through tal projects, and investments and in Central.\\laryland, including the purchases from pipeline suppliers and financial services.

OperationsReview Electric and Gas Sales installed capacity requirements as a flexible and retain our ability to respond Electric member of the Pennsylvania-New to fuel price fluctuations, we converted Total electric sales increased in 1987 Jersey-Staryland Interconnection. The Riverside Unit No. 4 to allow full-load by 6.3 % over 1986 sales. All cus-mn'aum inelled capacity purchase firing of natural gas in addition to its tomer classes increased: residential will decrease to 400 megawatts from oil firing capability.

sales rose by 9.3 %, small commercial June 1,1991, through September 30, The installation of a new replace-by 6.1% and large commercial and 1991, and to 275 megawatts from ment electrostatic precipitator on industrial by 4.1 %. The factors October 1,1991, through Stay 31,2001.

II. A. Wagner Unit No. 3 was com-primarily responsible for these results Purchases of installed capacity under pleted on schedule at a cost of were a summer that approached the the agreernt may be adjusted on an

$20 million, allowing it to return to hottest on record, producing a new annual basis, thereby increasing the its full load capacity of 319 megawatts peak lo d of 5,190 megawatts on Company's flexibility to align future at an emissions level well below the July 21,1987, and customer growth, capacity additions with system needs.

limits required by 5!aryland regula-particularly in the number of new The second part of the agreement tions. The adjacent Unit No. 2 at heat pump installations.

involves the purchase of the energy Wagner is currently being converted output and capacity associated with to coal under an innovative design Cas 125 megawatts of the Susquehanna that allows us to reuse some of the Total gas sales rose 5.7 % in 1987 Steam Electric Station from October 1, existing equipment, including the over 1986. Although 1987's milder 1991, through Stay 31,2001. The low original Unit No. 3 precipitator, and, winter weather produced a 1.3 %

fuel costs of this nuclear plant should consequently, to reduce the cost of decline in residential sales, this drop provide substantial fuel savings for the project substantially, was more than offset by a 10.3 %

our customers.

Increase in commercial and industrial This mix of energy and capacity Corporate Goals sales. This increase is directly attrib-permits us to meet expected future Our utility employees met six of eight utable to greater utilization of the demand in a cost-effective manner Corporate Performance Award Goals Company's Delivery Service tariff for and allows the Company to monitor for 1987, earning each individual an the transporting of customer-owned industry experience with emerging award of 1 % % of his or her annual gas purchased directly at the wellhead.

technologies for several more years base salary in the form of Company before selecting suppliers for future stock. Their very good performance Power Purchase Agreement Company-owned generating facilities.

was marked by three special achieve-with Pennsylvania Power &

ments: a complement reduction of Light Company Construction

% employees which surpassed our The Company recently entered into a Our fossil generating plants achieved goal and, in the process, produced two-part agreement with the Penn-their hignest level of readiness ever in significant savings; a favorable cus-sylvania Power & Light Company to 1987, setting a record of 86% in tomer image as reported by 93 % of purchase a mix of energy and capacity November. To help insure continued our customers surveyed; and a 13 %

9 from June 1,1990, through Stay 31, reliability, we installed state-of the-decrease-far beyond our goal-2001. The first part of the agreement art digital control systems at several in restricted / lost-work accidents. The entitles the Company, at its sole steam plants in 1987 and are now significance of this latter achievement discretion, to contract for up to 600 expanding this controls upgrade pro-goes beyond the dollar savings it megawatts of installed capacity from gram to our C. P. Crane Power Plant in engendered: it means that more and June 1,1990, through Stay 31,1991, 1988. As part of our policy to keep more of our people are working safely for purposes of satisfying BG&E's our present fossil generating capacity and staying healthy.

l

b 7he Constellation ing and significant percentage of East Coast are establishing Constella-(OM[6M68 BG&E's prdits.

@n's national reputahn for quality Constellation's 1987 results reilect and integrity as both a joint venture rJ1 several factors: First, our growth in partner and an independent devel-I he past 18 months have been a project-oriented businesses has oper. We are currently involved in i

period of growth and maturation for reallocated capital from short term 27 projects, representing over the Constellation family of companies.

investments to assets with potential

$275 million in project costs.

We have concentrated upon pursuing for higher future yields requiring a These proiects include land develop-four lines of business: Real Estate, longer period to develop and mature.

ment, industrial and business parks, Senior Living and llealth Care, Energy Second, one of our professionally office buildings, residential com-and Environmental Projects, and managed securities accounts incurred munities, festival retail shopping Investments and Financial Services.

significant realized losses during last centers and specialty retail centers.

We have been very successfulin October's stock market plunge-that in the fall of 1987, we broke ground recruiting quality people who have event alone produced a $.08 per share for our Brown's Wharf project located the knowledge and experience we decline in earnings. Lastly, the Tax in Baltimore's historic Fells Point need for the future. With our talent Reform Act of 1986 made certain tax-waterfront district. This multi-use assembled and our directions clearly advantaged investments either less development will feature shops, established, the future-both near attractive or nonexistent.

offices, restaurants and a full-service j

and long-term-looks bright.

marina. It retains the character of i

Although earnings declined in 1987, Real Estate a Federal-era maritime village, l

Constellation iloidings contributed Constellation Properties has become including the restoration of four

$14 million or $.17 per share to the one of the leaders in Baltimore's 19th-century brick warehouses.

corporate total for the year. Our goal regional real estate market. Our local Slated for a fall 1988 opening, continues to be to contribute a grow-projects and those elsewhere on the Brown's Wharfis a joint venture between Constellation and IIistorical Developers of Penns)!vania, Inc.

Senior Living and llealth Care Constellation Properties has focused p

on the senior citizen market as a

_41 ~ - -___. _ _ ~

7 j~

source of high-profit,long term

, Di --

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growth. Americans are turning 65 at y

f, qgg.

the rite of nearly 150,000 persons a month, and the over-75-year-old age M

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group is the fastest growing segment of our population. Many of these

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people seek residences that offer both 24-hour-a-day support service and quality attendant care. BG&E's corporate reputation earned by i

i decades of ~ always being there" will l

l 10 A Corutellation ouns 50% of to produce energy. Yearly h

Ormesa ll. a 20-megau'att 4 million pounds of bot u'aler-geothermalpourr plant located at a temperature averaging in East Alesa. Cahfornia. At 317' labrenheit-are pro-Ormesa. bol u'aler is pumped cessedper bour Ormesa llis from urlis dug deep into the one of a bandful ofgeothermal earth. and the beat is extracted energyplants in the country l

l

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

I l

l l

enable Constellation to be a trusted ten alternative energy plants.

of current income and to be a source and dependable participant in this The first project undertaken by of the capital necessary to pursue the i

industry. In addition to the four Constellation Operating Services, in projects described in the preceding 31rryland nursing homes which we partnership with Bechtel Eastern sections as well as opportunities in purchased jointly with 31eridian Power Corporation and Pyropower, the financial services industry. In llealthcare in late 1986, together we Inc., is the operation and mainte-keeping with the latter objective, are also developing two retirement nance of the 79-megawatt Gilberton we h re restructured our investment centers, one in New Jersey and one Power Station in Pennsylvania. This pertfolio, diverting $73 million of in 31ontgomery County,3!aryland.

plant burns culm, anthracite coal investments in marketable securities waste, using state-of.the-art fluidized to investments in alternative energy Energy and Environmental bed combustion technology.

systems, limited partnerships. real Projects Constellation's involvement in estate and a reinsurance company Over the past year, Constellation alternative energy projects not only described below.

Development has significantly provides very attractive investment We are continuing to pursue a increased its activity in the alter-returns and serves to familiarize us strategy of acquiring minority native energy and environmental with a variety of alternative energy interests in other companies. Con-industries. The 16 projects of which technologies and plant sizes; in so stellation investments recently pur-j we are part-owners or developers doing, it offers us a "window" into chased 21.6% of the stock of Capital irclude plants fueled by wood, the future of the electric power Re Corporation for $25 million. This coal, solar, geothermal, hydro and generation industry.

company, which has a AAA rating solid waste. Through Constellation from Standard & Poor's, will provide Operating Services, a subsidiary Financial '.nvestments reinsurance capacity to primary formed in 1987, we are also involved The goals of Constellation invest-guarantors of municipal and in the operation and maintenance of ments are to provide a steady stream corporate obligations.

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v aw 11 A Tb.* side panels abote are Fells hint. Preserting the brick promeruule, like Ibe one close-ups of the 19tb-century area 's historical character in the artist's rendering abote, brickuvrk that uill be retained u bile opening it to modern testilink Broun's Wbarf and all as part of Constellation's business, retailand recrea-of the fells hint traterfront Broun's ubarfdetelopment tional uses is the project's uith the Inner llarbor project in Baltimore's historic primary goal. l'itimately. a r

Managing Gange y[# ~

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A stationary high-pressure system stalls over the upper mid-Atlantic g

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region, enveloping the areain heat

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TUESDAY,JL1Y 21,1987-After

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repeatedly shattering previous peak 4

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usage records, the heavy demand for electricity culminates in a new all-time one-hour peak for PG&E of near-g

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V ly 5,200 megawatts. Customers con-tinue to soak up every available y'

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b kilowatt of generation, straining

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,y reserves across the entire electrical f[

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pool of the Pennsylvania-NewJersey-N/a.*l'd

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Maryland Interconnection.

TilERSDAY,JL1Y 23,1987-Both reactors at the Calvert Cliffs Nuclear Plant-normally the source of more i

l than half of BG&E's electricity-l l

are operating at 100% power. At

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3:25 p.m. a ground fault occurs and we lose one of the two 500 kV transmission lines that connect immediately shut down.

hours, the plant is reconnected to the Calvert Cliffs into BG&E's electric Supplied with power by Calvert Company's power system, allowing system. Circuit breakers open on both Cliffs' three emergency diesel conditions to return to normal.

lines, isolating the plant from the generators, operators work quickly While operators at Calvert Cliffs Company's system. Both reactors to stabilize the reactors, and within work to restore the plant, electric l

"This story had inany heroes. Quick thinking and coordinated action 12 A Transmission lines are the maintenance and alert opera-arter.'es of a utihty, taking tion, since damage to one energyfrom its source to the smallpart can quickly affect i

places u bere it's needed. This large areas of the system.

titid system requires constant

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system operators take emergency g ;;g The process is formally known as measures to stabilize the bulk power

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Iluman Resource Planning. The heart system-the electrical "backbone" of m u. L * -

of the system is a detailed profile

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the Company-to prevent an inter-

!~, 4 2-w y $.,

q rating form designed to evaluate a ruption of service to our customers.

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~f person's managerial potential.

Operators at other BG&E generation 7'I I!!F" T* ~'

Each June, all supervisors at BG&E 1 ~.: a-e 2 :

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plants increase electric power output

['T file or update a confidential profile f

to emergency limits. These extraor-

[ on their managerial and professional dinary measures prevent cascading I.,

employees. These profiles give us the j'{

s data to nominate candidates for equipment loss throughout the power g

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grid and eliminate the possibility of L

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management replacement positions-widespread blackouts.

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historically, approximately the top On one ofIbe bottest days of the 250 positions in the Company. Start-summer, uben B66Elost oter I,600 ing in the early fall, department megau atts ofits gern rating capacity, to new ideas ar.d attuned to the managers and their vice presidents not a single customer lost potter.

needs of the people we serve. Te identify candidates for the manage-cannot predict exactly when events ment positions in their departments.

like ground faults will occor, but we Each vice president then meets with This 5:ory had many heroes. Quick can control our ability to cope with the Chairman and the President to thinking and coordinated action them if and when they do.

finalize the candidates in the division.

across departmental lines prevented Our people's response to this crisis Over the past two years, nine of damaga We did not expect to lose a reaffirmed our confidence in our our eleven officers have changed in major transmission line in the midst management values. BG&E is a a series of normal, planned retire-of a severe heat wave, but when we people-oriented company-inside ments. Among them was Chairman did, BG&E was prepared to act. All and out. To the customer and the Bernard C. Trueschler who retired in the tr.ining, testing and preparation shareholder, that orientation trans-January. These retirements opened a we give our people and equipment lates into quality service-more number of positions on our manage-paid off.

and better service than you might ment team. last year the Board of The unexpected is a fact of life in expect. Inside the Company, it Directors elected George V McGowan business. Our approach is to prepare becomes a commitment to the Chairman of the Board and Chief for it-by recruiting and developing development of our employees. Every Executive Officer. Edward A. Crooke top-notch people, by setting strategic supervisor and manager at BG&E was elected to the Board of Directors goals, and by keeping ourselves open functions, in part, as a talent scout.

and elected President and Chief across departmental lines prevented damage."

13 A At BG&E. !be llurnan jobs in their ditisions Such Resource Planning Retieu' is meetings occur annually in one of top rnanagernent's most each ditision prior to the importantfunctions Vice Corporate Reticu' betu een presidents ineet u stb their each VP, the President and s

rnanagers to discuss replace.

the Chairman of the Board ment candidatesfor the key

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Operating Officer-l'tility Opera-tion is held accountable for and con-way we delivered benefits to our tions. In addition, Christian 11.

tributes to some portion of the plan.

employees was no longer as appro-Poindexter, President and Chief Strategic planning is, in essence, priate as it once was.1;ast fall we l

Executive Officer-Constellation a corporate "fitness" program-introduced a package of flexible lloldings, Inc., was elected to the keeping us flexible enough to adapt benefits designed to allow each of Baltimore Gas and Electric Company quickly ti ch. cing conditions. For our people to select the particular Board of Directors. The promotion of example, aw..aonitoring changing variu:es of coverage the employee these and other people created family patterns, the economy and and his or her family needed.

managerial and supervisory openings our own rising health care costs in On a larger scale, when we real-throughout our organization-the eighties, we recognized that the ized at the beginning of this decade openings that our iluman Resource promptly with capable, well-trained

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Throughout the year, planning d.

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groups from all areas of the Company meet to consider specific problems, 3

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issues and needs. The results of their

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deliberations become prime con-

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siderations of our regular manage-4 ment planning conferences w here we set the goals and assign the support-

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ing stcdies that are factored into our Corporate Plan. Each of our eight

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and each manager is responsible for p#

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L:ltimately, everyone in our organiza-k.'

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"Strategicplanning is, in essence, a corporate ' fitness'prograin...

15 4 Ourpeople are our most detelopment. Our commitment A f)uring 1987 the Constella-of the city's neurst office e atuable asset. and ur im est to lluman Resource Planning tion Companies moted into buildings, the gleaming touvr considerable time, effort and forms thefoundationfor all their netc beadquarters on the near the Inner liarbor protides resources in Ibeir trainvig and our management systems.

23rd and 24tbpoors at commanding tieus of Balti.

250 itest Pratt Street. One more's entire traterfront.

l l

Point waterfront and number projected to reach almost ow ning a geothermal 40 million by the start of the next k

~- -

electric power plant century, the demand for assisted-in California's living care and nursing facilities is q

Imperial Valley.

rising rapidly. Constellation Properties Geothermal is just currently owns, as "joint ventures" i

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one of several forms with established operators in the N.

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in which Constella-retirement centers and is actively 7

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tion is involved. This seeking additional investments. The f

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intensified its focus suited to us, providing both attractive as 4 e

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j en this rea by form-returns and the potential for long-c u..

8-ing a group of energy term growth, while allowing us to s

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~ y and environmental do what we do best-deliver high-l companies. Drawing quality facilities and services to

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on BG&E's basic ex-people who need them.

pertise, these com-that the utility industry faced limited panies acquire, build, own and market growth, we sought to enhance operate, small private power, bG&E has always defined itself our corporate growth with a strategy cogeneration and wastewater treat-internally as a service company.

of diversification. The Constellation ment plants around the country. For Today, with the energy market Companies were founded as a part of BG&E, these activities provide both a becoming increasingly competitive, that strategy. Their charge is to high return on equity and an oppor-service has become an essential recognize and create financial oppor-tunity to help develop the technology business tool. Our challenge is to tunities for BG&E by responding to of 'he future.

Improve on quality Corporate changing market or human needs, anstellation's oldest firm, Con-planning helped to focus our efforts.

regulatory conditions or new stellation Properties, has focused on Management established a formal technologies. For example, Constella-the senior living industry as a major Customer Service Goal in 1987. Its tion subsidiaries are involved in growth segment of the U.S. economy.

function is to drive home the impor-building shopping centers. redevelop-With over 29 million Americans tance of customer service-and the ing Baltimore City's historic Fells already age 65 or older, and that responsibility for it-to all our l

"BG&E has alu'ays defit:ed itselfinternally as a service cornpany."

16 A Constellationpurchased llealthcare, Inc. In addition to

> Construction is a tisible in the mid-Atlantic area and the IH-bed.tferidian Nursing nursing homes, Constellation sign of Constellation's grouing along the East Coast-projects l

Center in the llomeuvad Section and.tferidian are detvi> ping presence in the region <d real that bee rapidly made Con-ofILtitimore City along uith a tariety of assisted-liting estate detelopment market.

stellation Properties a sought-three other similarfacilities in arrangements geared to Ibi Business parks, office buildings after deteloper andjoint-December 19% as part of a rapidly grouing senior market, and retail anters are some of Ienture partner joint trnture uith.tferidian our many construction projects l

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people, from the line mechanic to solving customer problems. The pany's special assistance line.

the generating plant operator.

Distribution Division has initiated a Stost important is the everyday The first year's results on this goal long4ange plan to improve customer willingness of our people to reach are impressive. Calls to the Com-service. The first step invohes track-out to customers. We know they do it pany's "Good Neighbor Line"-one of ing our outage patterns. Whenever because our customers thank us for several measurement indicators-Distribution finds a neighborhood having a serviceman, for instance, increased ten times over 1986.

that has had repeated outages, for who takes the time to explain a Employees are encouraged to use this whatever reasons, they work with service pcm,' on a new appliance telephone line to report customer Customer Relations to contact the to an dderly customer with poor problems they hear about in their residents, informing them that we vision, or a srJes representative who private lives. When a call comes in, are aware of their problem and work.

goes out of her way to schedule a a customer representative responds ing to correct it. Our appliance stor;s kitchen inspection for a customer immediately, and reports back to the are responding to changing family who doesn't know which microwave employee when the situation has and work patterns by scheduling to buy, or distribution and construc-been resolved, often within 2 4 hours4.62963e-5 days <br />0.00111 hours <br />6.613757e-6 weeks <br />1.522e-6 months <br />.

Saturday and evening deliveries and tion people who work eight hours l

Other signs that our people have attempting to pinpoint the time of without stopping for lunch to restore l

risen to the service chalienge abound arrival on all deliveries.

power to a home after a tree knocked in the creativity of new programs to The pilot "Gatekeeper Program,"

down distribution wires. These are.

anticipate customer needs and in the implemented in conjunction with indeed, special people, but they ate enthusiasm our people display in the Maryland Office on Aging, has typical of BG&E employees. The par-it'l.

trained over 600 pose of the Customer Service Coal is

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1-i Collection Field the time to meet a customer's needs.

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look for warning Department representatives are work-3

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industrial customers to bolster their

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need some kind of economic health. For nearly 150 of f

l a. _ j help. If they find our customers, our innovative Gas l

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.g-ditectly to the Com-peake Paperboard Company, a locally CT w.

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"..the everyttay willingness of ourpeople to reach out to custorners."

18 A The Gatekeeper Program Partictpants are taught to look

> %ight-impaired customers abore to ubich ur added takes advantage of the regular for signs that a person is ill. in hate special needs. BG&E's Hraille characters Aince the contacts meter readers and need offund or clotbing or is Customer Sertsce Department program began in Notember other BG&E representalites a t'ictim of abuse. BG&E bas has deteloped a program to 1982. ue bat e modsped orer bate trith customers to belp trained nearly 650 employees mark and modsp appliance 950 apjdiancesfree of charge assure that the needs of the to be Gatekeeper participants cretrals. hke the Ibermmtat for sightampaired customers elderly are recognixd and met.

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I customer, Kidde Consultants' Execu-owned and operated manufacturer of Stee?s, a subsidiary of Armco Steel tive Vice President, Bill Franswick:

paperboard products, cites BG&E's Corporation agrees: "When BG&E "Thanks to BG&E's Premium Electric gas transportation program as a major approached us about time-of-day and Service, we're experiencing 100%

factor in keeping his firm "competi-curtailable rates, we knew we up-time on our computer."

tive in the East Coast markets."

had a tool to help control costs."

a e a Like many manufacturers, Blue Several years ago, industrial and Circle Atlantic,Inc., the maker of an innovative concrete additive, and

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ilein, President of Baltimore Specialty

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l "The relationship of technology and service at BG&E...

20 A General 3fanager Bradford has been in btainess since 1910, A Raymond E. Hein is Presi-delitm sertice, to control their Houck.Jr, left, and Vice Presi-produces approximately 220 dent of the Baltimore Specialty operating costs. The precision

!cnt 31urrell Smith. Sr, right.

tons ofpaperboard ettry Steels Corporation, a ub<dly rotaryforge in the background

the Cbesapeake Paperboard 24 bours at its Baltimore City ouned subsidiary of A rmco, takes beated steel and shapes it 7

Company, stand before the plant. The use of BG&E's gas Inc. Baltimore Specially Steels into eitber a round or square i

larger of the company's tuo deheny sertice is a major makes e.ifectit e use of time-of-bar u bich is then processed paperboard manufacturing factor in keeping thefirm day and curtailable electric intopnished steel.

L machines. The company, ubich competitit e rates, along uitb our gas t

The relationship of technology and senice at BG&E is best exemplified by our Customer information System, il the project that won the Company l

the 1987 Institute of Industrial Engineers' Award for Excellence in l

Productivity Improvement. Since the system's inception in 1976, our pro-

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ductivity in handling customer con-tacts has increased by over 55 %.

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in short, it allows us to help more w g g

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to keep our rates among the lowest on the East Coast.

From a management perspective, Electric NErwork, serves both opera-improving service goes beyond tional and administrative corporate reaching out to customers. It means communications needs. Last year we As an energy company, and par.

insuring that BG&E has the tech-also replaced a leased telephone ticularly as a nuclear utility, BG&E's nology to serve them better and system with a new Company-owned concept of ' service" must also faster than ever before. In 1987, our digital telephone system which will include political involsement. We are Telecommunications Department save considerable money. By routing active in the political arena locally, completed a sophisticated com.

intra-company calls over GENET nstionally and internationally.

munications network based on a rather than the local telephone net-Through our Public Affairs Depart-62-mile fiber optic loop connecting work, we will save $250,000 a year.

ment, and its offices in Baltimore, the Company's major facilities. The A state-of the-art mobile communi-Annapolis and Washington, D.C., we new fiber optic system will be inter-cations radio system, now being contribute to the development of connected with an existing 250-mile installed, will provide improved com-policies and legislation that affect microwave system which presently is munications among dispatchers and BG&E, our shareholders, our industry integrated with a 100-mile telephone field personnel, increase productivity and our community.

cable system. The combined net-and allow them to respond more Nuclear safety is an industry goal work, ca!!ed GENET, for Gas and quickly to emergencies.

we base long championed. To further l

helps to keep our rates among the lou'est on the East Coast."

21 A Senior 11ce President Carl in the beart of thetrfirm the Ca wtella is a key element in its Canatella, left, and Executiae computer room-a room that successfulfunctioning: a (xm er tice President traliam people rarely enter The en-conditioner pruthled by Fransuick, right, of Kidde tironmentally controlled room BG&E's Premium Electric Consultants, a Baltimore is designed tirtually to run Sertice program.

County consultingfirm, stand itself To the right of.\\fr l

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A that cause, in 1986 we volunteered to

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'w Team of the International Atomic

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e arrived in August 1987 for a three-b'A~

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s, Cliffs Nur! ear Power Plant. The p

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E Federal Republic of Germany.

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Switzerlant'., Finland, Canada, the

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Philippines, Italy and Sweden, as well as of, servers from Czechoslovakia, ma! International Atomic Energy other American companies interested Bulgaria, llungary and the Republic Agency report offered several "final in participating, but the Soviet of South Korea. They studied eight touches" to improve plant efficiency l'nion, Czechoslovakia and flungary major areas of plant activity, in-in certain areas while citing as par-will host inspections in the near cluding organization and manage-ticularly impressive the plant's future.

ment, training, operations, managerial approach, personnel e

maintenance, radiation protection, training programs and emergency chemistry, emergency planning and planning. Overall the IAEA concluded Uitimateiy, the evenis or;oty 23rd, technical support.

that "Calvert Chffs is a good example the day we lost over 1,600 megawatts for all involved, the experience of what is expected from a well of our generating capacity, have was thought prosoking and reward-managed and operated plant."

become reassuring. The ground fault j

ing. Plant personnel and team Our goal in volunteering for an was an accider t. The outstanding members valued the opportunity to international review was twofold.

performance of our people was not.

exchange ideas and learn fresh Certainly we hoped to benefit from a We designed our organization to approaches to shared problems. In review by international experts to respond promptly and calmly to his closing remarks, Ferdinand enhance our own safety program-challenges, no matter w hat they are.

Franzen, Program Coordinator and that objective has clearly been ful-We know that the people in charge at team leader for this review, termed filled. We hoped as well, that other every level can do their jobs and that Calvert Cliffs "quite impresshe utilities, both here and abroad, would our procedures will operate as we certainly to be placed in the upper follow our lead. That objective, too, intend them to. That's confidence.

range of good performance," The for-is being achieved-not only are That's quality. That's BG&E.

'% knou' that the people in charge at every level can do theirjobs..."

23 l

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4 A nuclear operator closes A Three members of the Inter-

.tfost had neter been to.tlary-

> Ibe BG&E team pete this the breakers on a diesel national Atomic Energy Agency's land before, and our Corporate balhxm to near tictory in last generator of the on-site Calwrt Operational Safety arul Retieu-Communications staff made summer's Hare and Hound Chffs Cemtrol Room Simulator 7eam twrk uith Ibeir Caltert sure that they experienced some ILdh>on Race, one of the most Regular training sessions on Chffs ' counterpart durtng last of the pleasures of hfe on the popular and excthng etents of the simulator help to keep our August's safety raietr. Ibe (besapeake Bay along uitb the the 19C.tlar11and Atate fasr operators prepared to act su sply team includedppeen people intricacies of nuclear safety arul calmiy in emergencies from eletenforeign countrics l

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fINANClhL CONTENTS natimore cas and autnc company Operating Statistics.

.26 Selected Financial Data.

.27 Management's Discussion and Analysis.

.28 Report of Management.

32 Auditors' Report.

32 Statements of income.

33 Statements of Retained Earnings 33 Balance Sheets 34 Statements of Changes in Financial Position.

.36 Statements of Taxes 37 Statements of Capitalization.

38 Consolidated Condensed Financial Statements-Constellation iloidings, Inc. and Subsidiaries.

.40 i

Notes to Financial Statements

.41 Constellation Subsidiaries

.50 Officers.

.51 Board of Directors and Committees.

.52 Shareholder Information.

.inside Back Cover 24 22 110 20 100

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-8 0

EResklentid E Residentid imM1 QvnrnertiM SmM1 OvnnwrdM Elar):e Qwnmercid E23 targe Genmen1A and tndustnal and Industnal i

Sales of Electricity Sales of Gas Total l'tility Plant (Bdimns if hikmtthouru (Wila:ns of IM2 therms)

(Wilmns <( thalan) l l

l

0PERATING STATISTICS saltimore cas and nutric company 1987 1986 1985 1984 1983 (Dollar Amounts in Thousands)

ELECTRIC Revenues OPERATISG Residential.

594,283 8 575,774 1

528,676 8 491,069 8

452,772 STATISTICS Small Commeraal,,

275,589 279,874 265,338 261,815 242,790 large Commercial and Industrial.

515,456 523,815 497,683 446,394 3?O,751 Other.,.

8,407 8,788 9,766 8,867 6,997 Tetal

$ 1,393,735 8 1,388,251 8 1,301,463 8 1,208.145 8 1,093,310 Sales--MWii Ruidential.

8,521,381 7,797,858 7,083,564 6,897,025 6,644,403 Small Commercial.

3,553,779 3,349,871 3,157,806 3,263,555 3,166,055 Large Commercial and industrial.

10,499,805 10,087,894 9,457,355 9,074,069 8,452,975 Total 22,574,965 21,235,623 19,698,725 19,234,649 18,263,433 Customers Residential, 876,826 853,976 831,423 811,771 793,899 Small Commercial,

88,812 35,623 82,737 80,089 78,921 large Commercial and Industrial.

2,830 2,715 2,518 2,317 1,760 Total 968,468 942,314 916,678 894,177 874,580 Average use per Residential Customer-KWii.

9,837 9,255 8,613 8,591 8,440 Average Rate per KWH-c 6.14 6.50 6.%

6.23 5.95 Peak load (one-hour)-MW.

5,190 4,618 4,365 4,230 4,079 Capabihty at Summer Peak-MW,

5,719 5,656 5,586 5,498 5,019 GAS Revenues OPERATISG Residential.

242,240 8 258,975 8

256,499 8 293,158 8

263,693 STATISTICS Small Commercial.

38,538 39,659 42,147 49,081 44,121 large Commerdal and Industrial.

127,257 141,781 148,305 205,035 233,010 Other,.

7,421 5,354 6,358 6,055 4,471 Total 8

415,456 8 445,769 8

453,309 3 553,329 3

545,295 Sales-DTil Residential.,

38,142,183 38,629,757 36,381,366 39,906,189 37,258,732 Small commercial..

6,335,806 5,960,010 6,255,159 6,837,512 6,258,274 Large Commerdal and Industrial.

58,463,326 52,786,120 54.244,959 54,727,002 44,195,654

%tal 102,941,315 97,375,887

%,881,484 101,470,703 87,712,660 Customers Residential.

482,023 482,394 481,188 480,613 479,147 Small Commerdal,

31,108 30,820 29,449 29,831 29,846

!arge Commercial and Industrial.

5,149 5,065 5,806 5,052 4,977 Total 518,280 518,279 516,443 515.4 %

513,970 Average use per Residential Customer-DTil 79,1 80 2 75.7 83.2 77.8 26 Aserage Rate per 17111(excluding dehvery service)-8.

5.93 6.29 6.47 6.76 6.50 Peak Day Sendout-DTli, 636,040 624,700 677,300 607,200 648,300 Peak Day Capal'Jty-ITTli 731,000 748,000 827,000 827,000 827,000

SELECfED FlNANCIAL DATA saltimore cas and Etenric company 1987 1986 1985 1984 1983 (Dottar Amounts in Thousands, Except Per share Amounts)

SUMMARY

Operating Revenues 0F OPERATIONS Electric,,

$ 1,393,735 81,388,251 81,301,463 81,208,145 81,093,310 Gas..

415,456 445,769 453,309 553,329 545.295 Total operating revenues.....

1,809.191 1,834,020 1,754,772 1,761,474 1,638,605 Operating Expenses Purchased fuci and energy.

530,348 598,700 570,453 630,269 654,386 Operations and maintenance..

501,388 487,985 455,150 441,579 390,153 Depreciation.

132,332 127,274 124,%1 113,643 97,090 Income taxes Current.

110,194 147,059 70,597 106,545 28,137 Deferred.

41,346 5,050 69,322 29,328 66,773 Investment tax credit adjustments, (8,078)

I,853 16,653 12,816 21,554 Other taxes,

135,282 131,536 123,394 116,526 108,3_09 Total operating expenses 1,442,812 1,499,457 1,430,530 1,450,706 1,366,402 Operating Income,

366,379 334,563 324,242 310,768 272,203 Income From Steam Operations, Net.

933 Other Income Allowance for other funds used during construction.

16,870 16,871 14,597 23,364 32,443 Equity in net income of unconsolidated subsidiaries.

20,002 30,590 13,917 6,338 1,740 Net other income and deductions.

1,349 (910) 1,225 77 (1,132)

Total other income.

38,221 46,551 29,739 29,779 33,051 income Before Interest Charges.

404,600 381,114 353,981 340,547 306,187 Net Interest Charges interest charges.

118,571 120,077 118,431 115,441 115,688 Allowana for borrowed funds used during construction.

(14,069)

(13,582)

(11,750)

(18,809)

(25,954)

Net interest charges.

104,502 106,495 106,681

% 632 89,734 Net income.

300,098 274,619 247,300 243,915 216,453 Preferred and Preference Stock Dividends.

26,406 26,876 27,370 27,580 27,580 Earnings Applicable to Common Stock,

273,692 247,743 219,930 216,335 188,873 Common Stock Dividends, 147,896 139,567 131,692 121,114

!!!,423 Earnings Reinvested in the Business.

$ 125,796 8 108.176 8 88,238 8 95,221 8 77,450 Average Shares of Common Stock Outstanding (Thousands).

78,861 78,627 78,622 78,123 76,272 Earnings Per Share of Common Stock

$ 3,47 83.15 32.80

$2.77 82.48 Dividends Declared Per Share of Common

$1.875 81.775 81.675 81.55 81.46 Stock.

Ratio of Earnings to fixed Charges.

4.22 4.19 4.14 4.23 3.81 Ratio of Earnings to Fixed Charges and Preferred and Preference Stock Dividends Combined.

3.29 3.20 3.08 3.10 2.81 FINANCIAL Total Assets.

$ 4,509,992 84,370,428 84,183,408 84,010,431 83,809,785 27 STATISTICS Capitalization:

AT mR END Common stockholders' equity

$ 1,755,368 81,629,795 31,521,960

$ 1,433,776 81,316,053 Prtferred stock.

59,185 59.185 59,185 59,185 59,185 Preference stock not subject to mandatory redemption.

110,000 110,000 175,000 175,000 175,000 Redeemable preference stock.

186,400 50,000 80,000 90,000 100,000 long-term debt.

1,519,514 1,471,905 1, t37,611 1.386,506 1.344.714 Total capitalization.

53,630,467 83,320,885 83,273,756 83,144,467 82,994,952 Book Value Per Share of Common Stock

$22.24 820.72 819.36 818.24 817.04 Number of Common Stockholders.

75,682 76,972 79,474 81,601 85,372 Common stock data base been restated to reocct the too-furer.e stak spht in August IM and certa 2n other pnor year anmunts have been restated a conform utth the current year's presentation.

MANAGEMENT'S DISCUSSION AND ANAIXSIS OF FINANCIAL CONDITION AND RESUIM OF OPERATIONS Baltimore cas and nutric company

- (All Note references hereunder are references to the Notes to Financial Statements.)

RE5t'L13 0F EARNINGS Electric sales increased by 6.3 % in 1987 and 7.8 % in OPERATIONS Earnings per share of common stock inc+ eased to $3.47 in 1986. The increases by class of customer from the prior 1987 from $3.15 in 1986 and 82.80 in 1985. The increase in year were as follon:

1987 compared to 1986 was attributable to growth in utility 1987 1986 earnings resulting from favorable weather and customer Residential..

9.3 %

10.1 %

growth, partially offset by lower income from the Com-Small Commercial.

6.1 6.1 pany's diversified subsidiary operations. The increase in Ltrge Commercial and Industrial.

4,1 6.7 1986 from 1985 was due to the combined effects of higher utility earnings and greater income from subsidiary operations.

The increases in sales in toth 1987 and 1986 were attnb-The increases in earnings from utility operations in 1987 utable to favorable weather, especiaUy during the summer and 1986 as compared to the preceding years were pri-cooling season, and to growth in the number of customers, maril;r due to the combined effects on electric sales of particularly those with heat pump instauations. Heavy favorable weather in each year and continued growth in all demand during the 1987 summer season surpassed previous classes of customers. In 1987, the favorable weather, par-peak usage records, culminating in a new all time peak of ticularly the above normal temperatures in the summer 5,190 megawatts. The number of residential heating months, contributed 25( to 30( per share to the Company's customers increased 14.3 % in 1987 and 15.4 % in 1986.

earnings, approximately double the effect of weather on Additionally, favorable economic conditions in the Com-1986 earnings. In May 1987, the Public Service Commis-pany's service territory enhanced commercial and industrial sion of Maryland (Maryland Commission) ordered a sales during both periods.

378.3 million base rate decrease in recognition of the lower Future electric sales volumes u Ul continue to be affected federal income tax rate and the decreased overall cost of primarily by the economic situation in the Company's capital to the Company.

service territory, as weu as by weather conditions and the Diversified subsidiary earnings from Constellativa conservation efforts of customers.

Holdings, Inc. and its subsidiaries (Constellation) were 17f per share in 1987 compared with 32( in 1986 and 14f in GAS OPERATING REVENL'ES AND SAlIS (ITill) 1985 (see Consolidated Condensed Financial Statements-Gas operating resenues decreased by 6.8% in 1987 and Constellation iloidings, Inc. and Subsidiaries on page 60).

1.7 % in 1986. The decreases were attributable to the The 1987 decrease in Constellation's earnings was due to following factors:

l several factors. Earnings declined 8( per share as a result of increase (Decreve) realized securities losses incurred during the market decline Froen Pnor Year on October 19 in one of Constellation's professionaUy 1987 1986 managed securtties accounts. Earnings also declined due to (to Wibone Constellation't increasing activity in project oriented Sales.

$ i3.5 83.6 businesses, p incipa!!y in the real estate and alternatise Base Rate Adjustments.

(1.0) energy areas. ConsteDation's growth in these businesses has Gas Cost Adjustments (42.8)

(11.1) caused a shift of capital from short. term investments to Net Decreases

$(30.3) 8(7.5) potentially higher yielding assets w hich develop and mature over a longer period. Developing and managing thm new projects also has required a corresponding growth in Con.

The primary cause of the decline in gas operating stellation's human resources. Consteuation's earnings also revenues w as the low er cost of gas. These lower costs reflected reduced tax benefits as a result of the Tax Reform resulted from market conditions as well as the Company's Act of 1986.

c ntinued efforts to reduce the cost of purchased gas sold to customers.

Earnings were reduced by 3C per share in 1986 and Increased by 8f per share in 1985 as a result of certain Changes in the sales volume component of operating changes in accounting estimates and other adjustments as resenues are affected by the delivery service schedule.

generauy desenbed in Notes 1,9, and 10.

L*nder this schedule, customers, principaUy industrial gas users with alternate fuel capabihty, are able to purchase gas El.ECTRIC OPERATING REVENTES ANTt SALES (MWil) directly from gas producers and pipelines and transport it Electric operating revenues increased by 0.4 % in 1987 and to the Company's distribution s) stem. The Company then 6.7 % in 1986. These increases were attributable to the transports such gas through its service territory to the foUowing factors, customers and receives a delivery service fee equivalent to increaw (Decrease) the margin on gas it sells to similar customers.

28 From Pnot ) car _

1987 1986 (In Klhons) i l

Sales.

$70.4 3M.7 Base Rate Adjustments (44.3) i Fuel Rate Adjustments.

(20.6) 22.1 Net increases.

$ 5.5 886.8 i

L

r Baltimore Gas and Dectric Company Gas sales increased by 5.7% during 1987 and 0.5% in effects of increased fuel expenses resulting from higher 1986. The changes by class of customer from the prior year electric output and lower nuclear generation caused by were as foUows; outages at the Cahert Cliffs Nuclear Power Plant. The 1987 1986 increase in purchased fuel and energy expense during 1986 Residential..

(1.3)%

6.2%

was due mainly to the collection of a portion of costs Small Commercial.

6.3 (4.7) previously deferred through the electric fuel rate clause, large Commercial and Industrial.. 10.8 (2.7) the write-off of disaHowed deferred electric fuel costs (see Note 10), and an increase in electric output.

The decline in sales to residential customers in 1987 was Electric output increased 6.2 % and 7.5 % in 1987 and primarily the result of milder winter weather. Sales in the 1986, respectively. Gas output declined in both years, par-small commexial category reflect the reclassification of cer-tially as a result of increased sales under the delivery tain customers from the large commercial and industrial service schedule. Gas transported under this schedule does schedules. The increase in sales to large co.nmercial and not imolve the purchase and output of gas by the Company

= '

industrial customers in 1987 reflects increased utilization of and is not reflected in purchased fuel and energy expense, delivery service gas.

Prices for oil and coal consumed for electric generation Colder weather during the winter heating season were lower in both 1987 and 1986 as coropared to the prior increased sales to residential customers during 1986. Sales years. Natural gas prices were also lower during 1987 and to small commercial customers reflected realignments to 1986, as the Company continued to secure gas directly from other schedules based on usage analysis. The decline in several gas producers and suppliers and receive previously sales to large commercial and industrial customers in 1986 negotiated savings with its principal gas supplier, mainly reflected certain large manufacturers ceasing their Nuclear generation is the Company's most economical opersuons in the Company's senice territory (approxi-source of energy and has a significant effect on electric mately 1% of total gas sales) and some temporary purchased fuel and energy costs. Refueling operatiort have changeovers to alternate fuels.

occurred appmximately every eighteen months at each of Future gas sales will continue to be affected by the price the Company's two nuclear generating units and result in and availability of gas and alternate fuels, weather condi-significant increates in electric fuel costs during the related tions, conservation efforts by customers, the gencial outages. In 1987, the Company received permission from 3'

economic situation, and the regulatory climate in the the Nuclear Regulatory Commission to extend the period natural gas industry. If gas prices were to rise in the future between the refueling outages for l' nit No. 2 from eighteen in relation to alternate fuels, conversions from gas by to twenty-four months and intends to request a similar industrial custcmers would be anticipated. The delivery extension for l' nit No. I in 1988. These changes could service schedule,in conjunction with flexible pricing provi-reduce purchased fuel and energy expense and the related sions, should enable gas to compete favorably with oil as a revenue from customers, as refueling outages may be timed primary fuel source and moderate these conversions as long such that only one generating unit would be affected 2n t as natural gas prices remain competitive and interstate given year. Only one nuclear unit underwent refueling in pipeline transportation is available.

both 1987 and 1986. However, the 1987 refueling outage was extended, and the other nuclear unit was also shut PL'RCHASED FL'El. AND ENERGY EXPENSE down for two months during the )r ar, in order to docu-Purchased fuel and energy expense decreased 11.4 % in ment compliance with environmental qualification and 1987 and increased 5.0% in 1986. These changes were mechanical fastener requirements of the Nuclear Regulatory attributable to the following factors:

Commission.

increase (Decrease) from Prwr Yeu OPERATIONS AND MAINTENANCE EXPENSES 1987 1986 Operations and maintenance expenses increased 2.7 % in On mitons) 1987 and 7.2 % in 1986. Both increases were attributable in Actual Electric Fuel Costs 5 69.2

$(59.8) part to higher payroll costs tempered by a reduction in the Deferred Electric Fuel Costs (100.0) 91.3 number of employees. Additionally, the 1987 increase j

Actual Purchased Gas Costs (47.7)

(23.0) reflects more storm related repairs to overhead lines and l

Deferred Purchased Gas Costs 10.1 19.7 transformers. Higher insurance and routine maintenance l

Net Changes 8(68.4) 3 28.2 costs also contributed to the 1986 increase.

DEPRECIATION EXPENSE The decrease in purchased fuel and energy expense in Depreciation expense increased in both years as a result of 29 1987 was due primarily to the deferral of net under-higher lesels of depreciable plant in service. The increase in recovered fuel costs resulting from the Company's electric 1986 was moderated by the reduction in the depreciation fuel rate clause and to significant reductions in the cost of rate applicable to the Calvert Chffs Nuclear Power Plant, gas from our suppliers. These factors more than offset the beginning in September 1985 (see Note 1).

1 l

f I

l r

Mtimore Ges and Hectric Company TAXES As a result of the Act, the Company's ability to generate income tax expense decreased in both 1987 and 1986.

cash internally is reduced. This is due primarily to the loss The 1987 decrease was due to the reduction of the mni-of the investment tax credit and certain other prosipons mum corporate tax rate from 46% to 40% under the Tu diminishing the Company's abihty to defer the payment of Reform Act of 1986, partially offset by the effects of a higher income taxes untillater years.

lesel of pe tu income. The decrease in 1986 was attribut-See the Internal Generation of Cash section and Note 1 able to a lower level of pre-tu income, after adjustment for for aditional information.

the already net of tu (quity in net income of unconsoli-dated subsidiaries. Other tnes increased in both ) ears due SL'BSIDIARIES' EARNINGS to higher property, capital stock, and pay roll taxes.

The decrease in Equity in Net income of L'nconsolidated The Tax Reform Act of 1986 (the Act) significantly Subsidiaries in 1987 was due primarily to realized secunties changed the federal income taution of corporations. Its losses incurred during the market decline on October 19 prosisions included an oserall reduction in corporate and shifts in Constellation lioldings, Inc.'s (Constellation) income tn rates, the ehmination of the investment tn asset mix from short. term investments to potentiauy higher credit, changes in depreciation rates and lises, and various yielding assets uhich deselop and mature over a longer other prosisions affecting the Company. Most provisions of period. Adationally, certain of Constellation's imestments the Act were phased in under various transition rules hase prosided significant tn benefits through the invest-beginning on January 1,1987. The major exception to this ment and energy tn credits. These benefits have been phase-in was the repeal of the investment tu credit u hich either eliminated or &minished under the Tax Reform Act of was generauy effectise retroactise toJanuary 1,1986.

1986, further contributing to the decline in investment in-L'nder the transition rules of the Act, however, the Com-come. The 1986 increase in subsidiaries' earnings reflected pany wiu stiU receive the imestment tu credit on Brandon the additional financial imestments made by Constellation Shores l' nit No. 2 provided it is placed in service before during the year. Capital contributions to ConsteHation by April 1,1992, the Company have beta deployed primarily as investments The repeal of the investment in credit had an immaterial in preferred and common stocks, professionally managed effect on net income in 1987 and 1986 since the Company equity portfolios, real estate, leveraged lease transactions, defers such credits and amortizes them to income over the senior living and health care institutions, and alternative lives of the related assets. The effed of the repeal of the energy and emironmental systems. (See Consolidated Con-investment tu credt on future years will be to reduce the densed Financial Statements-Constellation Holdmgs, Inc.

lesel of deferred credits being amortized to income.

and Subsidiaries.)

The Company's income tu expense is expected to decrease again in 1988 as a result of the Act's further reduc-OTHER tion of the maximum corporate tu rate to.4 %. In that The AUowance for Funds l' sed During Construction (AFC) the Company generally normalizes timing 6fferences increased in 1987 and 1986 due to continued construction between book and tn treatment for accounting purposes, of l' nit 2 of the Brandon Shores Power Plant and other elec-many of the Act's other provisions do not affect total tat tric projects. Howeser, the 1987 increase was diminished by expense.

a decrease in the AFC rate, effective June I,1987, in con-The Company has recorded accumulated deferred income junction with a rate order of the Public Sersice Commission taxes on certain timing 6fferences u hich originated pnor of Maryland (see Note 1).

to 1987 based on the +6% tu rate then in effect. As a The early retirement of certain high cost debt caused a result of the reductions in corporate tu rates prmided by slight decrease in interest charges for 1987. The increase in the Act, future tues will be paid at a lower rate. The Act 1986 was due to sales of additional securities, moderated by generauy prmides that in order to continue ;he use of lower interest rates and debt retirements.

accelerated depreciation for tu purposes, a pubhc utilit)

The decrease in Preferred and Preference Stmk Dnidends must reserse the excess deferred tues oser the lhes of the in 1987 and 1986 reflects the redemption of certain high related assets.

cost secunties and the issuance of lower cost securities llQllDIT)

Oi ERVIET The Company anticipates that future capital require-AND CAPIT AL The Company's capital requirements are attnbutable ments, as show n below, will be met primarily through the RfA0l RCIS principally to its construdion program and its expenditures internal generation of cash, supplemented by a mixture of 30 for nuclear fuel Other capital requirements invoke funds debt and equit) offerings. The timing and mixture of future for the matunty or retirement of outstanding debt and the debt and equit) financing will be dictated b) economic and redempt on of preference stock.

financial market con &tions and the needs of the Company.

Baltrmore Gas amt Bectnc Company CAPITAL REQL'IREMENTS The $506 million of long-term debt incurred during the 6

Actual capital requirements for 1985 through 1987, along period 1985 through 1987 consisted of the followingitems:

with estimated amounts for 1988 through 1990, are as on wnions) follows:

floating Rate Notes.

8200 Retirements and Pollution Control loan.

36 Redempuons ConstnKtion ucar of Debt and Port Facilities loan.

48 hpendatures AFC Fuel Preference Stod Total Adjustable Rate Pollution Control loan.

22 on wraons)

First Refunding Mortgage Bonds...

200 1985.

5200 826 832 8212 8470 Q

1986...

224 30 59 153 466

=

1987 224 31 53 127 435 I

1988.

290 35 45 19 389 During the three years ended 1987, the Company issued 1989.

305 41 60 108 514 a total of 810 million of common stock through the Divi-1990.

315 53 60 67 495 dend Reinvestment and Stock Purchase Plan and the Employee Stock Ownership Plan and a total of 8150 million The Company's construction program is subject to con.

of redeemable preference stock. During the same three tinuous review and modification. Actual construction and years, the Company repurchased a total of 895 million of nuclear fuel expenditures may vary from the estimates Preference stock and redeemed another 827 million of above because of a number of factors such as inflation, Preference stock through mandatory sinking fund economic conditions, regulation, legislation, load growth, Provisions.

environmental protection standards, and the cost and in October 1987, the Company established a 8100 million availability of capital. The only major project in the Medium-Term Note program. No securities were issued Company's construction program is Brandon Shores l' nit under this program as of December 31,1987. The Medium-No. 2, which is scheduled to be placed in service prior to Term Notes, Series A, may range in maturity from one to April 1,1992.

fifteen years and can be sold on short notice as market con-Nuclear fuel expenditures include uranium purchases and ditions warrant or corporate requirements dictate. The net i

processing charges. In addition, in June 1985 the Company Proceeds from the sale of notes will be used to repay short-made a one time payment of approximately $72 million to term indebtedness incurred to provide interim financing for the Department of Energy for the disposal of spent nuclear the construction program, for the refunding of long-term fuel w hich existed at April 7,1983.

securities, and for other capital requirements relating to the Company's utility business.

INTESTMENT IN SL'BS! DIARIES Commercial paper notes are issued by the Company to Since 1981 the Company has invested $205 million in Con.

satisfy interim financing requirements. The Company main-l stellation iloidings, Inc., a subsidiary which is the holding tains credit facilities with various banks in order to provide company for the Company's divenified activities (see Con.

additional liquidity.

[

solidated Condensed Financiali *ments-Constellation iloidings, Inc. and Subsidiaria. and Notes 1 and 2).

CAPITAL STRt;CTL'RE The Company's objective is to maintain a capital structure INTERNAL GFNERAT10'. 0F CASil that preserves an apprcpriate balance between debt and The internal gene. tion of cash related to utility activities equity. The Company's capital structure as of Deember 31 consists essentially of net income adjusted for non-cash is Presented below:

1987 1986 1985 items, less dividends and capital contributions to the Com.

pany's subsidiaries. From 1985 through 1987, substantially Common Equity.

48,1 % 47.3 % 45.7 %

all of the funds required for the Company's con:truction Preferred and Preference Stock and nuclear fuel expenditures were provided from the not Subject to Mandatory internal generation of cash. The Company anticipates that Redemption.

4.6 5.9 7.0 approximately 70% of the funds required for these pur-Redeemable Preference Stock 5.3 3.8 2.7 poses during 1988 through 1990 will be provided from long Term Debt.

42.0 43.0 44.6 internal sources, after refletting the impact of the Tax Total.

100 % 100 % 100 %

Reform Act of 1986.

I ENTERNAL FINANCINGS The investment in Constellation iloidings, Inc. is During the three gars ended 1987, the Company incurred financed exclusively through retained earnings and 31 8506 million of long-term debt and retired $371 million, represented 5.6% in 1987,5.6% in 1986, and 3.2 % in resulting in net new long-term debt of $135 million.

1985 of the Company's capital structure.

i

(

REP 0RT 0F MANAGEMENT Baltimore Gas and Butric Campany Sianagement is responsible for the information and Coopers & L> brand, independent certified public account-representations contained in the Company's financial ants, are engaged to examine the financial statements and statements. The financial statements are prepared in accor6 express their opinion thereon. Their examination is made ance with generally accepted accounting principles based in accordance with generally accepted auditing standards upon currently available facts and circumstances and which include a review ofinternal controls.

hianagement's best estimates and judgments of know n The Audit Committee of the P,oard of Directors, which conditions.

consists of three outside Directors, meets periodically with The Company maintains an accounting system and Nianagement, internal auditors, and Coopers & L) brand to related system of internal controls w hlch are designed to review the activities of each in discharging their responsi-proside reasonable assurance that the finacial records are bilities The internal audit staff and Coopers & L) brand have accurate and that the Company's assets are protected. The free access to the Audit Committee.

Company's staff ofinternal auditors, which reports directly to the Chairman of fhe Board, conducts periodic reviews to maintain the effectiveness of internal control procedures.

Al'DITORS' REPORT To the Stockholders of Bahimore Gas and Electric Company We have examined the balance sheets and statements of In out opinion, the financial statements referred to above capitalization of Baltimore Gas and Electric Company at present fairly the financial position of Baltimore Gas and December 31,1987 and 1986 and the related statements of Electric Company at December 31, IN7 and "% and the income, retained earnings, changes in financial position, results of its operations and ch:np in its (h -.cial position and taxes for each of the three years in the period ended for each or the three years in the period en( ) December 31 December 31,1987. Our examinations were made in accord-1987 in conformity with generally accepted accounting ance with generally accepted auditing standards and, prirciples applied on a consistent basis.

accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

4 Coopers & L) brand Baltimore, Staryland January 21,1988 9

STATEMEN"l3 0F INC0ME sammore cas and narrk company Year Ended December 31, 1987 1986 1985 On Thousands. Except Per Share Amounts)

OPERATING REVENTES Electric,

$ 1,393,73 5 51,388,251 81,301,463 Gas.

415,456 445,769 453.309 Total operating revenues.

1,809,191 1.834.020 1,754,772 OPERATING EXPENSES Purchased fuel and energy 530,348 598,700 570,453 Operations.

377,051 367,979 338,573 Maintenance.

124,337 120,006 116,577 Depreciation...

132,332 127,274 124,%1 Income taxes.

143,462 153, % 2 156,572 Other taxes 135,282 131,536 123,394 Total operating expenses.

1,442,812 1,499,457 1,430,530 OPERATLNG INCOME.

366,379 334,563 324,242 OTilER INCOME Allowance for other funds used during construction 16,870 16,871 14,597 Equity in net income of unconsolidated subsidiaries.

20,002 30,590 13,917 Net other income and deductions.

1,349 (910) 1,225 Total other income 38,221 46,551 29.739 INCOME BEFORE INTEREST CHARl2ES.

404,600 381,114 353,981 NET LNTEREST CHARGES Interest charges.

I18,57) 120,077 118,431 Allow ance for borrowed funds used durin3 construction.

(14,069)

(13.582)

(11,750)

Net interest charges..

104,502 106.495 106,681 NET INCOME.

300,098 274,619 247,300 PREFERRED AND PREFERENCE STOCK DIVIDLNDS.

26,406 26,876 27.370 LARNINGS APP 12GBLE TO COMMON STOCK.

$ 273.692 8 247,743 8 219,930 AVEIL4GE SHARES OF COMMON STOCK Ol'TSTANDING,

78,861 78,627 78,622 EARNINGS PER SilARE OF COMMON STOCK

$3.47 83.15 82.80 STATEMEN~IS OF RETAINED EARNINGS Year Ended December 31, 1987 1986 1985 (in Thousands)

BALANCE AT BEGINNING OF YEAR.

S 820,156

$712,280 8624,042 ADD: Net income.

300,098 274,619 247,300 1,120,254 986,899 871,342 DEDt'CT:

Dividends declared 33 Preferred stock.

2,899 2,899 2.899 Preference stock.

23,507 23,977 24,471 Common stock (at annual amounts pr share of $1.675, 31.775, and 81.875 in 1985,1986, and 1987. respectively).

147,896 139,567 131,692 174,302 166,443 159, % 2 Premiurns paid on retirement of preference stock.

1,426 300 BALANCE AT END OF YEAR.

$ 944,526 8820,156 8712.280 The accompanying notes are an integral part of the financial statements.

EALANCE SHEE'IS saltimore ca amtautric company At December 31, 1987 1986 (In Thousands)

ASSETS LTILITY PLOT Plant in service Electric....

$3,722,095 83,574,122 421,989 407,002 Gas....

Common.

235,401 207.320 Total plant in service....

4,379,485 4,188,444 Accumulated provision for depreciation,

(1,307,619)

(1,197.378)

Net plant in service..

3,071,866 2,991,066 Plant held for future use......

12,'522 13,756 Construction work in progress.

433,677 399,202 Nuclear fuel (net of amortization of $509,950,000 and 8467,004,000)...

173,326 163,652 Net utility plant.

3.691,691 3,567.676 OTHER PROPERTY AND INVESTMEN13 Investment in subsidiaries..

252,347 225,795 Other 5,561 3.374 Total other property and investments..

257,908 229,169 CL'RRENT ASSETS Cash and cash equivalents.

34,605 63,619 Special deposits and working funds.

1,292 4,332 Accounts receivable Customers (net of allowance for uncollectibles of $8,689,000 and 88,293.000).

193,007 199,193 Other.

3,117 3,844 Fuel stocks......

59,337 57,760 Materials and supplies.

%,517 94,037 Preps)ments...

60,299 65,031 Other...

$14 904 Total current assets.

448,688 488,720 DEFERRED OlARGES Deferred fuel costs....

63,893 37,406 Other 47,812 47.457 Total deferred charges.

Ii1,705 84.863 r

1DTAL ASSE13...

$4,509,992

$4.370.428 I

Certain prior ) ear amounts hava been restated to conform a tth the current ) ear's presentation.

The accompanying notes are an intettral part of the financial statements.

9 34

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EALANCE SHEE]$

Rattimore Gas and Electric O>mpany At December 31, 1987 1986 (In Thousands)

CAPITAUZATION - CAPITAUZATION AND LIABluTIES Common stockholders' equity..

$ 1.755,368 31.629,795 Preferred stock...

59,185 59,185 Preference stock not subject to mandatory redemption...

I10,000 110,000 Redeemable preference stock.

186,400 50,000 Long-term debt 1,519,514 1,471.905 Total capitalization,.,

3,630,467 3.320.885 CI'RRENT LIABluTIES 45,000 120,000 Short term borrowings.

Current portion of long-term debt and preference stock.

19,274 126.942 Accounts payable.

98,657 128,120 Taxes accrued.,

43,581 35,483 Interest accrued.

34,200 36,573 43,247 42,208 Dividends declared.

Vacation costs accrued.

22,842 22,103 Other 24,323 25.378

- Total current liabilities..

331,124 536,807 i

i DEFERRED CREDIT 3 AND OTi!ER LIABluTIES Deferred investment tax credits 193,400 201,696 341,498 300,989 Deferred income taxes..

Other.........

13,503 10.051 Total deferred credits and other liabilities 548.401 512,736 COMMITMENTS AND CONTINGENCIES-see Note 12 r

i TUTAL CAPITAUZATION AND UABluTIES.

54,509.992

$4.370.428 Certain prior year anmunt4 'me been restated to conform uit,i the current year's presentstion.

The accompanying notes are an integt:1 part of the Anancial staternents.

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STATEMENTS OF CHANGES IN FINANCIAL POSITION sammore cas amtnectric company Year Ended December 31, 198

1986 1985 (la Thomands)

OPEIL4 TING ACmEES Net income,

$ 300,098 3274,619 8247,300

.%ncash items included in income:

Depreciation and amortization...

178,583 195,050 180,467 Investment tax credit adjustments.

(8,296) 19 14,208 Deferred ixome taxes.,

40,509 5,952 72,621 Allowance for other funds used during construction (16,870)

(16,871)

(14,597)

Equity in net income of unconsolidated subsidiaries.

(20,002)

(30,590)

(13,917)

Amortization of losses from the reacquisition of debt.

1,659 1,126 668 Other,,

6,547 3,%2 3,070 Changes in working capital components:

Materials, supplies and fuel stocks.,

(4,057) 5,925 4,141 Accounts receivable.

6,913 4,527 (26,770)

Prepayments..

4,732 (1,577) 4,823 Other current assets 390 12,435 (6,488)

Federalincome taxes payable..

7,137 15,608 671

[

One time fee for nuclear fuel disposal costs.

(71,829)

Other current liabilities.

(30,953) 14,771 3,408 Deferred fuel costs.

(26,487) 70,181 (47,681)

Other cash operating sources and (uses)

(493)

(4,189) 1,552 Net cash flow from operating activities 439,410 550,948 351,647 FINANCING ACmmES Common stock dividends.

(147,896)

(139,567)

(131,692)

Preferred and preference stock dividends.

(26,406)

(26,876)

(27,370)

Proceeds from issuance of:

Long term debt.

102,134 111,365 285,055 Cornmon stock.

7.959 31 (419)

Preference stock 100,000 50,000 Short term debt, net.

(75,000) 33,025 5,775 Redemptions and repurchases of preference stock.

(71,800)

(40,000)

(10,000)

Loss from redemption of preference stock,.

(1,400)

(300)

Reacquisition of long-term debt (55,228)

(112,953)

(202,460)

Loss from reacquisition of long-term debt.

(1,630)

(2.395)

(927)

Net cash used by Snancing activities (169,267)

(127,670)

(82,038)

INTESTING ACmEES j

Construction expenditures (254,530)

(254,142)

(225,771)

Allowance for other funds used during construction.

16,870 16,871 14,597 Nuclear fuel expenditures..

(52,620)

(59,343)

(32,291) l Investment in subsidiaries.

(13,306)

(68,000)

(24,657)

Other 1,389 1,382 1,120 Net cash used by investing activities.

(302,197)

(363,232)

(267,002)

Net increase (decrease)in cash.

8(32,054) 8 60.046 8 2.607 4

The accompan)tng notes are an integral pan of the 6nancial statements I,

I

STATEMEm 0F TAXES uumore cas and nutric company Year Ended December 31, 1987 1986 1985 (In thousands)

INCOME TAX EXPENSE Charged to operating expenses Current

$ 110,194 3147,059 8 70.597 Deferred, consisting of the following tax effects of timing differences Accelerated depreciation.,

44,394 44,755 50,684 Deferred fuel costs 9,938 (30,584) 22,054 Percentage repair allowance..

1,958 3,353 2,126 Contnbutions in aid of construction..

(4,820)

(4,879)

(1,246)

Capitalized interest and overheads.

(1,682)

(2,542)

L'nbilled revenue.....

Nuclear decommissioning costs (1,303)

(1,507)

(1,259)

Other.

(4,597)

(6.088)

(3,037)

Total deferred tues 41,346 5,050 69,322 investment tax credits Current tax credits Eligible property.

2,120 13,258 26,313 Employee stock ou nership plan.

217 1,834 1,766 Amortization of tax credits.

(10.415)

(13,239)

(11,426)

Investment tax credit adjustments.

(8,078) 1,853 16.653 Total charged to operating expenses.

I43,462 153.% 2 156,572 Charged to other income Current 595 (663)

(2,091)

Deferred.

(837) 902 3,299 investment tax credit adjustments.

(II) 51 (667)

Total charged to other income.

(253) 290 541 RlTAL INCOME TAX EXPENSE

$ 143,209 8154.252 8157,113 RICONCillATION OF IUTAL INCOME TAX EXPENSE AND TAX COMPLTED AT STATL'1 DRY RATE Tax computed at statutory federal hcome tax rate (40% in 1987 and 46 % in 1986 and 1985).

$ 177,323 8197,281 8186,030 increases (decreases)in tax Depreciation differences not normalized.

5,352 5,218 4,673 a

i Allowance for funds used during construction.

(12,376)

(14,009)

(12,120)

Amortization of deferred investment tax credits.

(10,415)

(13,239)

(11,996)

Equity in net income of unconsolidated subsidianes.

(8,001)

(14,071)

(6,402)

Loss on retirement of propert).

(2,754)

(3.211)

Deferred tax rate differential (1,772) e Other.

(4,148)

(3,717)

(3,072)

Totalincome tax expense

$ 143,209 3154.252 3157,113 Effective federal income tax rate 32.3 %

36.0 %

38 8 %

)

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OTilER TAXES Property.

8 31,250 8 29.755 8 29,059 37 Capital stock...

41,788 39,804 35,589 Maryland gross receipts..

35,915 36,455 34,878 Maryland electric enstronmental surcharge.

2,319 2,562 2,623 Social security 24,073 24,056 22.845 Miscellaneous.

4,927 3,952 3,491 140,272 136,584 128,485

[

Amounts included above charged to accounts other than tues.

(4,990)

(5,048)

(5,091) t

'lUfAL UTilER TAX EXPENSE

$ 135,282 3131,536 8123.394 l

The anompan)tng notes are an integral part of the finanaal statements.

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STATEMENTS OF CAPITALIZATION saltimore cas and ticctric company At December 31, j

1987 1986 (in Thousands)

COMMON STOCKH01.DERS' EQllTY Common stock-without par value-100,000,000 shares authorized; 78,912,450

[

and 78,640,475 shares issued and outstanding at Dnember 31,1987 and 1986, respectively. (At December 31,1987,899,694 shares were resened for the Employee Stock Ownership Plan, and 5,433,708 shares were resened for the Dividend Reimestment and Stock Purchase Plan.),

8 817.513 8 809,554 Premium on preferred stock 157 157 Retained earnings,,,,

944,526 820,156 Valuation allowance-investmtnt securities of subsidiary.....

(6,828)

(72) l Total common stockholders' equity.

1,7 D,368 1,629.795 PREFERRED SIDCK

{

Cumulative, 8100 par value, 1,000,000 shares authorized Series B,4 % %,222,921 shares outstanding, callable at 8110 per share.

22,292 22,292

+

Series C,4 %,63,928 shares outstanding, callable at $105 per share..

6,893 6,893 Series D, 5.40%,300,000 shares outstanding, callable at $101 per share...

30,000 30,000 Total preferred stock 59,185 59,185 PREFERE.NCE STOCK Cumulative, 3100 par value, 6,000,000 shares authorized Preference stock not subject to mandatory redemption 7.88 %, 1971 Series, 500,000 shares outstanding, callable at $101 per share 50,000 50,000 7.75 %,1972 Series, 400,000 shares outstanding, callable at $101 per share,,,

40,000 40,000 7,78 %,1973 Series, 200,000 shares outstanding, callable at $103 per share prior to December I,1988 and at $101 per share thereafter.

20,000 20,000 9.35%,1974 Series, 350,000 shares outstanding in 1986 35,000 less preference stock called for redempt.on-see Note 3..

(35,000)

Total preference stock not subject to mandatory redemption 110,000 110,000 Redeemable preference stock 8.375 %,1979 Series, 300,000 shares outstanding in 1986..

30,000 12 %, 1981 Series A, 272,000 and 340,000 shares, respectively, outstandmg,

27,200 34,000 12 %, 1981 Series B, 160,000 shares outstanding.

16,000 16,000 7.50 %,1986 Series, 500,000 shares outstanding. callable at $107.50 per share prior to October I,1991 and at lesser amounts thereafter 50,000 50,000 6.75 %,1987 Series, 500,000 shares outstanding in 1987, callabk at $106.75 per share prior to Apnl 1,1992 and at lesser amounts thereafter 50,000 6.95 %,1987 Series, 500,000 shares outstanding in 1987, redeemable in whole 1

at $100 per share on October 1,1995.

50,000 Less current portion of redeemable preference stock-see Note 4.

(6,800)

(80,000) l Total redeemable preference stock 186,400 50,000 e

1 Certain prior ) tar amounts haie been restated to conform aith the current } Tar's presentaten.

i The acrompanying notes are an integral part of the 8nancial statements i

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STATEMFNI'S OF CAPITALIZATION Baltimore cas and vectric company At December 31, 1987 1986 (in Thousands)

LONG-TERM DEBT First refunding mortgage bonds Series Z 3 %, due July 15, 1989 S

36,754 8 36,754 3 % % Series, due Duember I,1990.

29,682 29,682 4%% Series, due July 15, 1992..

25,000 25,000 39,268 14 % % Series, due July 15, 1992...

4 % Series, due March 1,1993 24,095 24,095 4% % Series, dueJuly 15,1994.....

29,989 29,989 5%% Series, due April 15, 1996.

26,680 26,680 8 % % Series, due June 15,1997 100,000 6%% Series, due August 1,1997.

24,967 24, % 7 5%% Installment Series, due August 15, 1996.

60,775 62,140 7 % Series, d 9ecember 15, 1998.

28,705 28,705 8 % % Seriu jue September 15, 1999, 22,198 22,198 8%% Series, due September 15,2000 11,429 11,431 7 % % Series, due April 15, 2001 60,000 60,000 7%% Series, due September 1,2001 60,000 60,000 7%% Series, dueJanuary 1,2002..

50,000 50,000 7 % % Series, due July 1, 2002.

50,000 50,000 5 % % Installment Series, due July 15,2002 12,500 12,500 7 % % Series, due September 15, 2002.

50.000 50,000 8%% Series, due February 1,2004.

74,986 74,986 6 80% Series, due September 15,2004.

20,000 20,000 9%% Series, due August 1,2005 3.555 15,638 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 62,560 6.90 % instailment Series, due September 15, 2009 55,000 55,000 9%% Series, due March 1,2016.

100,000 100.000 Total first refunding mortgage bonds.

1,168.875 1,121,593 Other long-term debt (unsecured) 4%% Sinking f.ind debentures, due August 1,1990 16,145 16.805 Loans under revolving credit agreements.

50,000 50.000 Floa ing rate notes, due July 1,1995.

100,000 100,000 Floating rate notes, due October 15,1945 Series 11 100,000 100,000 Pollution control loan, due July 1, 2011 36,000 36,000 Port facilities loan, due June 1, 2013 48,000 48,000 Ad ustable rate pollution control loan, due July 1, 2014.

20,150 17,368 i

Toul other long-term debt.

370.295 368,173 L'namortized (discount) and premium.

(7,182)

(5,919)

Irss current portion of long-term debt.

(12,474)

(11.942) e Total long-term debt I,519,514 1,471.905 1DTAL CAPITAllZATION.

83,630,467 83,320.885 e

certain pnor year amounts have been restated to confonn a tth the current ) ear's presentation 39 The accompan3tng notes are an integral pan of the Snancial staternents

CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-rncon:wuated c' errs /ied sresidiary of CONSTELLATI2N HOLDINGS, INC. AND SL'BSIDIARIES Baltimore Gas and Electric Company Year Ended December 31, CONSOUDATED CONDENSED STATDIDU OF INCOME 1987 1986 1985 (in Thousands, hcept Per $ hare Amounts)

Revenues

$ 30,405 324,876 813,545 Operating expenses.

17,497 5,912 2,651 Operating income, 12,908 18,964 10,894 Interest expense...

i1,300 6,376 3,502 Net income before income tates.

1,608 12,588 7,392 Income tax expense (benefit).

(12,061)

(12.237)

(3.860)

Net income,

$ 13,669 824,825 811,252 Contribution to BG&E's earnings per share of common stock, S.17 8.32 8.14 CONSOLIDATED CONDENSED MLOCE SilEEE At December 31, At December 31, 1987 1986 1987 1986 (in Thousands)

On Thousands)

ASSETS LIABILITIES AND STOCK 110LDER'S EQUITY CURRENT ASSETS CURRENT UABIUTIES Cash and cash equivalents 8 4,944 8 10,095 Short term debt.

$ 25,497 8 10,289 Other current assets,

28,496 10.654 Other current liabihties,

6.306 2,724 Total current assets.

33,440 20,749 Total current liabilities.

31,803 13,013 NONCERRENT ASSE*S NONCERRENT UABIUTIES Investment securities, net.

115,931 189,282 Long term debt 187,838 135,578 investment in alternative er,ergy sy stems.

32,902 17,601 Deferred income taxes.

50,097 40,949 Investment in leveraged leases.

39,291 43,232 Other noncurrent liabilities 4,463 28.273 Investment in limited partnerships 72,608 40,941 Total noncurrent liabilities.

242,398 204.800 investment in insurance company.

29,261 27,645 Real estate and property STOCK @lDER'S EQLTIT and equipment, net.

63,759 34,395 Common stock (no par value, 100,000 Senior living and health care shares authorized,10,000 shares institutions, net.

24,745 25,368 issued and outstanding).

I59,703 152,403 Deposits in escrow 32,112 Retained earnings.

52,205 39,744 Real estate loans.

28,982 9,931 Valuation allow ance-investment Other noncurrent assets,

6,250 744 secunties.

(6,828)

(72)

Total noncurrent assets.

445,841 389,139 Total stockholder's equity.

205,080 192,075 TOTAL UABIUTIES MAL ASSETS

$ 479,281 8409.88A AND STOCK 1101 DER'S EQUITY

$ 479,281 8409.838 40 The ahose Snancial informauon is prewnted in support of the Company's imestment in Lmste!!auon Holdings, Inc. and subsidiaries aluch is accounted for under the equit) method See Note 2 to Finanaa! Statements.

l NOTEB To FINANCIAL STATD1EXIS utimore cas and nutric campany l

NOTE 1, SYSTEM OF ACCOLNI3 accelerated depreciation on pre 1976 property addadons. The

$1GNIFICANT The Compsay's accounting records are maintained in accord-cumulative net amount of such timing 6fferences for a hkh ACCol'NTING ance with the t'niform System of Accounts prescribed by the deferred income tues hase not been provided approximated PotICIES Federal Energy Regulatory Commission and adopted by the 5253 million and 8266 million as of December 31,1987 and Public Senke Commission of Maryland (Maryland 1986, respenively.

l Commission).

Imestment tax credits are deferred and allocated to income ratably over the hses of the subjea property.

i REVENlT.5 Resenues are generally recognized at the time customen' l'TILITY PLOT AND DEPRECLATION meters are read on a monthly cycle basis.

L'tibty plant in sen ke is stated at original cost, whkh includes material, labor, construaion oserhead costs, and, w here fill AND Pt'RCilASED GAS COS13 appucable, an aDowance for funds useJ during construaion.

The Company may recover, subject to the approval of the Mary-Construction work in progress, plant held for future use, and land Commission, the cost of fuel used in generating electricity nuclear fuel are stated at cost.

and the cost of gas sold through zero-based electric fuel rate Ad&tions to utility plant and replacements of units of prap-and purchased gas adjustment clauses (see Note 12). To the erty are capitalized to utihty plant accounts. The original cost extent revenues from customers under the clauses exceed or of plant retired is remosed from utihty plaat, and such cost, are less than actual fuel costs, the Company records deferred plus removal cost, less salvage, is charged to the accumulated o

fuel expenses uhkh are accumulated and efunded to or provision for depredation. Maintenance and repairs of property I

recosered from customers in future periods.

nd replacements of items of property determined to be less As implemented by the Maryland Commission, the electric than a unit of property are charged to maintenance expense, fuel rate formula is based upon the latest twenty four month Depreciation is generally computed using composite straight-generation mix and the latest three-month average fuel cost for line rates, applied to the aserage investment in classes of each generating umt. The fuel rate does not change unless the depreciable property. Nuclear decommissioning costs are calculated rate is more than 5 % above or below the rate then recos ered separately through an internal sinking fund designed in effect. During 1987, the Maryland Commission authorized to accumulate a decommissioning resene of $333,407,000. The the Company to recover $30 million of under recovered clearic composite depreciation rates by class of depreciable property fuel costs via an clearic fuel rate surcharge oser a period of for the 3 ears 1985 through 1987 were as follows:

24 anonths beginning with April 1987. Through December 31, Prior to F rtective 1987, Ill.7 million of these cows had been recovered th*augh 5 Pt 1. N5 SrPt 1. M5 the surcharge.

Electric:

The purchned gas adiustment is based on recent annual Nuclear.

3.40 %

2.80 %

volumes of gas and the related current prices charged by the Brandon Shores.

2.75 %

2.75 %

Company's gas suppbers. Any deferred under. or oser-Other.

3 26 %

3 26 %

recoveries of purchased gas costs for the twelve months ended Gas 3.12 %

3.12 %

November 30 each ) car are charged or cre6ted to customers Common (a).

4.02 %

4.02 %

The under et costs eferred under the fuel clauses were as follout The September 1,1985 rnision in the nuclear depredation At December 31, rate increased 1985 earnings, net of related tat effects, by 198?

1%6 81,425,000, or 2t per common share. This revision was the on amam result of the Nuclear Regulatory Commission's action extending Electnc.

374,199 831.931 the facfhty operstmg bcenses for the Calvert Chffs Nuclear Gas (10,306) 5,475 Power Plant consistent wtth the Company's earlier application.

The amendments to the operating bcenses changed the espira-Total.

363,893 837,406 tion date ici l' nit l's license from July 7, 2009 to July 31, 2014 and for l' nit 2's hcense from July 7,2009 to August 13,2016.

NE Tms In the rate procee&ng concluded during 1987, the Maryland The Company and its aholly ou ned subsi& aries file a con-Commission determined that the Company had a 832,373,000 solidated federalincome tat return. Income tues are allocated nceu a anu n accumu a nuclear deprMadon at to the indisidual companies based upon their respective tatable December 31,1985 caused b) the extension of the Cahert Chffs perateg hcen ese June I,1987, the Maryland Com-l n re nue expense items are reorded for financial mission instructed the Compan) to utinguish this excess by reporting purposes in a ynt d fferent from the year in w hkh transferring 87,560,000 to the nuclear decommissioning they are recognized for income tat purposes. Deferred income resene and amortizing the 324,813,000 balance oser the 4]

taxes are prosided on certain timing 6fferences, pnmanly reinening e en s u a cedit to depadawn those attnbutable to accelerated depreciation on post-1975 npme. ned on h curnm ntanau of decomminionsg property ad&tions, deferred fuel costs, the percentage repair costs and the internal sinking fund approach, no further aDowance, contnbutions in aid of construaion, capitalized customer contnbutions are presently being made to the interest and oserheads, unbined resenues, and nuclear decom-nuclear decommissioning reserve.

missioning costs. Dderred income taxes are not provided on certain other timing 6fferences, primanly those pertaining to

&dtimore Gas and Hectnc Gomfuny ALLO 4 ANCE FOR F1 ND5 i SED DL RING CONSTRi~CTION being amortized user the remaining hfe of the plant. The The allow ance for funds used during construction i AFC)is an balances deferred as of December 31,1987 and 19h6 were accounting procedure whereb) the after tas cost of borrowed

$7,30 tono and $7,%8,000, respeanely. These balan(es are and other funds used to finance construction pnyects is induded in Other Deferred Charges capitaliaed as part of utility plant on the balance sheet and is credited as a non-cash item on the income statement. The cost LONG TERM DEBT of borrowed and other funds is segregated between net interest The discount, prenuum, or expense of issuance associated with charges and other income, respectnely. The Company may long term debt is deferred and amortin4 oser the lises of the recoser, sub e t to the approsal of the Mar > land Commission, respectise debt issues. Gams and losses on the reacquisiuon of l

the capitahzed AFC and a return thereon after the related uuhty debt are amoruzed osce the remaining onginal lises of the issues.

plant is placed in service and included in depreciable awets and rate base. AFC is not tnable income and the depreciation of ACCol NTING STBIMRD5155l ED capitahied AFC is not a tax deductible espense.

During 198*, the Financial Accounung 5tandards Board issued As prescnbed by a rate order of the Maryland Comnussion, three Statements of Financial Accounting Standards (SFA5) an after tas AFC rate of 9 08 %, compounded annually, had w hith prescobe financial accounting and reporting policies been applied to all major electric proietts from 1984 through different from those presently used by the Company under Ma) 198*. The May 198* rate deci ion reduced the AFC rate exisung generally actepted accounung principles $FA5 Nn 94, to 8 55 % begmning in June 198*

"Consobdauon of All Maiunty-Ow ned subsidianes," requires e

the consohdation in the Compan>'s finanaal statements of all INVESTMENT IN Sl'BSIDIARIES malonty-ow ned subsidiaries (see Note 2); 5F5S Na 95, "State-The imestment in subsidianes is accourJed for and reported ment of Cash Flows," mandates the presentauon of Statements under the equity method.

of Cash Flows in place of the Statements of Changes in Fman-cial Posiuon: and 5E55 Na 46, "Accounting for income Tases,"

INTENTORY MLL'ATION adopts the habihty method of accounung for deferred insome Fuel stods and matenals and supplies are generally stated at tnes. 5FA5 Nos 94 and 95 will be adopted in 1988 and are not aserage cost expeded to hase a significant impact on the Compan>'s finan-cial position or results of operauons other than the presenta-DEf f RRED Nt'CIEAR MAINTENANCE ENPFSDITI RLS tion of consohdated financial statements. Changes in accumu-The Compan) has inairred a total of $10 653,000 in main-lated deferred income tn.s ansing from the initial appbcation tenance expenditures for inspectmg and repainng seismic pipe of 5FAS Nn % in 1989 generally will be feferred and recmered supports to meet Nuclear Regulator) commission requirements from or refunded to ratepayers in finute ) ears in accordance at the Cahert Chffs Nuclear Power Plant. As appnned b) the with the normahzauon requirements of the federal income tn Mar) land Commission, such costs hase been deferred and are laws and the regulatory practices of the Maryland Commission NOTt 2, Imestments in subsidiary corapanies were as follows-The Consolidated Condensed Financial Statements of Constel-IM LSTM ENT At December 31, lauon Holdmgs, Inc. and subsidianes are presented on page 40 IN 5t BSIDl5RIFS 19N*

1986 The following is condenwd financial informauon for safe 3 7%g liarbor Vater Power Corporation. Similar informauon is not presented for BNG, Inc. as its financial position and results of Constellation Holdags, Inc.

. $ 205,080 $ 192,0

• 5 operauons are immatenal in relation to the Company's financial Safe Harbor 4 ater Pow er corporation.

40,051 33,*20 statements RNG, Inc.

• 216

% hrw w

$ 2 52,34 ? $22V95 Pomer corporanon 1987 1986 19x5 iln Thwrwiu As of De: ember 31,198', Constellation Holdmgs, Inc., a RMT5 0F OPER5T10%

w holh ou ned subudian, holds all of the stod of fise other subsidianes, Constellation lmestments, Inc., Constellation Operaung resenues.

s34,665 $ 35.010 $ 19,l'8 Propernes, Inc., Constellation Deselopment, Inc., Constellanon Operaung espnnes.

19,3 U IW 12 M Opt raung 5en kes, Inc., and Constellation Vater 5ptems, Inc.

Income from uuhr) operanons.

I $,3 53 15 A45 6,34i These companies are engaged in dnersified attivities in(ludmg Net other income 63 185 1,431 financial smestments, real estate deselopment, ou nership and Net interest espense.

5,483 6,582 3.?"

management of senior hiing and health care inst tutions, and Net income

$ 9.933 $ HMS $ 3,998 doelopmg, ow mng, and operaung alternause energy and d

emir nmental proiests ME's equity in earnmgs 5 6,622 $ i.'65 8 2.665 The imestment m Safe Harbor Haier Power Corporanon, a producer of hydroelectnc power, represents two-thirds of Safe At December 31 Harbor's total capitM simk,in(ludmg one-half of the sounR 19M*

1986 stmk, and a tw& thirds internt m the subsidiar)'s retamed on TNans earnings FIN BCI AL CONDITION BNG, Inc, formerly Constellat on Biogas, Inc, is a w hog)

Current assets 3,*05 3

5,'56 ow ned subudiar) w hnh imests in natural gas resenes and Noncurrent assets 130,N51 134,468 obtams gas from non-traditional sourtn The stod of this sub-g g

g gg sidiar) was transferred from Con >tellat on Holdmgs, Inc to the Cnmpam on March N,1%'

turrent habihues 3 2,901

$ 3,0ix The capital stods of Constellation Holdmgs Safe Harbor, Noncurrent habihun.

• l.142 85.6%

and BNG are subject to a ben under the mortgage under whah Stodbolders' equits 60,513 60.hu the Compami %rtgage Bonds are issued Total tjabihun and Stod bolde rs' Iquit s

$ 13 4,5 56

$ l i9,U 4

Baltimore Gas and &ctrk Company h

SOTE 3.

Cumulative i

CMOGES IN Common Stock Preference Stock COMMON Shares Amount Shares Amount 510CK AND ttuu m wm rke PREFEBDCI STOCK NOT Balance at December 31,1984.,

78,621,N8 8809.942 1,750,000 8175.000 (419)

St BJECT TO Costs associated with stock spbt MBDATORY Balance at Decembee 31,1985.

78.621,798 809.523 1,750,000 175,000 RfDE6tFT10N Redempdon of 8.75% Cumulathe Preferencii Stock, (300,000)

(30,000) 19?0 Series,

Common Stock issued under Diildend Reinvestan 4 and Stock Purchase Plan l a,c."

650 Costs associated with issuance of 7.50% RedeemaNe r

(619)

Preference Stock,1986 Series...

Less 9.35 %,1974 Series Cumulative Preference Stock called l

for redemption effective April 1,1987 G50.000)

(35,000)

Balance at Decem5er 31,1986.

78,640,475 809,554 1,100,000 110,000 Common Stock issued under:

Dhidend Reinsestment and Stock Purchase Plan.

154,481 4,770 Employee Stock Ownership Plan..

i17,494 4,197 Costs associated with issuance of Redeemable Preference Stock (see Note 4).

(l.008)

Balance at December 31,1987 78.912,450 8817,513

-1,100,000

$110.000 7

A tau for-one stock spbt uts effected by the distnbution of one been restated to gin retroache effect to the stock split.

i additional share for each share of stock already issued c stock-Effective April 1,1987, the Company redeemed aH out.

holders of record on August 22,1985. AU per share amounts standing shares of the 9.35 % 1974 Series Cumulative and numbers of comrnon shares presented in this report have Preference Stock at $104 per share p65 accrued dividends.

{

t l

SOTE 4, in January 1987, the Company issued 500,000 shares of 6.75 %

the Tax Reform Aa of 1986, the Company elected to repurchase REDELMABLE Cumulative Preference Stock,1987 Series (8100 par value).1his all of such shares. The ou nets of the 12 % Series shares PREFERENCE series is subject to an annual sinking fund requiring the disputed the right of the Company to repurchase the shares and i

stock _

redempdon of 15,000 shares at par value, beginnicg in 1993 contested the repurchase. In July 1987, the l'nited States j

At the Company's opuon, in any year, commencing in 1993, an District Court for the Southern Distrid of New York found in additional number of shares, not to exceed 15,000 shares, may favor of the plaintiffs and ordered that the terms of the be redeemed for the sinking fund at par value.

Preference Stock Purchase Agreement remain in fuH force and 1

in August 1987, the Company issued 500,000 thares of effect. The Company has reinstated on its tuoks the 12 %

t l

6 95 % Cumulative Preference Stock,1987 Series ($100 par Cumulathe Preference Stock,1981 Series A and B, although an value) The 6.95 % Stock miu be redeemed in whole at $100 appeal of the court decision has been filed.

per share on October 1,1995 and is not otherwise redeemable.

The 12%,1981 Series A and B issues consist of 272,000 and The Company tendered pay ment to repurchase, effectne 160,000 shares ($100 par value), respectively. Series A mill be January 1.1987, all outstanding shares of the 8 375 %,1979 redeemed at par at the rate of 68,000 shares in each of the Series and the 12 %,1981 Series A and B Cumulathe Preference years 1988 through 1991, s hile Series B ulu be redeemed in its Stock issues at par value plus accrued dividends plus the entirety at par e July 1,1991. Pursuant to the requirements of I

indemnity payment desmbed below. The Purchase Agreements Series A,68,0% shares were redeenwd at par in 1987 g

under which the shares were issued permit the Company to With regard to pay ment of dn tdends or assets available in repurchase such shares if the Company makes a good faith the esent of liquidation, Preferred Stock ranks prior to determination that there is a substantial thk that indemnity Preference Stock; all issues of Preferena Stock, w hether sub.

r pay ments sould have to be made to the os nets because of the tea to mandatory redemption or not, rank equally; and au l

loss of any part of the dividends recched deduction. As a result Preferred and Preference Stock rank prior to Common Stock.

j of the reduaion in the dividends recebed deduction pursuant to

_43 ;

l l

l i

i I

i i

l 1

Baltimore Gas and Hectric Company NOTE 5, Mortgage Uen ment, to be made on or before July 31 of each ear through 3

LONG TERM Substantially all of the principal properties and franchises 1989, requires an annual payment of $600,000 in cash, in prin-delft ow ned by the Company are subject to a lien under the mort-cipal amount of the debentures, or in a combination thereof. In gage under which the Company's Fi:st Refunding Mortgage any ) ear, at the Company's election, an additional sinking fund Bonds are issued.

payment of up to $600,000 (noncumulathe) may be made Mortgage Bond Sinking Fund nnwnts under the indenture On August 1 of each } ear, the Company is required to pay to The Company maintains a revolving credit agreement pro-the Mortgage Trustee an annual sinking fund pay ment equal to uding for borrowings of up to 850 miuion. This agreement eIP res in December 1989. L'nder the terms of the agreement, i

1% of the largest amount of Mortgage Bonds outstanding under the mortgage during the preceding '.welve months. Such funds the Company, at its option, may obtail loans at various interest are to be used, as provided in the mortgage, for the purchase rates. The Company pay s a commitment fee on the daily and retirement by the Trustee of Mortgage Bonds of any series average of the unborrowed portion of the commitments. At other than the Installment Series Mortgage Bonds of 1998, December 31,1987, the Company had borrowed all of the 2002, and 2009, and the 6.80% Series Mortgage Bonds of

$50 million available under the revolving credit agreement.

2004. Purchases may be made by the Trustee in the open In December 1984, Anne Arundel County, Maryland issued market and/or through responses to invitations for sealed 322 million of its Adjustable Rate Pouution Control Revenue tender offers if purchases are possible at or below the appli.

Bonds (Baltimore Gas and Electric Company Project) 1984 cable redemption price, or directly through the redemption Series due July 1, 2014. The net proceeds of the issue were provisions to which the Mortgage Bonds are subject if pur, deposited with a trustee to be loaned to the Company as chases at a more favorable price are not possible. The Company needed to finance the Company's acquisition and construction may purchase outstanding Mortgage Bonds from time to time of certain air poUution control facihties at the lierbert A. Wagner and may submit its sealed proposal for the sale of such Mort.

Power Plant l' nit Na 3. On July 1, 1987, 81.85 million remain-gage Bonds to the Trustee for the sinking fund.

ing in the construction fund was used to reduce the amount of The Installment Series Mortgage Bonds, due August 15, 1998 outstanding County bonds. At December 31,1987, the Company are payable as to principal on the fifteenth day of August in the had borrowed the remaining 320.15 million.

years and the amounts as foUows:

In July 1985, the Company issued $100 milhon of Floating Prindpal Amount Rate Notes Dt.e 1995. Interest rates on the Notes are determined Years Each Year quarterly based on the 91-day Treasury Biu auction rate (expressed on a bond-equivalent basis) plus 1.1 %. The interest d" **

rate may vary from 8 % to 12 % per annum.

1988 through 1990 3 2,000 In November 1985, the Company issued $100 million of 1991 through 1995 3,000 Floating Rate Notes Due 1995 Series IL Interest rates on the 1996 and 1997 4,000 Notes are determined quarterly based on the 91-day Treasury 1998 33,000 Bill auction rate (expressed on a bond-equivalent basis) plus 1.125 %. The interest rate may ury from 7.9% to 11.9 % per The Install nent Series Mortgage Bond >, due July 15,2002 annum.

are payable as to principal on the fifteenth day of July in tiie in IVcember 1985, Baltirr 3re County, Maryland issued

) ears and the amounts as fouows:

336 milhon of Po;fution Control Resenue Bonds (Baltimore Gas

."Mml Amaunt and Electric Company Project) Se ies 1%5 due July 1, 2011. The Years Each Year y

• at the sale were loaned to the Company and subse-gn now quently made a. f;Ne to the Trustee to redeem Balumore Countyi Won Coma : Me W e we Gas and 1993 5 420 Electric Company Project) Com%..

v.

.,e The pro-gg g

ceeds f the Notes Ananced t! C ry 4 poh. m mntrol 1995 through 1997 605 facWties constructed in connection with the conversion to coal 1998 and 1999 690 2000 and 2001 865 of two existing steam efectric generttor units at the Company's arle> E Crane hr PM.

2002 6,725 Also in December 1985, Anne Arundel County, Maryland The Installment Series Mortgage Bonds, due September 15, ssued N mWon oRort Faches benue Bonds (BaNmm 4

2009 are payable as to principal on the fifteenth day of Gas and Electric Company Project) Series 1985 dueJune 1, September in the lears and the amounts as follows:

2013. The proceeds of the sale were loaned to the Company and subsequently made available to the Trustee to redeem Anne Principal Amount Arundel County's Port Facilities Revenue Notes (Baltimore Gas 8

Years Each Year and Electric Cornpany Project) Commercial Paper Series. The U

on nmune proceeds of the Notes originzuy financed the Company's i

2005 through 2008 3 3,250 acquisidon of certain coal handling port facibtics at the 2009 42,000 Brandon Shores Power Plant.

In October 1987, the Company established a $100 miUion Olber long. Term Deb /

Madium-Term Note program under uhich notes having The Company is required to make an annual sinking fund pay-maturities ranging from one to fifteen years may be issued. As ment (in cash andf r Sinking Fund Debentures) to the Trustee of December 31,1987, no Note > had been sold under this j

o l

under the 4% % Sinking Fund Debenture Indenture. The pay.

program.

Baltimore Gas and Electric Company The weighted average Interest rates for Ottmr Long Tem Debt Agregate Naturitics during 1987 and 1986 were as follows:

The combined aggregate amounts of maturities and sinking 1987 1986 fund requirements for alllong-term borrowings for each of the Loans under Revolving Credit Agreements, 7.01 % 7.26 %

next Gre ) ears are a: follows:

Floating Rate Notes, due July 1,1995.

8.00 8.09 Year Requirements Floating Rate Notes, due October 15, 1995 (in Thousands)

Senes 11.

7.99 8.10 1988 8 12,000 Pollution Control Loan, due July 1, 2011.

. 4.56 4.78 1989 101,000 Port Facilities loan, due June 1, 2013 4.47 4.93 1990 60,000 Adjustable Rate Pollution Control Loan, due July 1,2014.,

4.63 4.88 1991 16,000 1992 42,000 e

NOTE 6.

The Company contracts for certain facilities and equipment The future minimum lease payments as of December 31, LEASES under lease agreements with various expintion dates and 1987 for leases reported as capitalleases ad noncancellable i

renewal options. Consistent with the regulatory treatment, operating leases are as follows:

lease payments for capital and operating leases are charged to capital operadng operating expenses in the Statements of Income. Such costs are twes trases summarized as follows for the three years ended December 31:

(In Thousands) 1988.

81,466 8 6,335 1987 1986 1985 1989.

654 5,193 on n=4 1990.

486 5,122 Capital leases.

$ 1,484 8 3,092 8 2,548 1991 386 3,945 Operating Leases.

11,101 10,146 10,13c 1992 285 3,763 Total lease Expense.

$ 12.585

$13.238 812,678 Thereafter.

860 3,184 Total minimum leag payments.

84,137 827,542 Capital leases induded in the financial statements but not Less interest portion.

1,108 disclosed separately represent assets and obligations of Present value of net minimum

$3,029.000 at December 31,1987 and $3,996,000 at le25e Payments.

83.029 December 31.1986.

NOTE 7.

The Company maintains bank lines of credit to provide backup which have no withdrawal restrictions. Borrowings under the SHORT RRM finaccing capacity for commercial paper notes issued to satisfy lines are at the banks' prime rate, base interest rates, or at BORROWINGS Interim financing requirements and to permit short-term various money market rates. Information concerning short-AND LINIS borrowing flexibility. In support of such lires, the Company term borrowings and lines of credit is set forth below:

OF CREDIT pays commitment fees and maintains compensating balances 1987 1986 1985 (1xdlar Amounts to Thoussads)

At December 31 Short-term borronings outstanding Commercial paper notes.

8 45,000 8120,000 8 86,975

)

Weighted aserage interest rate.

7.74 %

6.61 %

7.80 %

L'nused lines of credit..

$150,200 8150,200 8150,200 Compensating balances.

8 790 8

790 8

790 9

During the Year Ended December 31 Maxitrum short term borrowings.

$ 184,500 8167,275 8189,500 Average daily short-term borrowings (a).

8 73,006 8 51.634 8 82,708 45 Teighted average interest rate (b).

6.67 %

7.13 %

8 21 %

(a) The sum of dottar dan of outstandmg borrowings dnided by actual days in the period.

(b) Actual accrued interest dunng the period dnided try average dady borrowings i

)

. - - - - - ~.. - - ~

- - ~ - -

~. --

Baltimore Gas and Elktric Company NOTE 8.

Pursuant to a contract with the Department of Energy (DOE) included in other deferred charges and are being amortized as SPENT NL' CLEAR for the disposal of spent nuclear fuel under the provisions of recusered through "oase rates.

FL'EL DISPOML the Nuclear Waste Policy Act of 1982, the Company, in June The contract with the DOE also provides for the disposal of COSU 1985, paid the DOE $71,829,000 for the disposal of spent spent nuclear fuel generated after April 7,1983 at a fee of one nuclear fuel which existed at April 7,1983. As of December 31, miu per kilowatthour of nuclear generation. This fee, w hich is 1987 and 1986, the Company had couected 571,236,000 and payable quarterly, is a component of fuel cost subject to 368,152,000 of that amount, respectively, through base rates.

recovery through the electric fuel rate.-

The remaining balances of 3593,000, and $3,677,000 are NOTE 9.

The Company sponsors several noncontributory defined benefit 85,249,000,85,188,000, and $5,848,000, respectively, w as PENSION pension plans, the largest of w hich (the Pension Plan) covers charged to expense. The remainders were capitalized as con-AND OTHER substantially all of the employees of the Company and its struction costs. During 1985, changes were made in certain ac-POSTRETIREMENT whouy owned subsidiaries. The other plans, which are not tuarial assumptions u hich resulted in lower pension expense BENEFID material, provide supplemental benefits to certain key and increased 1985 earnings by $3,803,000, equivalent to employees. Benefits under the plans are generaUy based on age, Sc per common share.

years of service, and compensation lesels.

The Company's policy is to fund annuauy the cost of the f

During 1987, the Company adopted Statement of Financial Pension Plan as determined under the aggregate cost method.

Accounting Standards (SFAS) No. 87, "Employers' Accounting This policy is not affected by SFAS No. 87. Plan assets at for Pensions," for an ofits pension plans. The effect of adopt-December 31,1987 consisted primarily of marketable securities, Ing SFAS No. 87 was not material to the Company's results of group annuity contracts, and short-term investments.

operations. Total net pension cost for the Company and 'ts The following tables set forth the combined financial status u holly ou ned subsidiaries for 1937,1986, and 1985 was of the plans and the composition of total net pension cost for

$6,301,000, $6,212,000, and 57,101,000, respectively, of w hich 1987:

At December 31, At January 1, 1987 1987 (Dunar Anams in Twnts)

Accumulated benefit obligation:

Vested.

$293,476 5309,629 Nonvested,

I8.272 19,225 Total 5311,748

$328,854 Plan assets at fair value 8417,538

$ 407,647 less: Projected bntefit obligation.

385,762 404.249 Plan assets in excess of projected benefit obligation.

31,776 3,398 less: L*nrecognized net gain,,

30,659 L'namortired net asset from adoption of SFAS No. 87 3,171 3.398 Accrued pension cost.

3 (2.054)

Assumptions:

Discount rate.

9.25 %

8.5 %

Average increase in future compensation levels.

4.5 %

4.5 %

Expected long-term rate of return on assets.

9.5 %

93 %

Year Ended December 31,1987 da Thovunde Total net pension cost:

Service cost.

811,106 Interest cost 33,398 f

Actual return on assets.

(29,227)

Net amortization and deferral (8.976) 46 Total s 6.301 In addition to prusiding pension benefits, the Company pro-active employees is generally recognized as the benefits are vides certain health care and life insurance benefits for retired paid. The total cost of the benefits and the number of active and emplo)ees. The cost of these benefits and simuar benefits for retired employees cosered by these benefit plans were as fouows:

1987 1986 (rkcar Amounn in Thoesane)

Cost.

$ 2 5,839 824,090 Active employees.

8,767 8.833 Retired employ ees.

2,889 2,773

Baltimore Gas and Electric Comfuny NOTE 10.

In December 1986, the Public Ser ice Commission of Mary-1986. The after-tax effect of this w rite-off was a reduction in DISALLO4 ED land issaed a dechion denying recovery of certain replacement earnings of 3c per common share. The Commission's decision DEFERRED energy costs because an employee error caused the extension of was affirmed by the Circuit Court of Calvert County, and the FL EL COSU a 1985 planned outage at the Cahert Giffs Nuclear Power Plant Company has appealed the Circuit Court's decision to the (see Note 12). The Company charged $3.9 million of previously Manland Court of Special Appeals.

deferred fuel costs to Purchased Fuel and Energy Expense in NOTE 11.

The Company owns an undivided interest in the Keptone and The following data represent the Compan)'s share of the JOINTLY Conemaugh mine-mouth electric generating plants located in jointly ow ned properties as of December 31,1987:

OWNED western Pennsylvania, as seu as in the transmission line which Transmission ELECTRIC transports the plants' output to the joint owners' service terri-Kentone Conemaugh IJne LTILI1T tories. Financing and accounting for these properties are the tpouar Amounts in Thousando PLANT same as for wholly ow ned utility plant. The Company's share ow nership !nterest.

20.99 %

10.56 %

1 00 %

of the direct expenses of the joint property is included in the ruhty Plant in service.

864,500 837,926 81,486 corresponding operating expenses in the Statemen's of Income.

Accumulated Prosision for Depreciation.

19,433 12,390 555 Construction Work in Progress.

4,551 912 NOTI 12.

Commitments and Guarantees COMMITMEND The Company has made substantial commitments in connection reactor limit in any one calendar year for multiple incidents.

AND with its construction program for 1988 and subsequent years.

The Company's contingent liability in the event of a nuclear CONTINGENCIES The Company has agreed to guarantee 20.99% of borrowings incident at any licerned nuclear power plant in the country is of up to $24.2 million by Keystone Coal Mining Corporation, an amount up to $10 million per nuclear incident (85 million the major coal supplier for the Keystone Plant (see Note 11).

for each reactor at Calvert Giffs), with a maximum contingent As of December 31,1987, the totM outstanding loans were liabihty of $20 million per year in the event of more than one

$14.2 million, of w hich $3.0 million was guaranteed by the nuclear incident in a particular year.

Company. Additionally, the Company has agreed to guarantee Effective January 1,1988 the policies of nuclear liability two thirds of up to $125 million of indebtedness incurred by insurance at Cahert Giffs have been amended to exclude radia-Safe liarbor Water Power Corporation (see Note 2)in connec-tion injury claims presented by certain nuclear workers. New tion with the expansion of its hydroelectric generating facil-policies prosided through the nuclear insurance pools hase ities. As of December 31,1987, the outstanding debt totaled been issued to cover such claims, up to a umit of f160 million 850 miuion, of which $33 million represents the Co npany's per incident. Claims are funded by an after-loss assessment of two-thirds share. The Company assesses minimal risk of default each member insured equal to 95 % of the claims less accum-on the loans it has guaranteed ultted reserves and earnings The contingent liability to the Company in any one year would be $5 million it is the opinion Nuclear Contingencies of the Company that Secondary Financial Protection, as The two units at the Company's Calvert Giffs Nuclear Power described in the preceding paragraph, could be effective after Plant are its principal generating facihties and produce the two full limits in losses have been paid.

lowest cost power availnble to the Company. An incident at this The Ccmpany's insurance for physical damage to its nuclear plant could have a substantial adver,e effect upon the Com-power plant is structured to provide a level of ?rimary pany. The pnmary crntingencies resuleng from an incident at Insurance and a level of Excess insurance. The Primary the Calvert diffs Plant would involve the Company's !!sbility to insurance, prosided through nuclear insurance pools, cosers third parties for property damage and lxxhly injury, the up to 3500 million of physical damage, including contamina-

)

physical damage to the plant, and the cost of replacement tion, to the plant. The Excess insurance currently provides pow er.

coverage for an additional 31.025 biluon (or a total of II.525 The Price-Anderson Act (Act) currently limits the liabibty to bilhon) of physical damage to the plant, including contamina-the public of an owner of a nuclear power plant for property tion. Any damage to the plant in excess of $1.525 billion would damage of and bodily injury to third parties to $720 million for be the financial responsibihty of the Company. The Excess a single nuclear incident, as defined in the Act. The Company losurance protection is provided through a combination of is protected against this potentialliabihty by a combination of nuclear insurance pools and an industry-ow ned inutual b,

commercial insurance (currently $160 million through the insurance company. The major portion of any claim paid nuclear insurance pools) and Secondary Financial Protection through the Excess insurance coverage for damage to any currently amounting to a maximum of $560 million. L'nder nuclear power plant operated by a member of the industry-regulations issued pursuant to the Act, the $560 million of owned mutualinsurance company would be funded through Secondary Financial Protection for public liabihty resulting insurance company reserses and an after loss assessment of from a nuclear incident wou!d be prosided through an after-each member. The contingent liability to the Company for such loss assessment of each nuclear. powered utility in the country after loss assessments currently is $8.4 million in any one at a rate of up to $5 million per reactor, with a $10 million per poucy year.

i IMlimore Gas arulElectric Comjumy In the event of an outage at Calvert Chffs, the Company the Calvert Cliffs units; however, the insurance described above would obtain replacement power from other sources. Due to is the only insurance currently available to cover such public the relathely low cost of the power generated at the Company's liability, property damage, and replacement energy costs.

nuclear plant, replacement power would be more expensive. In As addiuonal amounts of insura1ce become available, the Com-the event of an outage caused by physical damage to the pany will consider increasing its insurance limit after evaluaung nuclear plant w hich is insured as discussed above, other the economic lustification for such increase. The Company insurance provided through an industry-ow ned mutual in-would seek to have any unrecovered costs induded in its surance company would provide coserage for a portion of the service rates, but the Company canot assure that the Public replacement power costs if the outage lasts more than 26 Service Commission of Mar) land (Maryland Commission) would weeks. Currently this insurance provides for a maximum 4eek-allow such recovery.

ly indemnity per unit of the lesser of 33.5 million, or 90% of the Company's calculated replacement power cost for that unit.

Recorerability of Electric Euet Coss This maximum weekly indemnity will be available for up to a By statute, actual electric fuel cost s are recewerable so long as 52-week period, after which the maximum weekly indemnity is the Maryland Commission finds th.it the Company demonstrates L reduced by 50% for the ensuing $2-week period. For one that, among other things, it has m tintained the productive insured occurrence causing both Calvert Cliffs units to be capacity of its generaung plants at a reasonable level. The shut down beyond 26 weeks, the weekly indemnity payments Maryland Commission and Mar)lacd's highest appellate court would then begin for each unit at a rate of 80% of the fore-have interpreted this as permitting a subjectise evaluation of f

going This replacement power insurance would fund a claim each unplanned outage at the Company's generating plants to paid to any member of the industry-ow ned mutual insurance determine w hether or not the Conipany had implemented all company through insurance company reserws and an after loss reasonable and cost effective main:enance and operating con-assessment of each member. The contingent liability to the trol procedures appropriate for prevenung the outage. The Company for these after. loss assessments currently is 39.7 Company is periodically involved in fuel rate proceedings and million in any one policy year.

Issues concern'ng indnidual plan: outages are usually raised in The Company does not consider the amounts of insurance those proceedings. The Company cannot estimate the amount discussed above to be adequate to cover the costs that could of replacement energy costs that could be denied in those pro-result from a major incident or an extended outage at either of ceedings, but such amounts could be material.

NOTE 13.

1987 1986 1985 SEGMENT ttn Thousands)

El_ ECTR C INFORMATION Operating Revenues.

$ 1,393,73 5 51,388,251 51,301,463 Operating income before income Taxes.

453,739 445,698 432,540 Operating income 326,658 305,011 291,849 Depreciauon.

118,081 113,365 111,365 Construction Expenditures 230,067 230,513 204,180 identinable Assets at December 31 3,498,03; 3,371,785 3,264,559 GAS Operating Revenues.

$ 415,456 s 445,769 8 453,309 Operating income before Income Taxes.

56,102 42,827 48,274 Operating income 39,721 29,552 32,393 Depreciation..

14,251 13,909 13,5 %

Construction Expenditures.

24,463 23,629 21,590 IdentiGable Assets at December 31 346,681 345,145 343,556 TOTAL.

Operating Revenues.

$ 1,809,191 81,834,020

$ 1,754,772 Operating income before income Taxes.

509,841 488,525 480.814 L Operating income 366,379 334,563 324,242 Depreciation.

132,332 127,274 124,%1 Construction Expenditures 254,530 254,142 22 5,771

• p identifiable Assets at December 31 3,844,713 3,716,930 3,608,115 '

Other Assets.

665,279 653,498 575,293 40 Total Assets.

4,509,992 4,370,428 4,183,408

' includes steam

=.

Baltimore Gas and Electric Company NOTE 14.

The following data are unaudited but, in the opinion of Manage-winter months. Accordingly, comparisons among quarters of Q('ARTERLY ment, include all adjustments necessary for a fair presentation.

a year may not be indicative of oserall trends and changes in FINANCIAL The business of the Company is seasonal in nature with the operations.

DAT%

peak sales periods generally occurring during the summer and (l'N AL DITED)

Operating Etraings income Applicable Earnings Per Operating Plus Net to Common Share of Quarter Ended Revenues AFC' income Stock Common Stock (In Thousands, Except Per Share Amounts)

March 31,1987.................

$ 522,544

$ 98,171 5 73,580

$ 68,304

$.87 J une 30,1987.................

391,599 76,032 51,657 47,002

.60 September 30,1987..............

506,579 150,047 126,157 116,502 1.48 J

December 31,1987..............

388,469 73,068 48,704 41,884

.53

$ 1.809,191 5397,318

$ 300,098

$ 273.692

$3.47 3

March 31,1986...

8 532,968 8 98,092 8 71,973 8 65,287 8.83 June 30,1986,....

395,001 77,245 52,102 45,416

.58 September 30,1986.

488,018 125,605 102,551 95,866 1.22 December 31,1986..

418,033 64,074 47,993 41,174

.52 8 1.834,020 8 365,016 8 274.619 8 247.743 8 3.15

• The Allowante for Funds Used During Construction (for Borrowed Funds and Other Funds)is added to Operating income in determining operating income for ratemaking purposes.

)

9 49

CONSTELIATION SL'BSIDIARIES Baltimore cas and nutric Company Constellation iloidings, Inc.

~ T "P TV Christian 11. Poindexter, President 7

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-Q and ChiefEvecurite Officer 301 783 2803 f

Y fl Constellation Properties, Inc.

p G. Wendel lleineman, President s-m 301-783 2827 i

Constellation Development, Inc.

Constellation Operating Seruces, Inc.

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Constellation Water Systems, Inc.

p Bruce 51. Ambler, President

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301-783-2805 p

left to right, front roic Christian 11. Poindexter, President and Chief Executive Officer-Constellation iloidings; E Becki Kurdle, Vice President, Constellation Investments, Inc.

Constellation Properties.

Steven D~ Kesler, President back rote: llenry A. Jurand, Vice President and Chief Financt 10fficer, 30148348 1 3

Constellation lloldings; Steven D. Kesler, President, Constellation Investments; Paul II. Steinbach (deceased), President, Constellation Operating Services; 250 West Pratt Street G. Wendel lleineman, President, Constellation Properties; Bruce St. Ambler, President, Constellation Development.

Baltimore, Staryland 21201-2423 5tr. Paul II. Steinbach passed away suddenly on December 18,1987. Ile joined Constellation Operating Services in April 1987 after 39 years with Baltimore Gas and Electric Company. Ilis contribution will be missed.

Constellation iloldings, the parent company of Constellation Properties, Constellation [welopment, Constellation Operating Services, Constellation Water Systems and Constellation investments,is a wholly owned subsidiary of Baltimore Gas and Electric Company.

O Constellation iloidings Constellation Ikt eloprnent This company provides direction to all of the operating sub.

This is the senior member of our Energy and Emironmental sidiaries and furnishes them with planning, legal, financing Group. L'nder the auspices of Constellation Development, we and accounting services. In addition, the search and screening participate in a number of qualified alternathe energy and co-for new investment and acquisition opportunities is controlled generation projects producing electricity for sale to other utilities.

from Constellation llo1 dings.

Cons /cl/ation Operating Serrices is the group member uhich 0

handles our plant operating and maintenance actisities.

Rounding out "le group is Constellation trater $) stems from which we manage our actisities in water and wastewater projects.

Constellation Prvperties Consteliallon investrnents This member of the group is the focus of Constellation's activity The largest single company at this time, Constellation invest-in the real estate marketplace. Current projects include in-ments is the funding source for the other activities as well as a dustrial parks, office buildings, retail and residential develop-permanent prosider of current income from its assets in various ment. In addition, the company has a significant investment in securities, imestment partnerships and operating financial the senior living industry. Joint ventures with other regional service companies.

and national developers are the dominant business structure.

0FFiCERS Baltimore Gas and Electric Company George V. McGowan llerbert D. Coss, Jr.

Arthur E. Lundvall, Jr.

Chairrnan of the Board 11ce President, General 11ce President, fossil and Chief Erecutive Officer Sertices Energy J seph A. Tiernan Edward A. Crooke Gcorge D. England E.  ?"'IA'"I' N"'I'"'

'E President and Chief Operating 11ce President,

"EY Officer-Clility Operations Distribution Charles W. Shivery Thomas E Brady Jon M. Files Treasurer and Secretary 11ce President, Accounting

\\1ce President,.tIanagement E

and Economics and StaffSertices Jefirey L. Dasis Assistant Secretary Michael J. Chesser John W. Gore, Jr.

3 11ce President, Consumer 11ce President, Electric Thomas E. Ruszin, Jr.

Sertices Interconnection and Operations Assistant heasurer o

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.g left to rigbt: Mr. England, Mr. Gore, Mr. Files, Mr. Brady, lep to rigbt: Mr. Coss, Mr. Chesser, Mr. Tiernan, Mr. Crooke, Mr. McGowan Mr. Lundvall tilANGES IN DIRECTORS AND OFFICERS j

Effective April 1,1987, Michael J.

Committee of the Board of Directors of Shivery became Secretary in addition to Chesser, formerly Manager, Southern the Company.

retaining his duties as Treasurer and Distribution, became Vice President-Effective January 1,1988, Edward A.

Manager, Finance.

Consumer Services succeeding Raymond Crooke, formerly Vice President Finance Also effective January 1,1988, Jeffrey C. Bryant who retired on that date.

and Accounting and Secretary, became L. Davis became Assistant Secretary and Effective July 1,1987, George D.

President and Chief Operating Officer-Thomas E. Ruszin, Jr., became Assistant 5;

England, formerly Manager, Northern l'tility 0perations succeeding Mr. McGowan.

Tieasurer.

Distribution, became Vice President-In addition, Mr. Crooke and Christian The Board also elected George C.

l Distribution succeeding ihnry 11. Miller

11. Poindexter, President and Chief Creel, Vice President-Fossil Energy effec-l who retired on that date.

Executive Officer-Constellation lloldings, tive March 1,1988, replacing Arthur E.

l Effective January 1,1988, George V.

Inc., were elected to the Baltimore Gas Lundvall, Jr., who will retire on that McGowan, formerly President and Chief and Eledric Company Board of Directors.

date. Mr. Creel was formerly Manager, Operating Officer, became Chairman of Effective January 1,1988, Thomas E Fossil Operatior s.

the Board and Chief Executive Officer Brady, formerly Manager. Accounting, During the 3 ear, Charles S. Sanford, Jr.,

succeeding Bernard C. Trueschler w ho became Vice President of the restructured resigned as a Director of the Company in retired on that date. Mr. Trueschler will Accounting and Economics Division.

order to meet his increased responsibilit;es continue as Chairman of the Executise Effective January 1,1988, Charles W at the fiankers Trust New York Corporation.

p

BOARD 0F DIRECTORS Balumore Gas and Electric Company Q

George V. McGowan Jerome W. Geckle George G. Radcliffe Chairman of the Board Chairman of the Board Chairman of the Board and ChiefExecurite Oficer and ChiefErecutite Officer, and ChiefExecutiw Officer,

's of the Company, Baltimore PHH Group, Inc.,

The Baltimore LifeInsurance Baltimore (Relocation, Company. Baltimore (Insurance) 4

). Owen Cole febicle, Asiation, and Chairman of the Executin Offa Ruoura Sn:ias)

Dr. John B. Slaughtet Committee of the Board ofDirectors, Chancellor, Uniursity of first 3faryland Bancorp, Willard Ilackerman afary4nd at CoHege lark, Baltimore (Bank Holding Company)

President and Chief Executive Colh e Mk, alaryland 3

Officer, The \\rbiting-Dirner (Education)

Edward A. Crooke Contracting Company; f

Balumoa(ConstrucHon Bernard C. Trueschler l

President and Chief Operating Officer-Ctdity Operations and ConstrucHon afanagement)

Chairman of the Erecutim

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of the Company; Baltimore Committee of the Company, Paul G. Miller Baltimore Leslie B. Disharoon Cbairman of the Board, Chairman of the Board "A'" "A"I" E""#'I"

II3 TTY. Wells

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Chairman of the Board, 5

and President,3fonumental Corporation, Baltimore EA'*' ""# A"'""

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3fcCormick & Company, Inc, (Insurance)

Baltimore (lbod Processing, Christian 11. Poindexter Spices, etc)

Sister Kathleen Feeley, S.S.N.D.

Preside, t and ChiefErecutne President, College ofNotre Offar&deHad n Holdingx Inc, x;

Dame ofofaryland, Baltimore

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73ubsidiary'>

i (Education) o s

i COMMITTEES OF THE BOARD 4

i Audit Committee Executive Committee Committee on Nuclear Power Afr. Radchfe, Chairman Afr. hueschler, Chairman ofr. tTVils. Chairman Air Cole Alt. Crooke Sister feeley Afr..tfiller 31r. Disbaroon 3fr. Hackerman Sister feelq Afr. Ibindexter L,

Committee on Management Jfr 3/cCorran Dr. Slaughter 31r. Geckle, Chairman Alr. Radchfe 31r. Cole Afr. \\ Tells t'i l

3/r. Disbaroon l

l 52 Afr. hueschler l

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O

SHAREHOLDER INFORMATION sammore cas andriectre company COMMON STOCK DIVIDENDS AND PRICE RANGES

}

1987 1986 0

Dividend Price Disidend Price Declared High law Declared liigh low First Quarter.....

$.45 537%

$30%

8.425

$28%

$23 Second Quarter....

.475 32%

26%

.45 33%

25%

Third Quarter

.475 33%

30

.45 39%

29%

Fourth Quarter

.475 34 19

.45 36%

32%

Total..

$1.875

$1.775

.O sI DIVIDEND POLICY ANN 1'AL MEETING I

The Common Stxk is entitled to dividends when and as declared by The annual meeting of shareholders will be held at the Board of Directors. There are no limitations in any indenture or 10.00 a.m. on Apnl 20,1988, in the llunt Valley Ballroom other agreements on payrnent of dividends; however, holders of of Marriott's llunt Valley Inn, 245 Shawan Road (I 83 Prefer ed Stock (first) and holders of Preference Stock (next) are at Shawan Road), ilunt Valley, Maryland.

entitled to receive, w hen and as declared, from the surplus or net f

profits, cumulative yearly dividends at the fixed preferential rate FORM 10-K specified for each series and no more, payable quarterly, and to l'pon written request, the Company will furnish, althout receive when due the applicable preference stock redemption charge, a copy of its Form 10-K annual r. port, including finan-payments, before any dividend on the Common Stock shall be paid cial statements, after it is filed with the Securities and Exchange or set apart.

Commission in March 1988. Requests should be addressed to Dividends have been paid on the Common Stock continuously Once Charles W. Shivery, Treasurer and Secretary, P.O. Box 1475, 1910. Future dividends depend upon future earnings, the financial Baltimore, Mar}!and 21203.

condition of the Company, and other frctors. Quarterly dividends i

were declared on the Comrnon Stock during 1987 and 1986 in the Al'DITORS amoutts set forth above.

Coopers & L) brand 0

00%YO?, STOCK DIVIDEND DATES EXEft:TI) E GFilCFS Q

Record dates are normally on or about the 20th of March, June, Gas and Electric Building Septernber and December. Quarterly dividends are customarily mailed Charles Center g

to each shareholder on or about the 1st of April, July, October and Baltimore, Maryland 21201 january.

Mail: P0. Box 1475

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DIVIDEND REINVESTMENT AND STOCK PL'RCIIASE PLAN StIAREl!OLDERS' INQt'IRIES AND ASSISTANCE The Company's Dividend Reimestment and Stock Purchase Plan Shareholders desiring assistance with lost cr stolen stock certificates or l

provides an opportunity for holders of the Company's Common Stock dividend checks, name changes, address changes, stock transfers, or to acquire additional shares of such stock in a convenient and other matters should call the Investor Services Representatives on our economical manner. Participants in the Plan may reinvest cash toll-free telephone numbers.

4 dividends on all or a portion of their shares of Common Stock and/or The following toll-free telephone numbers are available during our j

make optional cash payments not exceeding $6,000 per quarter.

business hours,8.00 a.m. to 4:45 p m.

/.

Baltimore Metropolitan Area 783 5920 STOCK TRADING Within Maryland 1-800 492 2861 The Company's Common Stock, which is traded under the ticker Outside of Maryland 1 800 225-2432 symbol BGE, is listed on the New York, Midwest, and Pacific stock exchanges, and has unlisted trading privileges on the Boston, Cincinnati, and Philadelphia exchanges.

Baltimore Gas and Electric Company As of December 31,1987, there were 75,682 Comrnon Stockholders Investor Services of record.

PO. Box 1475 I '*"

TRANSFER AGENT AND REGISTRAR Maryland National Bank, Baltimore a

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B A LT IMORE GAS AND ELECTRIC Gas and Electric Building Charles Center PO. Box li's llaltimore, 5f ar> land 21203 I

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