ML20151A744

Forwards Annual Rept for 1987

ML20151A744
Person / Time
Site:	Calvert Cliffs
Issue date:	03/31/1988
From:	Ringsdorf J BALTIMORE GAS & ELECTRIC CO.
To:	NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM)
References
NUDOCS 8804070222
Download: ML20151A744 (1)

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BALTIMORE OAS AND ELECTRIC CHARLES CENTER '. P.O. BOX 1475 BALTIMORE. MARYLAND 21203 ACCOUNTING DEPARTMENT March 31, 1988 i

U. S. Nuclear Regulatory Commission Document Control Desk Washington, DC 20555 Gentlemen:

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In accordance with the requirements of 10 CFR 50.71(b) and 10 CFR 50.4 enclosed please j

find Baltimore Gas and Electric Company's annual

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report for the year 1987.

4 Very truly yours, l

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r J. E. Rings f,Jr.

Supervisor.

Financial Reporting 4

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HIGHLIGH15 Percent 1987 1986 Change inLTIMORE GAS Earnings Per Share of Common Stock AND ELECTRIC L'tihty Operations

$3.30

$2.83 16.6 %

COMPANV Constellation Companies.

.17

.32 (46.9)%

Tota!..

83.47 83.15 10.2 %

Disidends Declared Per Share of Common Stock.

81.875 81.775 5.6 %

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Average Shares of Common Stock Outstanding.

78,861,000 78.627,000 -

0.3 %

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Operating Res enues Electric.

$ 1,393,73 5,000 81,388,251.000 0.4 %

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Gas.

415,456.000 445.'69,000 (6.8)%

i Total.

$1,809,191,000

$ 1,834,020,000 (1.4)%

Net income.

$ 300,098,000 8 274.619.000 9.3 %

Earnings Applicable tn Common Stock.

5 273,692,000 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.

54,509,992,000 84,370,428,000 3.2 %

Net l'tihty Plant.

53,691.691,000 83.567,676,000 3.5 %

Construction Expenditures.

5 254,530,000 8 254,142.000 0.2 %

CONSTE1L4 TION Revenues.

5 30,405,000 8 24,876,000 22.2 %

Net Income.

13,669,000 8 24,825,000 (44.9)%

Total Assets 5 479,281,000 8 409.888,000 16.9 %

BG&E's inscitment.

$ 205,080,000

$ 192,075,000 6.8 %

DMdends F. tid on the Common Stock Continuously Since 1910- Always Earned-Never Reduced c

COVFR CONTENT 5 Computer.generakdgraphics a treatmentfor the symptoms Letter to Shareholders...

.2 of molecules like the one on the of the common ccdd-Financial Review

.6 cuter belp scientists at the Noca 15fth locations in both the Out Setvice Territory.

8 Characteristics of the Business.....

8 Pharmaceutical Corporation llolabird Industrial 1%rk and unratel complex structure-the francis Scott Kg.tledical

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actitity relationships. The goal Cenkt, Nota is tyfdcalof the Managing Change

.............l2 of their research is the dis.

biotech industries that a?*

Flnancial Contents

........... 15 coteq of nete drugs by using becoming a sigmficantfactor Constellation Subsidiaries.

.50 modern malmdar techntdo-in the Baltimore-Itasbington

ottycer,

,,.,, $1 gies one of theprojwtr under corridor and changing the Board of Directors and Committees........... 53 any at Nota norris deteloping character ofour customer base.

Shareholdet Information...

....inside Back Cover

h illlS llEPollT focuses on a view of BG&E that mc st people-even shareholders-rarely see. It will tell you how and why we made certain

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decisions in 1987. It will tell you about some of the things that happened-some planned and some unexpected.

1987 was a momentous year in the life of your Company-a year of transitions, 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 organizatian 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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Our roots are deep in the utility changes. so shall tre. But one business. Ibey go back oter fact uill remain constant:

1.'O years to Ibe ttry beginnings BG&E uill rnanage cha'tge as of the utility industry in the it alu+ays bas-bead-on and

.Vetr \\thrid. As our industry bands on.

rnatured, so did n'e; and as it

Letter to reduction was primarily attributable Shareholders tothep,ss.tn,oughofin,taxsaungs "For 4 number of associated with the Tax Reform Act of yggrg ygyg bg[h fhg he pace of change accelerated in 1986 and to the establishment of our

);7ggggg gfgggggg 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.

IN Ib0 NIN!If that we responded well and that we For over a decade the Calvert Cliffs

/#(l#S/rf GN(ilbe are positioned to grow with the Nuclear Plant has been the heart of ffgggfgoverflg increasing changes to come, our generating system. In 1987 (l/ rec //o# hdPe 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 INION 8I[,I!N8',,

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 11. Central Star) land and BG&E (0SART)of the International Atomic demand for energy will continue to be have certainly benefitted: electric Energy Agency (IAEA). The finalIAEA strong.

sales growth over the last five years report termed Calvert Cliffs a "well Brandon Shores Unit No. 2 is cur-averaged over 5 % ; gu 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 lecting electrir,aks increased by more than gerial approach, personnel training this new demand growth.. nave 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 Penns)lvania Power & I.ight 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 19831986, we experi-beginning in 1990. This agreement, homes using heat pumps, and in the enced substantial growth in our peak w hich 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 oser ibility in selecting future generation

$3 A7 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 pc.st decade on behalf of our payableJuly 1,1987. This represents a ing economic period, have led to less natural gas customers, working before 10-cents per share annualincrease 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 Last Slay the Public Service Com-on July 21st-responded also to a and producers to keep gas a com-mission of Stari and ordered the weather pattern which normally petitive fuel. As part of that strategy, l

Company to lower its base rates to occurs only once in ten years. After we are building a 38-mile,20 inch

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produce a $78.3 million (4.4 %)

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

Corporation. This project is well l

under way. The fact that both we and Consolidated are determined to forge ahead has already overcome many

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he-M potential regulatory obstacles.

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

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i of business: real estate, senior living l

and health care, energy and environ.

g.4 mental projects, and investments and financial services. The Constellation

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pages will explain their activities for s

you in more detail.

Constellation's earnings in 1987 1

decreased from 1986 to $14 million, been carefully groomed for their cur-in this area, but also urging that the contributing $.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 imperatise to keep our securities portfolio during last could because we regularly plan for our ultimate goal of economic effi-October's stock market decline. We succession at alllevels of the Com-ciency in mind and make certain that j

1 are also undergoing a planned transi-pany. Our management systems are all new policies contribute to, rather tion in the mix of our assets. Money centered around the idea that human than detract from, its achiesement.

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 i

fund the development and construc-our success-economical facilities, much flexibility as possible for as I

tion of energy and real estate projects quality service, state-of the-art tech-long as possible. We are doing that by with significant longer term yield nology, strategic planning-all stem exploring options, developing our i

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

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 w hole, we the process of change in the utility dedication of our people, we are are satisfied with Constellation's pro-industry and the debate over its moving eager./ toward a new era in a

gress and confident about its future.

direction have been intensifyint 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 j

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3 two scars, due to nm.ial retirements, Federal Energy Regulatory Commis-i we replaced nine of our eleven officers sion announced a new policy to pro- [

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in a smooth and orderly transition.

mote competition in the bulk-power

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None of our new officers is new to market. At that time, I wrote to Gecrge V. RGowan l

BG&E. All are products of our iluman Chairman Martha liesse indicating Chairman ofIbc Board j

Resource Planning System, and hase our support for increased competition February 1,1988

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Christian 11 Poindetter tdward A. Crooke l're.e knt and (bitf1 recutu e tJfficer-l' resident and Chief (ifwrating (Jfficer-GnutcIlation Ibddtngs. Inc.

I tility Ibperatioru Christian 11. Poindetter h.EMPTlo%itETIREMEmitEPL RulAsES revenues by $2.0 million and were are shown in the accom.

H % % nni Refu&ng Mongage Beds - 8393 9'i% nrst Refunding Mortgage Bonds.

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

Sw nnt Refunding Mortgage Bonds revenue decrease is attributable tinstallment serrs) 1.4 8[""([ oft primarily to a decrease in the federal Tax Reform p

us income tax rate used in establishing Provisions of the Tax Reform 12 % cumulause Preference stod.

6.8 service rates from 46% in 36% and Act of 1986 (Act) included 9.35 % cumulause Preference stak.

35 0 8.3m cumulausoreferme w.

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

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authorized 10 96%.

elimination of tne invest-ment tax credit, changes in depre-visions, :hereby diminisning the financings clation ates and lives, and various Company's ability to defer *he pay-Again in 1987, BG&E's financial other prosisions which affect the ment of income taxes until later 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 sh(If registrations. In addition, the tax credit and certain other tax pro-Company's financial flexibility was

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• N Aserage Rate Per Kilowatthour of Electricity Among the largest l's c2 tics with Insestor ow ned t~tiliues All fustomer Caternes 12 Onths En&ng bernber IW tcents per Lilowarthoor)

Our Service li>rritory

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Characteristics of the Business Baltimore 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 primanly 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 Centrs.1 Maryland for the purchasing and selling natural gas.

maintains shared ou nership of production an..I storage of liquefied i

The Company, w hich 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.

utilitie;in the United States, has and Safe liarbor Water Pow er Cor-In addition to its regulated utility 8,767 employees serving an area paration, a producer of hydn> electric business, the Company sells electric which includes Baltimore City and all power. In addition, the Company is a and gas appliances.

or part of nine Central Maryland member of the Pennsylvania-New Constellation !!oldings, Inc., a g

counties. The area sened with elec-Jersey 41aryland Interconnection w holly owned subsidiary, directs the tricity approximates 2,300 square w hich affords access to pooled capac-Company's expanding diversification v.iles with 2,420,000 residents, w hile ity on fasorable 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 diversified activities as real of 1,861,000.

4 % hydro and 7 % net interchange.

estate deselopment, senior living and To service this area, the Company The Company obtains substantially health care, energy and entinmmen-l operates ten electric generating plants all of the natural gas it sells through tal projects, and investments and in Central Maryland, including the purchases from pipeline suppliers and financial sen ices.

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Operations Review Electric and Gas Sales installed capacity requirements as a Hexible and retain our ability to respond Electric member of the Pennsylvania New to fuel price Ouduations, we cometted Total electric sales increased in 1987 Jersey-Maryland Interconnection. The Rherside l' nit No. 4 to allow full load by 6.3 % over 1986 sales. All cus-maximum installed capacity purchase firing of natural gas in addition to its tomer classes increased: residential will decrease to 400 megawatts from oil firing capab!!ity.

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

li. A. Wagner l' nit Na 3 was com-primarily responsible for these results Purchases ofinstalled capacity under pleted on sch(dule at a cost of were a summer that approached the the agreement 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 load of 5,190 megawatts on Company's flexibility to align future at an emissions level well below the July 21,1987, and customer grow th, capacity additions uith system needs.

1;mits required by Maryland regula-particularly in the number af new The second part of the agreement tions. The adjacent l' nit No. 2 at heat pump installations.

invohes the purchase of the energy Wagner is currently being comerted 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 May 31,2001. The low originall' nit 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 effecth e manner Corporate Performance Award Goals Company's Delisery Senice tariff for and allows the Company to monitor for 1987, earning each indhidual an the transporting of customer ow ned industry experience with emerging award of I % % of his or her annual gas purchased directly at the wellhead.

technologies for several more >rars base salary in the form of Company before selecting suppliers for future stock. Their sery good performance Power Purchase Agreement Company-ow ned generating facilities.

was marked by three special achieve-with Penns)hania Power &

ments: a cc,mplement reduction of Light Company Construction

% employees which surpassed our The Company recently entered into a Our fossil generating plants achiesed goal and, in the process, produced two part agreement with the Penn-their highest level of readiness eser 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 Nosember. To help insure continued our customers suneyed; and a 13 %

9 fromJune 1,1990, through May 31, reliability, w e installed state-of-the-decrease-far beyond our goal-2001. The first part of the agreement art digital (ontrol systems at seseral ir restricted / lost work accidents. The entitles the Company, at its sole steam plants in 1987 and are now significance of thh latter achievement discretion, to contract for up to 600 expanding this controls upgrade pro-goes beyond the dollar sasings it I

megawatts of installed capacity from gram to our C. P. Crane Power Plant in engendered: it means ths' more and 1

l June 1,1990, through May 31,1991, 1988. As part of our policy to keep more of our people are working safely l

for purposes of satisfying BG&E's our present fossil generating capacity and staying healthy.

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The ConsMlation ing and significant percentage of E.ast t.oast are establishing Constella-Compam,es iuns emnis.

uon s nanonai n'Puuoon for quahiv Constellation's 1987 results reacct and integrity as both a joint s enture rp ses eral factors: First, our grow th in partner and an independent desel-I he past 18 months hase been a project-oriented businesses has oper. Me are currently invoh ed in period of grow th and rnaturation for realh>cated capital from short term 27 projects. representing m er the Constellation family of companies.

Im estments to assets w ith potential

$D million in project costs.

We have concentrated upon pursuing for higher future yields requiring a These pmlects include land deselop-four lines of business: Real Estate, longer perhid to develop and mature, ment, industrial and business parks, Senior I.is ing and lleahh Care, Energy Second, one of our professionally office buildings, residential com-and Ensironmental Projects, and managed securities accounts incurred munities; festival retail shopping Im estments and Financial Senices.

significant reallied losses during last centers and specialty retail centers.

We have been sery successfulin October's stock market plunge-that in the fall of 1987, we broke ground recruiting quality people w ho hase event alone pmduced a 8.0S per share for our llrow n's Wharf project located l

the knowledge and experience we decline in earnings. lastly, the Tax in llattimore's historic Fells Point need for the future. With our talent Reiorm Act of 1986 made certain tax-waterfront district. This multi use j

assembled and our directions clearly advantaged imestments either less development will feature shops, i

established, the future-both near attractis e or nonexistent.

offices, restaurants and a full service and long term-h>oks bright.

marina. It retains the character of Although earnings declined in 1987, Real F. state a Federal era mantime village, Constellation iloidings contributed Conste!!ation Properties has become including the restoration of four

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

corporste total for the year. Our goal regional real estate market. Our local Slated for a fall 1988 opening, j

continues to be to contribute a gmw-projects and those elsew here on the Brown's Wharfis a joint senture between Constellation and llistorical Deselopers of Pennsylvania, Inc.

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D Senior I h ing and llealth Care f

y Constellation Properties has focused i

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on the senior citizen market as a source of high profit,long term l

growth. Americans are turning (n_ at essa r

4 the rate of nearly I'>0,000 persons a

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C-month, and the mer 4) ear-old age

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TF group is the fastest growing segment l

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of our population. Many of these people seek residences that offer i

K both 2-i hour a-day support senice l

and quality attendant care. IlG&E's j

corporate reputation earned by decades of "always being there" will 1 10

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• of In j!roduce energ Nearly Ormesa ll, a.M megau att 4 million pounds of tot u'ater-geotherinalpourt plant locatrJ at a temferature as craging In fast Mesa. Cahfornia.41 317* Tabrenhett-are pro-l Ormesa bot unter is pumped cencJper kn.t Ormesa llls l

from uells dug deep into the ont of a bandful ofgeothermal carth, and the beat n extracted encry plants in the countr)

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enable Constellation to 'oe a trusted ten alter 'ative energy plats.

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 industry. In addition to the four Constellation Operating Services, in projects described in the preceding Maryland nursing homes which we partnership with Bechtel Eastern sections as well as opportunities in purchased jointly with Meridian 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 have restructured our investment centers, one in New Jersey and one Power Station in Pennsylvania. This portfolio, diverting $73 million of in Montgomery County, Maryland, 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 combustloa technology.

systems, limited partnerships, real l'rojects 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 enugy 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-we are part-owners or developers doing, it offers us a "window" into chased 21.6% of the stock of Capital include plants fueled by wood, the future of the electric power Re Corporation for $25 million. This coal, solar, geothermal, hydro and generation in justry.

ccmpany, w hich has a AAA rating solid waste. Through Constellation from Standard & Poor's, will provide Operating Services, a subsidiary Financial inyestments reinmrance capacity to primary formed in 1987, we are also involved The goals of Coastellation Invest-guarantors of municipal and in the operation and maintenance of ments are to provide a steady stream corporate obligations.

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A W? side panels abote are fells (bint. Presening the brick pn>menade. hke the one close ups of the 19th century area 's historical character in the artist's ren.iering abott.

l brickuurk that util be retained u bile opening it to malern uilllink Broten's ubarf and all as part of Constellation's business. retailand recrea-of the Fells ibint traterfront l

Bruust's uharfdetelopment tional uses is the projat's uith the inner Harbor project en Baltimore s historic pnmarygoal ntsmately, a l

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Managing Change ONDAY, jl1Y 20,1987-t

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A stationary high pressure sptem stalls oser the upper mid Atlantic region, enseloping the area in heat j

and high humidity. For the next sis 4

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the 100s.

v Pk. ({k days, temperatures remain in the

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Tl'ESDAY, JL LY 21,1987-After w4 l

repeatedly shattering presious peak h

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usage records, the heavy demand for

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time one-hour peak for BG&E of near-4

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ly 5,200 megawatts. Customers con-tinue to soak up every available f

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resen es across the entire electrical 4

i M. r-1 poolof the Penn9 vania NewJersey-Maryland Interconnection.

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Till'RSDAY,jl1Y 23,1987-Ik>th reactors at the Cahert Cliffs Nuclear 1

i Plant-normally the source of more j

than half of BG&E s electricity-l are operating at 100 % powcr. At 3:25 p.m. a ground fault occurs and j

we lose one of the two 500 kV transmission lines that connect immediately shut down.

hours, the plant is reconnected to the i

l Calvert Cliffs into BGME's electric Supplied with power by Cahert Company's power system, allow ing l

sptem. Circuit breakers open on both Cliffs' three emergency diesel conditions to return to normal.

j lines, isolating the plant from the generators, operators work quickly 4 hile operators at Cahert Cliffs l

Company's sptem. Both reactors to stabilize the reactors, and w ithin work to restore the plant, electric

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'This story had niany heroes. Quick thinking and coordinated action l

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A transminion lines are the maintenance and alert ofwra-

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arterus of a utility taking tion, since damage la one encryfrom its suurt e to the smallpart can quickly affect I

i places ubere it's needeJ Ths large areas of the splem til.d sytem requires condant l

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a system operators take emergency The process is formally known as jDL.g. 9e measures to stabilize the bulk power y.a e iluman Resouice Planning. The heart system-the electrical "backbone" of of the system is a detailed profile I

the Company-to present an inter-k kl rating form designed to evaluate a i

ruption of service to our customers.

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person's managerial potential.

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@ '" fau =a '3-4' Each June, all supervisors at BG&E Operators at other BG&E generation uaw plants increase electric power output

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n file or update a confidential profile f

dinary measures prevent cascadmg l

gk on their managerial and professional to emergencv limits. These extraor-g employees. These profiles give us the equipment loss throughout the power g

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data to nominate candidates for grid and eliminate the possibility of management replacement positions-widespread blackouts.

historically, approximately the top On one of the bottet days of the 250 positions in the Company. Start-summer. trben B6SElast or er 1.(M Ing in the early fall, department megarratts ofits generating capacity, to new ideas and attuned to the managers and their vice presidents not a single customer lost pourr needs of the people we serve. We identify candidates for the manage-cannot predict exactly when esents ment positions in their departments.

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like ground faults will occur, but we Each vice president then meets with

,l,his story had many heroes. Quick can control our ability to cope with the Chairman and the President to thinking and coordinated actioi, them if and w hen they do.

finalize the candidates in the disision.

across departmental lines presented Our people's response to this crisis Oser the past two years, nine of damage. We did not espect to lose a reaffirmed our confidence in our our elesen officers hase changed in major transmission line in the midst management salues. BG&E is a a series of normal, planned retire-of a sesere heat wave, but w hen we people-oriented compan)-inside ments. Among them was Chairman did, BG&E was prepared to act. All and out. To the customer and the Bernard C. Trueschler w ho retired in the training, testing and preparation shareholder, that orientation trans-January. These retirements opened a we gise our people and equipment lates into quality sersice-more number of positions on our manage-paid off.

and better service than you might ment team.1.ast year the Board of The unexpected is a fact of life in e.spect. 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 deselopmg deselopment of our employees. Ever)

Executise Officer. Edward A. Crooke top-notch people, by setting strategic supersisor and manager at BG&E was elected to the Board of Directors goals, and by keeping oursehes open functions, in part, as a talent scout.

and elected Pre 3ident and Chief 1

1 across departntental lines prevented darnage.'

i 13 A At fig &li the lluman jobs in Itytr di.usiant huch l

Resource Planning Retteur is meetings occur annually in i

one ofInp management's mmt each duision prtor la the smportantfunctions tice Corporate Retiete hetu een prnidents meet uith thetr each i:P. the Prnident and managers to ducuss replace-the (bairman of the llaard ment candidates for the key

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l Operating Officer-l'tility Opera-tion is held accountable for and con-way we delivered benefits to out 1

tions. In addition, Christian 11.

tributes to some portion of the plan.

employees was no longer as appro-l Poindexter, President and Chief Strategic planning is, in essence, priate as it once was. List 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 to changing conditions. For our people to select the particular l

Board of Directors. The promotion of example, after monitoring ch.nging varieties of coverage the employee l

these and other people created family patterns, the economy and and his or her family needed.

l managerial and supervisory openings our own rising health care costs in on a larger scale, when we real-l throughout our organization-the eighties, we recognized that the ized at the beginning of this decade i

openings that our lluman Resource y-m

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"b Throughout the year, planning g

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groups from all areas of the Company

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meet to consider specific problems, j

issues and needs. The results of their

'D deliberations become prime con-siderations of our regular manage-ment planning conferences where we set the goals and assign the support-ing studies that are factored into oar j

Corporate Plan. Each of our eight divisions then develops its ow n strategies to meet the plan's goals, and each manager is responsible for specific performance objectives.

l'ltimately, eser>one in our organiza-

' Strategic planning is, in essence, a corporate ' fitness'progrant..."

15 4 Our people are our most detriopment Our commstment A Durtng 19C tbr Constella-of the ciVs neurst oDiv t aluable assel, avut ue intrst to Human Resource Planning tion Companies momt into buildings, the gleaming touer constderable time, effort and forms thefoundatsonfur all Ibetr neu beadquarters on Ibe near the Inner Harbor pn> tides resources in thetr trains'tg and our management nstems ljrd arui 24thpoors al ca nmaruling situs of Balti-250 tlest Prat! Street Unr more's entsre u aterfront.

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Point waterfront and number projected to reach almost l

ow ning a geothermal 10 million by the start of the next 1

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electric power plant century, the demand for assisted-In California's thing care and nursing facilities is s.

Imperial Valley.

rising rapidl). Omstellation Properties s

I Geothermal is just currently owns, as "joint sentures" N

i one of several forms with established operators in the 4 ~

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tion is invohed. This seeking additional investments. The of alternatise energy field, four nursing homes and two in w hich Constella-retirement centers and is actively 4

3 ear Constehation senior market is especially well intensified its focus suited to us, providing both attractise

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on this area by form-returns and the potential for long-a rt ing a group of energy term growth, while allowing us to j

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and environmental do w hat we do best-deliver high-companies. Drawing quality facilities and services to on BG&E's basic ex-people who need them.

pertise, these com-I that the utility industry faced limited panies acquire, build, ow n and market growth, we sought to enhance operate, small private power, OG&E has always defined itself

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our corporate grow th wi;h a strategy cogen(tation and wastewater treat-internally as a senice company.

of diversification. The Constellation ment plants around the country. For Today, with the energy market Companies were founded as a part of IIG&E, these actisities provide both a becoming increasingly competitise, that strategy. Their charge is to high return -n equity and an oppor-senice has become an essential I

recognize and create financial oppor-tunit) to help deselop the technolog) business tool. Our challenge is to tunities for BG&E by responding to of the future.

improse on quality. Corporate i

changing market or human needs, Constellation's oldest firm, Con-planning helped to focus our efforts.

l regulatory conditions or new stellation Properties, has focused on slanagement established a formal j

technologies For example, Constella-the senior lising industry as a major Customer Senice Goal in 198'. Its E

tion subsidiaries are insohed in grow th segment of the l' S economy.

function is to drise home the impor-l building shoppmg centers, redeselop-with mer 29 million Americans tance of customer senice-and the ing Baltimore City's historic Fells already age M or older, and that responsibility for it-to all our j

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'BG&E has altrays defined itselfinternally as a service company."

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j A Constellation purcl.ateJ llcalthcare. Inc in adJttson to

> Construction is a stithle in the msJ.4tlantic area and b

the 1."-bed.1fertJian hkrsmg nursing homes. Constellation sign of Constellation's groutng along the fatt Ccwl-projects Center in the llomeuuod % tion and.tleridian are deteloping presence on the regtonal real Ibat b,nw rapidly made Con-

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ofli,Jttmore i st) along uttb a t artet) of anisled littng estate dettlopment market.

stellation (Yoperttes a sought-three other similarfacslittes in arrangements gears J to the liusiness parks. office buildings aper deteloper andjoint-

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l ikccmher 19% as part qf a raftJh groutng sensor market and retail centers are some of Ienture partner joint t enture uith.tlerldsan our m.my conttruction projects i

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people, from the line mechanic to solving customer problems. The pany's special a3sistance line. the ger. crating plant operator. Distribution Division has initiated a Most important is the every.ia) The first year's results on this goal long range plan to improve customer willingness of our people to reach are impressive. Calls to the Com-senice. The first step involves track-out to customers. We know they do it pany's "Good Neighbor une"-one of ing our outage patterns. Whenever because our (ustomers thank us for several measurement indicators-- Distribution finds a neighborhood having a seniceman, for instance increased ten times over 1986. that has had repeated outages, for w ho takes the time to explain a Employees are encouraged to use this whateser reasons, they work with service policy on a new appliance telephone line to report customer Customer Relations to contact the to an elderly customer with poor problems they hear about in their residents, informing them that we vision, or a sales repreter,tatise 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 stores kitchen inspection for a custemer immediately, and reports back to the are responding to changing family who doesn't know which microv ase employee when the situation has and work patterns by scheduling to buy, or distribution and construc-been resobed, often within N hours. Saturday and evening deliseries and tion people who work eight hours other signs that our people have attempting to pinpoint the time of without stoppmg for lunch to restore risen to the service challenge abound arrival on all deliveries. power to a home after a tree knocked in the creativity of new programs to Tht pilot "Gatekeeper Program," dow n distribution wires. These are, anticipate customer needs and in the implemented in conjunction with indeed, special ;,eople, but they are enthusiasm our people display in the Mar) land Office on Aging, has ty pical of 11G&E employees. The pur-trained over 600 pose of the Customer Service Goal is 1 Meter Readers and to encourage all our people to take i u. Collection Field the time to meet a customer's needs. m' Representatives te Marketing and Energy Services look for warning Department representatises are work. W$ signs indicating that ing closely with commercial and 4 K 4" ,, M ellerly customers I industrial customers to bolster their b - 'i need some kind of economic bealth. For nearly 150 of 1-o m

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C ]f help. If they find our customers, our innovative 0 4' [j anything amiss. Detivery Service Program has been ^ Gatekeeper par-an important cost saver. Murrell ticipants report it Smith, Sr., Vice President of Chesa-Qr, -y directly to the Com-peake Paperboard Company, a locally _..h SE "..the ever)' day n'illingness of ourpeople to reach out to customers.' 18 A The Gattkeeper Program Particspants are taught to look > hight impaired customers abore to ubich ur added takes adt antage ofIbe regular for stgns that a person is ill, in bate special mrdt BG&E's Brasile characters. Since the omtacts mcter readers and need offood or clotbtng or is Customer Sertice ikpanment program began in Notember other BG&E representatites a eictim of abuse. BG&E bas bas det cloped a program to 1982. ue bate modsfied ater hate uith customers to belp trained nearly 650 employees mark and modsb appliance 9% appliancesfuee of charge assure that the needs of the to be Gat <kaperparticipants controls. Iske the thermmtat for sight imfuired customers elderly are ruogni:ed and met

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l commercial customers u ho rely on computers for escr> thing from (hart-l ing project expenses to producing A' design drawings began to inquire 3 h, about frequent, unesplained shut-j j downs and data errors. In response, 1 we developed Premium Electric 1 l Sersice. Designed to analyze power i quahty needs and then to proside a g T customlied conditioned power f package, this program allows a M customer to realire his computer's full potential-in the words of a new l ~ customer, hidde Consultants' Esecu-ou ned and operated manufacturer of Steels, a subsidiary of Armco Steel tise Vice President, Ibil Franswick: paperboard products, cites llG&E's Corporation agrees: "When llG&E "Thanks to llGXE's Premium Electric gas transportation program as a major approached us about time-of-day and Sersice, we're esperiencing itW, factor in keeping his firm "compett-curtailable rates, we knew we up time on our computer," tise in the East Coast markets" had a tool to help control costs." e o e 1.ike many manufacturers, illue Sescral ) ears ago, industrial and Circle Atlantic, Inc., the maker of an d innovatise contrete additise, and i llaltimore Specialty Steels, w hose stainless steel plant is located in llattimore, require enormous amounts of electricity. Illue Circle's

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pW General stanager, Ronald Pmiet ki, ) acknowledges that "lLG&E's lower T {. off peak rates and curtailable sersice g l l credits h,ne helped us offer an alter. F I natise product to the construction industry at competitise prices" Ray ilein, President of lialtimore Specialty l 'The relationship of technology and service at HG&E... l 20 l A Gener d.\\ tanager Bradford his been on bsesnos ssnce 1910 A Raymond E lietn is l'rni-Jehter) sertsce, to amtnd thest l Ilous k. Jr, Irp. and tice l'roi. produces appnatmately 220 Jent tf the B,dtsmore Apecialty oferating outs Ibe preasion 1 Jent.tlurrell Amstb. Ar, rspbt. tons ofpaperbwrd eterr Alech Corporation. a u bcdh rotaryforge on the has kgn>und of the Chesajvake naperboard 24 hours at sts B,dtomare Csty osened subsidsars of.4rmat. takes beated steel and shafts st l Company St.uut before Ibe plant Ibe use of BG&l 's gas Inc B.dtomore Afraalh Ateels onto estber a nound or quarr larger of the company 's tun dehsrr sertta ss a mayr makes efectut use <f tsme of bar ubsch ss then pnwrued pafvrboard manufactursng f,u tur on keeptng livfirm Jay and s urtadah!c electrsc sntofinnbed steel l machtnes Ibe comfwsy ubub o rmfvtstn e rata. along usth our gas

l The relationship of te(hnology and l Service at llG&E is best exemplified l by our Customer Information Splem, l 33 the project that won the Company the 1987 Institute of Industrial Engineers' Award for Excellence in j { Productivity improsement. Since the { system's inception in 1976, our pro-ductivity in handling customer con-l tacts has increased by over 35 %. in short, it allows us to help more

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j~~' 2 people, more thoroughly, in less F ,( time. By controlling costs, our 'T Customer Information Sptem helps I g to keep our rates among the lowest on the East Coast. )I From a management perspective, ticciric NtTwork, serves both opera. e a m improving service goes beyond tional and administrative corporate 4 i reaching out to customers. It means communications needs. Iast year we tks 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 serse them better and sptem with a new Company-ow ned concept of "sersice" must also faster than ever before. In 1987, our digital telephone sptem w h!ch will include political imohement. We are Tdecommunications Department sase considerable money. By routing active in the political arena locally, completed a sophisticated com-intra-company calls mer GENET nationally and internationally. j 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 sase 5250,000 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 sptem will be inter-cations radio sptem, now being contribute to the deselopment of connected with an existing 250 mile installed, will provide imprmed com-policies and legislation that affect microwase sptem w hich 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 sptem. The combined net-and allow them to re> pond more Nuclear safety is an industry goal work, called GENET, for Gas and quickly to emergencies. we base long championed. To further helps to keep our rates among the lon'est on the East Coast.' ll A Senior l' ice President Carl tn Ibe beart ef tbetrfirm, the Canatella is a key element in its Canatella, left, and Lrecutne computer rwm-a room that successfulfunctioning. a pouer nce President thiliam people rarely enter The en-conditsuner prutided by fransukk, right of AsdJe etnmmentally controlicJ rwm BGM's Premium flectnc Consultants, a Baltimore is destgned tirtually to run krtice program County consultsngfirm. stand stself 1o the right <f Mr . ~. -...

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.. _ _. _ ~. -. - - - - _ _ - l 1 m \\ that cause, in 1986 we solunteered to be the first l'nited States utility to ~ host an Operational Safety Keview y Team of the International Atomic LN 1 Energy Ageng'(IAEA). The team h'a w arrived in August 1987 for a three-N ;My v., n si l j week safety resiew of our Calvert ni 3 Cliffs Sutlear Power Plant. The l N elesen member team drew represen- '/o i i tathes from France, Belgium, the Federal Republic of Germany, Switzerland, Finland, Canada, the Philippines, Italy and Sweden, as l well as obseners from Czechoslovakia, malInternationaa Atomic Energy other American companies interested 1 j Bulgaria, ilungary and the Republic Ageng report offered several "final in participating, but the Soviet ] of South Korea. They studied eight touches" to improse plant efficieng-l'nion, Czechoslovakia and llungary major areas of plant activity, in-in certain areas w hile citing as par-will host inspedions in the near cluding organization and manage-ticularly impressive the plant's

future, ment, training, operations, managerial approach, personnel maintenance, radiation protection, training programs and emergeng-chemistry, emergeng planning and planning. Overall the IAEA concluded Uitimaieir, ihe evenu of;uir urd, j

technical support. that "Cahert Cliffs is a good example the day we lost over 1.600 megawatts l For all im ohed, the experience of what is expected from a well of our generating capacity, hase was thought prosoking and reward-managed and operated plant." become reassuring. The ground fault i ing. Plant personnel and team our goal in volunteering for an was an accident. The outstanding l members valued the opportunity to international resiew 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 resiew by international experts to respond promptly and calmly to his closing remarks, Ferdinand enhance our own safety program-(ha!!enges, no matter w hat they '.re. Franzen, Program Coordinator and that objectise has clearly been ful-We know that the people in ch Ige at team leader for this review termed filled. We hoped as well, that other every lesel can do their jobs.nd that i Cahert Cliffs "quite impressive. utihties, both here and abroad, would our procedures will operate as we certainly to be placed in the upper follow our lead. That objectise, 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. '% knote that the people in charge at every level can do theirjobs...' U C.4 nuclear oferator cinws A lbree members of the Inter-Alast bad neter been to Stary- > Ibe itG&l teampeu this the breakers on a Jsesel national.4tomic lnergy.Agencfs land Infore, and our Corfurate balloon be near atctory on last generator at the on stle Calsett Hjerational Aafety and Retieu' Communicatsons staff made summer 's liare and flound Osffs ControlRoom Asmulator Team unrk usth thetr Cahert sure that they experienced some ILJIoun Race. one of the most Regular trasmng sentons on G#s ' counterpart Jurong last of thepleasures of hfe on the pupular and e.vctring etrnis of .4ugust' safety retiese Ibe (besapeake ILty along uith the the IW tiar)la ul Alate fair the simulator help to kerp our s operators prefured to act sutph tram oncludedfipeen (wple intricactes of nuclear safe ty and calmly on emergencie s from eletenforcegn countruei

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VINANCIAL CONTENTS utan c.n and nntnc a>mjuny Operating Statistics. .26 Selected Financial Data. .27 Management's Discussion and Analpis. .28 Report of Management. 32 Auditors' Report. . 32 Statements of income. 33 Statements of Retained Earnings 33 Balance Sheets 34 Statements of Changes in I-inancial Position. 36 Statements of Taxes 37 Statements of Capitalintion. .38 Consolidated Condensed Financial Statements-Constellation llo! dings. Inc. and Subsidiaries. .40 Notes to Financial Statements .41 Constellation Subsidiaries .50 Officers. .51 Board of Directors and Committees. .52 l Shareholder Information. .inside Back Cmer ) 24 2 22 ll0 ~ I 20 100 3 4,(mut j in m. ~ lb' ~ NI' $ 4 (NK g4 12 - t& 5 3.(xw - 10-50 - ~ M- +o- $ 2.00tr j 6-W ~ 4-20- ~ $1Juur j q iO. - ..,., c: " " " "' .,.,m:""""'. ..,., c2 e n " * *. 25 Rnkknual E Rnklental i . viull 6enesul M w 2!! onnn=n ul j Mlay Gennwnul M tav Gennsul and trkiustna and Irklostn2 ] Sales of Flectricity Sales of Gas Total l tility Plant (ful>>ns id kai mattbuni Oti!!>m <4 Ik Lathttm0 Bli!!>m v( lh d!m) ) 1 Ia

OPEltATING STATISTICS ur=w c.u.sw naw omp.my 19R7 19M6 19M5 1984 1983 (Idist Anments to Thoeunds) flICTRIC Rnrnues OPIR4TI%G Residential.... 8 194,283 8 575,774 8 528,676 8 491,069 8 452,772 STAil5 TIC 5 5 mall CommeMal, 275,5N9 279,874 265,338 261,N15 242,790 large CommeMal and industrial, 115.456 523.Mit 497,M3 466,394 390,751 Other..... R,407 8,7MM 9,766 8,M67 6.997 Total. 8 1,393.735 8 1,388.251 8 1,301,463 8 1,208,145 8 1,093.310 Salo-M1 H Residential.. R,521,381 7,797,858 7,083,564 6,897,025 6,644,403 Small Commertial., 3,553,779 3,349,871 3,157,806 3,263,555 3,1(4,055 LarEe Commerttal and Industrial. 10,499,805 10,087,N94 9,457.355 9,074,064 8,452,975 Total 22,574,%$ 21,235,623 19,69M,729 19,234,M9 18,263,433 Customers Residential., M76,R26 853.976 M31,423 811,771 793,899 Small Commercial,, RR,812 85,623 M2,737 80,0*) 78,921 large Commercial and industrial, 2,830 2,715 2,518 2,317 1,760 Total 968,468 942.314 916,6?8 894,177 M74,580 Average use per Residential Custonwr-kill.. 9,R37 9,255 M,613 8,591 M,440 Average Rate per K1H4 6.14 6.50

6. %

6 23 5.95 Peak Load (one hour)-MT, 5,190 4,61M 4,365 4,230 4,079 Capabihty at Summer Peak-MW,, 5,789 5,6% 5,586 5,498 1,019 G 45 Revenun OPIR 4T1%G Residential.. 242,240 8 258.975 8 256,499 8 293,158 8 263,693 $TATisilC$ Small Commercial, 3R,13R 39,659 42,147 49,0M1 44.121 large Commerdal and Industrial, 127,257 141,781 14N,305 205,035 233,010 other. 7,421 5,354 6,MA 6,0% 4,471 Total 8 415,456 8 445,769 8 453,W) 8 H3,329 8 $45,295 Saln-DTil Residential, 3R,142,lR3 38,629,757 36,381,366 39,906,1N9 37,25M,732 Small Commertial.,, 6,335,806 5,960,010 6,255,159 6,M37,512 6,25N,274 large Commercial and Indu>tnal. 58,463,326 52.786,120 54,244,959 54,727,002 44,195,M 4 Total 102.941,315 97,375,MM7 96.881,484 101,4*0,703 87,712,(60 CuMomers Residential,. 482,023 482,394 481,188 480,613 479,147 Small Commertial, 31,10N 30,820 29,449 29,831 29,846 large Commercial and Industrial. 5,149 5,065 5,806 5,052 4.977 Total. S I R,280 $18,279 516,443 515a96 513,970 Average uw per Residential Customer-Imi 79,1 80 2 75.7 83 2 77.8 26 Amage Rate per 1411(ncluding deinery senke)-8, 5,93 6.29 6.47 6 76 6.50 Peak Day Sendnut-11 Tit, 636,040 624,700 677,300 607,200 MM,300 Peak Day Cspahthey-1411 731,000 74M,000 R27,000 227,000 827,000

i i SELECTED FlNANCIAL DATA uri=re cou,me nutric cmpany 1987 1986 1985 1984 1983 I (Ibtlat Amounu la Thousands, f uept Per ihm Arnounu) $1 MMRY Operating Revenues j OF OPIR 4T10%$ Electric, S t.393,73 5 81,3R8,251 81,301,463 81,208,145 81,093,310 Gas 415.456 445,?69 453,309 553,329 $ 45,295 l Total operating resenues... 1,809.191 1,834,020 1,754,772 1.761,474 1,638,605 Operating Expenses Purchased fuel 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 j Depreciation ', 132,332 127,274 124,%1 113,643 97,000 income lates l Current... 110,194 147,059 70,597 106,545 28,137 m. Deferred. 41,346 5,050 69,322 29,328 66,773 Imestment tax credit adjustments.... (8,078) 1,853 16,653 12,816 21,5(4 Other tues. 135,2N2 131.536 123,394 116,526 108,309 Total operating expenses 1,442,812 1.499.457 1,430,530 1,450,706 1,366.402 l 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 i Equity in net income of unconsolidated subsidiaries, 20,002 30,590 13,917 6,338 1,740 4 Net other income and deductions.., 1,349 (910) I,225 77 (1,132) Total other income, 3R,2 21 46,551 29,739 29,779 33,051 income Before Interest Charges. 404,600 381,114 353,981 340,547 306,18? Net Interest Charges Interest charges IlM,571 120,077 118,431 115,441 Ill,6M Allowance for borrowed funds used during construction. (14,069) (13.582) (11,750) (18.809) (25.954) j Net interest charges 104,502 106.495 106.681 96,632 89,734 Net income. 300,09s 274,619 247,300 243,915 216,453 Preferred and Preference Stock Dividends. 26,406 26,8'6 27,3?0 27,580 27,580 f Earnings Apphcable to Common Stock. 273,692 247,743 219,930 216,335 188,873 l Common Stak Dntdends. 147,R96 139,567 131,692 121,114 111,423 I Earnings Reimested in the Business. $ 125,796 8 108,176 8 88.238 8 95,221 8 77,450 l Average Shares of Common Stock Outstanding (Thousands). 78,861 78,627 78,622 78,123 76,272 Earnings Per Share of Common Stock. 83,47 $315 82.80 82.77 82,48 Dividends Declared Per Share of Common

Stak, 81,875 81,775 81.675 81.55 81.46 Ratio of Earnings to Fhed Charges.

4.22 4.19 4.14 4.23 3.81 Ratio of Earning to Ined Charges and Preferred and Preference Stock Dividends ComNned. 3,29 3.20 3.08 3.10 2.81 FIN W l%L Tota! Assets, 84,509,992 84,370,428 84,l S3,408 84,010,431 83,809,785 27 STtTI'iTIG Capitahration: J AT HAR IND Common stockholders' equity 81,755,368 81,629,'95 81,521,960 81,433,776 81,316,053 Preferred stuk. 59,l M S 59,185 59,185 59,185 59,185 Preference stuk not subject to mandatory redemption, 110,000 110,000 175,000 175,000 175,000 itedeemable preference stock. 186,400 50,000 80,000 90,000 100,000 tong-term debt.. 1,519,5l4 1,471,403 1,457,611 1,386,506 1.344,714 Total capits,tation. 83.630,467 83,320,885 83,273,756 83,144,467 8 2,M4,952 ILek Salue Per Share of Common SWL 822,24 820.72 819.36 818.24 817.04 Number of Common Stockholders. 75,682 76,972 79,474 81,601 85,3?2 cannon n=k dau hm teen rumed to renco the snak r<ee shah sp!a te aupu,t 19si and tertain caer pror year anmunu hm beca resmed m> umkirm mah the current tear presematon 1

MANAGF.MENTS IllSCt'S$10N ANI) ANALYSIS OF FINANCIAL CONI)lTION AND ltESULD OF OPERATIONS unmore cu at nntre Com/my on wie rdrwnces hemader are n*nnies w the hers e naandal smrmenu ) RF31In DF EARNINGS IJntric salo increawd by 6 3% in 198? and 7.8% in OPER4Tio n Earnings per share of common stock increawd to $3.47 in 1986. The increaws by class of customer from the prior 1987 from 8315 in 19% and $2.80 in 1985. The increaw in ) ear were as follour 1987 napared to 1986 mas attnbutable to grewth in utihty 1987 1986 earnings roulting imm fouraNe weather and customer Residential.................... 9.3% 10.1% growth, partially offet by lower income from the Com. Small Commercial........, 6.1 6.1 pany's damified subskhary operations.1he increaw in large Commercial and Industrial.. 4,1 6,7 l 1986 from 1985 m as due to the combined effects of higher I ut hty earnings and greater income from subsidiary operations. The inaeasn in sala in both 1987 and 1986 were attnh, l The increaws in earnings from utihty operations in 1987 utable to fnoraNe weather, espniauy during the summer and 19% as compared to the prece&ng )can were pri. coohng wawn, and to growth in the number of customers. maruy due to the comNned effats on eledric saln of particularly thow with heat pump installations. Heavy favoraNe weather in each ) car and continued powth in au demand during the 1987 summer wawn surpaned prolous claues of a nomers. In 1987, the inoraNe wcather, par-peak usage records. (ulminating in a new all-time peak of ticularly the above normal temperaturn in the summer 5,190 meganatts. The number of rnidential hnting months, contnbuted 25f to 304 per share to the Company's customen increased 14 3 % in 1987 and 15.4 % in 19%. earnings approximately double the effnt of weather on M&tionally, fnorable economic constions in the Com-1986 carningt In May 1987, the Pubhc Service Commis-pany's senice terrttory enhanced commercial and industrial sion of Maryland (Maryland Commission) ordered a saln during both periods. 878.3 million base rate decrease in recognition of the lower Future eintric sales solumes will continue to be affected federal income tat rate and the decreased merau cost of primanly by the nonomic situation in the Company's capital to the Compan). wrvice terntory, as well as by wrather ron&tions and the Dnersified subsidiary earnings from Constellation conwrvation efforts of customen. Holangs, Inc. and its subsl& aries (ConsteUstion) were 17( per share in 1987 compared with 32( in 1986 and 14C in GAS OPE RATING REVENTES AND M115 (DTil) 1985 (we onsohdated Condensed Financial Statements-Gas operating tornun dnreased by 6 8% in 1987 and c Constellation Houngs, Inc. and Subsi& aries on page 40). l.7 % in 1986. The durcases were attnbutable to the The 1987 dnrease in Constellation's carnings was due to folkming facton. meral fadors. Isrnings dnhned 8t per share as a roult of inanw torswaw) rulized securities kisso incurred during the market decline f aa Prmt test on Odober 19 in one of Connellation's profentonaUy 19N7 1986 managed wcurities accounts. farnings alw dnhned due to tin Emanni Constellation's inacasing a(thity in protniertentevs $aln. $ 13.9 836 businnses, principally in the real ntate and alternathe Base Rate Ad ustments. (1,0) i energy areas Construation's growth in thew businnws has Gas Cost Ad ustments.... (4 2.5) (11.1) l cauwd a shift (,f cap tal from short term imestments to Net Dnreaws,. $(30.3) 8(7.5) potentiall) higher )leung anets w hich develop and mature mer a longer perkal Doeloping and managing thne new pro}nts also has required a corrnmn&ng grow th in Con. The primary cause of the dahne in gas operating stellation's human roources. Connellation's earnings alw revenues w as the low er cost of gas. Thew low er costs reflected reduced tas benefits as a roult af the Tat Feform roulted from market con &tions as well as the Company's .ht of 1986. continued efforts to reduce the cost of punhased gas wid Earnings wcre reduced by 3t per share in 1986 and to mMomen. increased by 8t per share in 1985 as a roult of certain Changes in the sales solume component of operating changes in accounting ntimates and other ad ustments as rnenun are affeded by the deinery unke whedule, l generally docnbed in Notes 1,9. and 10. L'nder this schedule, custemen, principany industrial ps users with alternate fuel capahihty, are aNe to purchaw gas FLECTRIC OPTR LTING REYl_Nll5 AND Mlf3 (Mit H) arntly from gas pnwiucen and pipchnes and transport it Electric operating roenues increased by 0.4 % in 1987 and to the Company's estribution :) stem. The Company then 6.7 % in 1986. Thew incressn uere attnbutaNe to the transpons such gas through its u nice territory to the fonowing factors: cum (een and re rhes a deinery senke fee equhalent to tainair (Dracane) the margin on gas it seus to similar customers 28 fna Prmr irar 19R7 1986 (la Ellens) l Sales.. 370,4 864.7 Base Kate Adjustments (4 4.3) f uel Rate Adjustments. (20.6) 22.1 Net Increases. 89.9 886 8

Mhmow Gas and nectrw Combany Gu sales increased by $.7 % during 1987 and 0 5 % in effetts of increased fuel expenses rnulting from higher 1986. The changes by dus of customer from the pnor year eintric output and lower nudear generation cauwd by were as follows: outagn at the Cahert Chffs Nudear Power Plant. The 19N7 1956 increa>e in purthased fuel and energy expense during 1986 Residential. (1,3)% 6.2% wu due mainly to the collecion of a portion of costs small Commerdal. 6,3 (4 *) pro k>usly deferred through the eintnc luel rate dause, large Commercial and Industrial 10.M (2.?) the w rite +ff of dnallowed deferred electrk fuel costs (see Note 10), and an increase in electne output. The dedine in nles to residential customers in 1987 was Untric output increased 61% and 7.5 % in 1987 and primanly the rnuit of nulder winter weather. Sales in the 1986, rnpntisely. Gu output dnhned in both years, par. small commercial category reflut the redassifkation of cer. tially as a roult ofincreased sales under the dehstry tain customen from the large commercial and industrial senke ahedule. Gas transported undet this ahedule does schedules. The increav in sales to large commercial and not imohe the purchue and output of gas by the Company industrial customers in 1987 reflects increased utibution of and is not ref!cced in purchued fuel and energy espense. dehrery unke gas Prkes for oil and coal consumed for eledrk generation Colder weather during the winter heaung season were lower in both 1987 and 1986 as compared to the prior increased sales to rnidential customers during 1986. Sales years. Natural gas prkes were also lower during 1987 and to small commerdal customers reflected reahgnments to 1986, u the Company continued to secure gas directly from other kheduln based on usage analysn The dechne in soeral gas producers and supphen and recelse prolously sales to large commercial and industrial customers in 1986 negotiated sasings with its principal gu supplier. main!) reflected certain large manufacturers ceasing their Nuclear generation is the Company's most economical operations in the Company's unice terntory (approtb source of energy and hu a signifkant effect on ebctrk mately 1% of total gu sales) and some temporary purchased fuel and energy cmts, Refueling operations hase changeosen to alternate fuels. occurred approalmately nery eighteen months at cath of Future gas sales will continue to be affected by the price the Company's two nuclear generating units and result in and aisilabihty of gas and alternate fuels, weather conde significant increases tri electric fuel costs during the related tions, conwrvation efforts b) customers, the general outagn. In 198', the Company reccised permission from economk situation and the regulatory dimate in the the Nudent Regulatory Commission to extend the period natural gu industry. If gas pricn were to rise in the future between the refueling outages for l'ntt Na 2 from eighteen in relation to alternate fuels, comersions from gas by to twent)-four months and intends to requot a similar industrial customers uould be anticipated The dehvery ettension for l' rut Na 1 in 1988. Thne changes could wrrke ahedule, in conjunction uith flexible pridng prmi-reduce purchased fuel and energ) expense and the related sions, should enaNe gas to compete fasoraNy with oil as a revenue from customen, as refuehng outagn may be timed pnmary fuel sourte and moderate thne comersions as long such that only one generating unit would be affested in a as natural gu pnces remain competitise and intentate given year. Only one nudear unit underwent refuchng in pipehne transportation is as alfable. both 1987 and 1986. However, the 1987 refueling outage was estended, and the other nudear unit was also shut Pt RCilASED f t EL AND LNERGY E\\PIASE dow n for two months during the year, in order to docu-Purchased fuel and energ) expense dnreased ll A % in ment comphance with emironmental quahfication and 198? and increawd 5 0% in 1986 These changes were mechankal futener requirements of the Nudear Regulatory aitnbutable to the following faaors: Commission increase (Dntraw) f rom Ptne icar OPElt4T10NS AND htAINTL%NCE EXPLNsf3 1987 1986 Operations and mamtenance espenses increased 2.7 % in (in st ttons) 1987 and 7.2 % in 1986. Both increaws were attnbutable in Actual Electric Fuel Costs 8 69.2 8(59 8) part to higher pay roll costs temp red by a reduction in the Deferred Electric f.iel Costs (100.0) 91.3 number of empk ees Additionall), the 1987 increase 3 Actual Purchased Gas Costs (4?.') (23.0) reflects more storm related repain to oserhead lines and Deferred Purchued Gas Costs 10.1 19.7 transformers. Higher insurance and routine maintenance Net Changes $(68.4) I 28.2 costs also contnbuted to the 1956 increase. DIPRIC1(TION L\\PLNSE The decrease in purchased fuel and energ) expenw in Depreciation expenw increased in both tears as a resuh of 1987 wu due pnmarily to the deferral of net under-higher lesels of depreciable plant in unice. The increase in 9 recmcred fuel cous rnulting from the Compan)'s eintnc 1986 mas moderated by the reduction in the depreciation fuel rate dause and to Sigmfkant reductions in the cost of rate appbcable to the Cahert Chffs Nudear Power Plant, gas from our supphen These facton more than offset the beginning in September 1985 (we Note 1) l 1

fl.dhmtwe G.u amt Hectrk O>mpany j 5 TAXIS As a rnuh of the m,ib Cempam's atuhty to generate income tat openw decrea ed in both 1987 and 1986. cash internally is reduced. This is due primanly ti the loss The 1987 dnrease e as due to the rtdudion of the mul-of the imutment tu creet and certain other pnwisions mum corporate tax rate frorn 46% to 40% under the Tat diminishing the Company's shihty to defer the payment of Reform A1 of 1986, partially offset b) the effetts of a higher income tnes until later years loci of pre-tat income. The dectsase in 1986 was attribut-See the Internal Genention of Cash sntion and Note I able to a lower loci of pre tu income, after adlustment for for ad&tional infonnation. the already net of tu equity in net income of unconmll-datal subsi& aries. Other tan increased in both years due 5thlil ARIES' EARNLNGS to higher property, capital stod, and pay roll tuer The decrease in Equity in Nn income of l'nconsolidated The Tax Reform Act of 1986(the Act)signifkantly Subsl& anes in 1987 was due pnmarily to reallied secunties changed the federal income tnation of corporations, its losses incurred during the market dnhne on Odober 19 prtnisions included an metall redudion in corporde and shifts in Constellation iloidings, Inc?:(Constellation) income tu rates, the ehmination of the imntment tar asset mit from short term imestments to potentially higher creet, chango in deprwtauon rates and hsn, and vamus )lelang assets shkh doelop and mature mer a longer other prmisions affecting the Company. Most prosision's of period Adationally,(ertain of Constellation's imestments the At were phased in under sarious transition rules hase prosided significant tn benefits through the imest-beginning on January 1,1987. The major exception to this ment and energy in credits Thne benefits hase been phase-In sas the repeal of the imntment tu cre&t whl:h either eliminated oc &minished under the Tat Reform Act of ] was generally effedise retroactive toJanuary 1,1986. 1986, further contributing to the decline in investment in-l'nder the transition rules of the A1, howner, the Com-come. The 1986 increase in subsidiaries' earnings refluted j pany will still recebe the imestment tu cicat on Itrandon the additional financialimotments made by Constellation j Shores l' nit No. 2 prosided it is placed in sen ke before dunng the year Capital contnbutions to Constellation by Apnl 1,1992. the Company have been deplo)ed primari!) as investments The repeal of the imestment tn creet had an immaterial in preferred and comrnon stods, profess %n tily m3naged cffert on net income in latt? and 1986 since the Company equity portfobos, real ntate, loeraged lease transactions, defa n such creets and amortizes them to income over the senior hsing and health care insututions, and alternative ines of the related assets. The effed of the repeal of the energy and emironmental s)stemt (See Consolidated Con imestment tat creet on future )can will be to reduce the densed Financial Statements-Constellation lloldine, Inc. lott of deferred cred ts being amorttred to income. and subsidiaries ) j T he Cempany's income in expense is expnted to t decreaw again in 1988 as a roult of the An s further reduc-UTHER l tion of the mulmum corporate tat rate to 34 %, in that The Allow ance for FurW l'acd 1%ng Constradion ( AIC) the Company generall) normabin timing efterences increased in 1987 and 1986 due to continued construdion { between book and tu treatment for accounting purposes, of l' nit 2 of the Brandon Shores Power Plant and other elec-man) of the Act's other prmisions do imt affed total tu tric prqedt llowever, the 1987 increase was &minished by j expense. a decrease in the AFC rate, effntive June 1,1987, in (on-l The Company has ruerded accumulated deferred income junction with a rate order of the Pubhc Senke Commission tues on certain timing &fferences uhkh onginated prior of Mar) land (see Note 1). ll to 1987 based on the 46% in rate then in effect As a The earl) retirement of certain high cost debt uused a roult of the redudions in corporate tax rates prmided by shght decrease in internt charres for IW?. The increase in the At, future taxes will be paid at a lower rate. The Act 1986 was due to sales of ad&tional occuritin, moderated p) generally prtnides that in order to continue the use of lower internt rate, and debt retirements. I accuersted depredauon for tu purposes, a pubhc utihty The decrease in Preferred and Preference 5tmL Dnidends must toerg the ncess deferred tnes mer the hves of the in 198? and 1986 reflects the redemption of certain high related assets cost securities and the issuance of lower cost suuritiet 1 4 1 LIQL IDITY 0% ERVIET The Compan) antkipates that future capital require-OD C APITLL The Company's capital reqt:irements are attnbutable ments, as show n below, willle met primarily through the RISOL RCIA pnncipall) to its construction program and its espe n&tures internal generation of cash, supplemented by a mitture of 30 for nuclear fuel. Other capital requirements invahe funds debt and equity offerings The timing and misture of future for the matunty or retirement of outstan&ng debt and the debt and equity financings a til be dktated by economic and redemption of pnferen(c stak. financial market con &tions and the needs of the Company. 1

i 4 Adsseore Gas ed Abrirse Onupony 3 CAPITAL REQt'IREMLYlT ' The $ 506 million of longerm den incurred during the l Adual capital requirements for 1985 through 1987. along johl 198$ through 10$7 consisted of the folloutng items: I l with ntimated amounts for 1968 through 1990, are as g follow s: 4 i ibating Rste Notes....... 8200 [ gg l tedempuans Polivtion Control loan............. 36 i consuwba kitar et fut and fort l'acshties loan............,, 48 i Impen6tures AFC fuel Preference Stak Total AdjustaNe Rate Pollution Control Loar., 22 i (to Ellwas) First Refunding Mortgage bonds...... 200 1985.. $200 826 832

1. 212

$470 8506 j 1966... 224 30 $9 153 466

=

i 1987 2J4 31 53 127 435 l 1988... 290 35 45 19 339 During the three years ended 1987, the Company inued i 4 1989. 305 41 60 10H 514 a LWal of $10 milhon of common sank through the Divi. } l 1990... 315 53 60 67 493 dend Reinintment and Stock Purchase Man and the l Nplope Stock Ownership Plan and a total of $150 million [ 1 The Cmapany's construction pmgram 1s subject to con. of redeemaNe prstrence stuk. During the same three ) tinuous resien and amafication. Actual construction and 3 ears, the Company repurchased a total of 895 million of i nudear fuel espen&tures may 5ary from the estimates preference stock and redeemed another 827 miUion of l i abose because of a number of factors such as inflation, Preference stock through mandatory sinking fund I economic conditkins, regulation, legislation, load growth. Prosisjons. environmental protection standards, and the cost and in Odober 1987, the Compsey established a $100 minion 1 availability of capital. The only major project in the Medium Term Note program. No securities were issued { Company's construction program is Brandon shorn t' nit under this program as of December 31,1987. The Me&um. j Na 2, u hkh is scheduled to be placed in service prior to Term Notes, $ cries A, may range in maturity from one to e A[rtl 1,1992. fifteen ) tars and can be sold on short notic1 as market con-l Nuclear fuel expenstures include uranium purchases and ditions warrant or corporate requirements dictate, The net processing charges. In addition, in June 19N5 the Company pmceeds from the sale of notes uiu he used to repey short. l 'nade a one-time payment of apprusimatch 872 niluon to term indcNedness incurred to pruside interim financing for l ] the Department of 5,nergy for the duposal thrent nuclear the construction program. for the refun&ng of long term j fuel whkh nisted at April 7,1983, securttles, and for other capital requirements relating to the j Company's utility bu4 ness. i 1 IWESTMENT IN 51'BSfDl4 RIES C wnmerdal pap.r notes are luued by the Company to j Since 1981 the Company has invnted $205 million in Con, sathfy interim financing requirements. The Company main- [ j stellation Holdings. Inc., a subs 1&ary w hich is the holding tains credit facilities with various banks in order to provide l compan) for the Company's duersified a tivities (see Con. additional bquidity. I solidated Condenmi Tinancial Statements-Constellation [ liol&ngs. Inc. and Subsidiarin and Notn i and 2) CAPfTAL STil'CTl'RE j j The Company's objectne is to maintain a capital stru(ture lNTERNAL GLNIRAT10N OF CASH that preserves an appropriate balance hetween debt and l The internal generstmn of cash related to utihty adhities equity. The Company's capital structure as of Detember 31 consists nsentially of net income adjusted for non< ash is presented below: items, less dnider.1 and capital contnbutions to the Com. 19s7 1986 1985 pany's subsid aries. From 1985 through 1987, substantially Common Equity.. 4a.I % 47.3% 4$.7% all of the funds required for the Company's construction Preferred and Preference stuk l l and nuclear fuel espen&tures were prmided Imm the not subject to Mandatory Internal generation of cash. The Company anticipates that Redemption... 4.6 5.9 7.0 approximatel) 70% of the funds required for these pur-Redermable Preference Stuk.. 5.3 3. 51 2.7 poses during 1988 through 1990 miU be pro ided from long Term Debt. 42.0 43 0 44.6 internal sources, after reflecting the impact of the Tas Total.. 20% 100 % 100 % i Reform Act of 1986. l EXTERN AL FINWING5 The itnestment in Constellation Holdings, Inc. is i During the three pars ended 1987, the Company incurred financed culushely through retained earnings and 31 ! $406 mi!! ion of king-term debt and retired 8371 mibn, reprnented 5 6 % in 1987, 5 6% in 1986, and 3 2 % in rnulting in net new long term debt of 8135 nuthon. 1985 of the Compan)'s capital structure. h I i i I

i ) REPORT OF RWAGEMFM usu. ore c.u mw nnyre n.vw y i I Manarment is rnponsiNe for the information and Coopers A L) brand, independent certined pun 6c aawnt. reprewntations contained in the Depany's finandal ants, are engaged to namine the onandal statements and statementt The financial statements are prepared in accord-esprus their opinkm thereon. Their esaminatkm is made ance with generauy anepted accounting princtplo based in anordance with generaUy anepted auditing standards j i upon currently availaNe futs : ed drwmuances and u hkh indude a roiew of internal twtrols. The Au&t Qan ttee ( the Board of threstors, uhkh l Management's bot utimates an,1ludgments of known u conetkmt consists of three outside LMretton, meets perkwikally with j The Company maintains an anountmg sptem and Management, internal au& tors, and Qupers 4 () brand to i related sptem of internal controls a hich are doigned to roten the uthities of exh in dischargmg their toponsl. preside reasonaNe assurance that the financial receds are hihtiet The internal audit staff and Coopers 41)beand hase accurate and that the Depany's aswts are protested. The free aans to the Audit Gemittee. I Qepan)'s staff of internal au& ton, uhkh reprts derntly f to the Chairman of the Board, conduds periMic roteus to maintain the effathenns of internal control proceduret i AUDITORS' REPORT i To the Stockholders of Baltimore Gas and Elatric Qepany l 4e have eumined the balance sheets and statements of in out opinion, the finandal statements referred to ahose capitalisation of Baltimore Gas and fJectric Company at prewnt fairly the Anancial penition of Baltimore Gas and Decemher 31,1%7 and 1986 and the related statements of Electric Company at Detemher 31,10N7 and 19ti6 and the income, retained earnings, thangn in firsndal position, rnults of its operations and thanges to its financial position and tases for exh of the three )ean in the period ended for ca.h of the three yean in the period ended December 31, December 31,1%7. Our cuminations were made in accord-1987 in conformity with genersUy anepted accounting ance with generally accepted auditing standards and, prindplo applied on a consistent basit accor&ngly,induded such tots of the savunting records and suth other susting procedures as me considered i necnsary in the drcumstances l + Lf Coopera A L)besad Baltimore, Mar) land January 21,1988 32

STATEMFXIS OF INCOME osa ore cas.w Jwo omi/way 1 I j i l' ear inded December 31, j 1987 19m6 1981 l i un Neunds. Estep he pare Anweau) OPEMTING RE)BTE5 Electrk. 81,39),7)$ $1,42,211 81 L,463 4 Gas..., 415,446 444,769 443,309 Total operating resenues., 1,509,191 1,834.020 1,744,772 OPERATB G B PLNSES i Purchased fuel and energy 530,348 598,700 570.453 i Operauons...... )??.051 36?,9'9 338,173 Maintenance. 124,3)? 120.006 116.577 I Deprectauon.., 132,332 127,274 124,%I [ income tates........... 14),462 153, % 2 156,572 Other lates.. 139,282 131.5 % 123,394 Total operaung expenses... 1,442,512 1,499,457 1,430,530 OPfhTbG BCOME. 366.)?9 334,%3 324,242 t OTHER LNCOME I l Allow ance for (ther funds used during construction 16,870 16.871 14,$97 Equity in net income of unconsolidated subsidiaries..... 20,002 30,590 13,917 j Net other income and deductions. l.349 (910) 1.225 1 Total other income 3R,221 46.55l 29,739 j BCOME BETORE INTtREST CHPGb.. 404,600 381,114 393,981 i ] NET BTEREST CilARGL5 l Interns charges., 118,971 120.0 " 118.431 i Allow ance for terrowed funds used during constructkm, (14,069)

l4,5M2)

(11.750) i a Net interest t harges. 104,502 106.495 106,6MI l h i NET INCOME, 300,098 274,619 247,300 i i PRETERRED AND PREFERENCE 510CK DIVIDEND 5 26.406 26.R*6 27.3?0 l l EARNbG5 APPLJCABli TO COMMON STOCK, 8 27),692 8 247,743 8 219,930 ( 1 AVIRAGE SHARES OF COMMON STOCK OLT5TBDING.. 78,R61 78.627 78,622 l i utNINGS PER 5H ARE OF COMMON STOCK 83.47 83.15 82.80 l I I, t STATEMFXIS OF RETAINED EARNINGS Year Ended Dncember !!, 1987 19n6 1985 On Th,wur,4 B AL6CE AT BEGLNNhG OF )BR 8 820,156 8712,280 8624,042 i ADD Net income, 300,09R 2'4 619 247,300 1,120.254 986,N99 8?l.342 DEDL'CT: Doidends declared 33 Preferred stmk 2,899 2,899 2,N99 Preference stak. 23,50? 23,9'7 24,4?! Conunon stak (at annual amounts per share of 816'i, 81.775, and $1.h?! In 1984,19h6, and 198?. ropectnet)). 14?,896 139,%? 131.692 174,302 166,443 159,062 Premiums paid on retirement of preference sink. l,426 300 B ALsNCE AT LND OF h.&'d. 8 944,426 IN20,156 8?l2.2M1 The wennws e. inn are sa inimal pri of ow enanaal sutearou

P MLOCE SHEE15 antimee c,u.ms arre cm/wy f h At Dettsbrr 31, i 19s? 19m6 I (la ik e ando i AMET5 LTILITY PLANT ? Plant in senke i Electrk. 83.722,099 83.574,122 4 Cas., 4........ 421.989 407,002 I s, { Common.... 234,401 207.320 j Total plant in sen ke........,...... 4,359,485 4.184.444 Accumulated prosisjon for depreciation. (1,397,619) (1.197,378) Net plant in sen ke................. 3,071,s66 2.991,0M 12,822 13.756 Plant held for future use..... Constructi<m ark in progress.... 433,677 399,202 Nuclear f 4(net of amortization of $509.9$0,000 and 8467,004.000) 173.326 163.612 J. Net utthty plant.... _3.691,691 3.567,676 l l t j OTHER PROPERT) AND LWESTMENTS int estment in subsidiaries.............................. 252,34'; 225 ?95 i i Other 4,561 3.374 Total other property and investments................................ 2%7,908 229.169 l a 4 I Ct'RRENT ASSETS Cash and cash equivalents. 34,60% 63.619 q Special deposits and working fui,ds. 1,292 4,332 j Accounts receitaNe 1 Customers (net of allow an(e for uncollectibles of 8 A 6N9,000 and 88.293,000). 193,007 199,193 l l (Mher,.,. 3,117 3.R64 l Fuel stods.. 19,337 57,?60 { Materials and supphes.........., 96,117 94,037 j Preps)ments.. 60,299 64,031 i l (xher 514 M4 i Total current assets.... 445.68a 4M8

• 0 DEFERRED CHARGE 3 j

Deferred fuel costs. 63,893 37,406 Other 47,812 47,457 t Total deferred charges. 111,?04 E4.865 TUTA!. ASSET 5. 84,909,992 84.3?0.428 Canato pnur test annats base tres restated to conform u nh the current year's prescatsten } The naompan,tng nies are an integral part of the Anan,aal statements. 3 s i 1 l b i 4 y ...,--.v y ,. _ _.. -.-y .y ...m.-_,-..~_. _,.v_- .,_,__p_w,- ,~r- + w--

MLANCE SHEEB saltimore cas and nectrk company At December 31, 1987 1986 (In Thousands) CAPITALIZATION CAPITAUZATION AND llABillTIES Common stockholders' equity.... 81,755,368 - 81,629,795 Preferred stock. 59,185 59,185 Preference stock not subject to mandatory redemption.... I10,000 110,000 Redeemable preference stock.... / 186,400 50,000 tong-term debt. 1,519,514 1,471,905 Total capitalization. 3,630.467 3.320.885 CL'RRENT LIABluTir'S Short-term borrowings 45,000 120,000 Current porilon 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 Dividends declared. 43,247 42,208 Vacation costs accrued. 22,842 22,103 Other 24,323 25,378 Total current liabilities.. 331,124 536.807 DEFERRED CREDITS AND OTilER LLABluTIES Deferred investment tax credits. 193,400 201,696 Deferred income taxes. 341.498 300,989 other 13,503 10.051 Total deferred credits and other liabilities 548,401 512.736 COMMITMENTS AND CONTINGENCIES-see Note 12 l TUTAL CAPITAUZATION AND UABluTIES.. 84.509,992 34,370.428 Certa 2n prior year amounts have been restated to conform wtth the current ) car's presentauon. The accompanying notes are an integral part of the finandal statements. 35

STATEMENU OF CHANGES IN FINANCIAL POSITION aatimore c,u ans nutr<c company Year Ended December 31, 1987 1986 1985 (in Thousands) OPERATING ACTIVITIES Net income.. $ 300,098 $274,619 8247,300 Noncash items included in income: Depreciation and amortization... 178,583 195,050 180,467 investment tax credit adjustments. (8,296) 19 14,208 Deferred income taxes. 40,509 5,952 72,621 Allow ance for other funds used during construction (16,870) (16,871) (14,597) Equity in net income of unconsolidated subsidiaries.. (20,002) (30,590) (13,917) Amortization of losses from the reacquisition of debt,,,. 1,659 1,126 668 Other.. 6,547 3,%' 3,070 Changes in working capital components: Materials, supplies and fuel stocks. (4,057) 5,9 r 4,141 Accounts receivable. 6,913 4,L (26,770) Prepayments. 4,732 (1,577) 4,823 Other current assets 390 12,435 (6,488) Federal income taxes payable. 7,137 15,608 671 One time fee for nuclear fuel disposal costs.. (71,829) Of ter current liabilities. (30,953) 14,771 3,408 Deferred fuel costs. (26,487) 70,181 (47,681) Other cash operating sources and (uses) (493) (4,189) 1.552 Net cash flow from operating activities 439,410 550,948 351.647 FINANCING ACTIVITIES Common stock dividends. (147,896) (139,567) (131,692) Preferred and preference stock dividends (26,406) (26,8'6) (27,370) Proceeds from issuance of: Long-term debt 102,134 111,365 285,055 Common stock. 7,959 31 (419) Preference stock 100,000 50,000 Short-term debt, net. (75,000) 33,025 5,775 Redemptions and repurchases of preference stock. (71,800) (40,000) (10,000) loss from redemption of preference stock,, (1,400) (300) Reacquisition of long-term debt ($ 5,228) (112,953) (202,460) Loss from reacquisition of long-term debt (1,630) (2.395) (927) Net cash used by financing activities (169,267) (127.670) (82,038) INVESTING ACTIVITIES Construction expenditures (254,530) (254,142) (225,771) Allowance for other funds used during construction.. 16,870 16,871 14,597 Nuclear fuel expenditures,, ($2,620) (59,343) .(32,291) Investment in subsidiaries. (13,306) (68,000) (24,657) Other l.389 1.382 1,120 Net cash used by investing activities, (302,197) (363.232) (267,00h Net increase (decrease)in cash,. 8(32,054) $ 60.066 8 2,607 The accompanying notes are an integral pan of the financial stgements.

4 STATEMENTS 0F TAXES Baltimore Gas and Hectric Company Year Ended December 31, 1987 1986 1985 (In Thousands) INCOME TAX EXPENSE Charged to operating expenses Current $ 110,194 5147.059 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. I,958 3,353 2,126 Contnbutions in aid of construction (4,820) (4,879) (1,246) Capitalized interest and overheads. (1,682) L'nbilled revenue.... (2,542) Nuclear decommissioning costs (1,303) (1,507) (1,259) Other. (4,597) (6.088) (3.037) Total deferred taxes. 41,346 5.050 69.322 Investment tax cre6ts Current tax cre6ts 2,120 13,258 26,313 Eligible property Employee stock ownership 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. 143,462 153,962 156.572 Charged to other income current 595 (663) (2,091) Deferred. (837) 902 3,299 Investment tax credit adjustments. (11) 51 (667) Total charged to other income.. (253) 290 541 TOTAL INCOME TAX EXPENSE. $ 143,209 8154,252 8157,113 RECONCILIATION OF TMAL INCOME TAX EXPENSE AND TAX COMPL'TED AT STATL' TORY RATE Tax computed at statutory federalincome tax rate (40% in 1987 and 46% in 1986 and 1985). 5177,323 8197,281 8186,030 Increases (decreases)in tax Depreciation 6fferences not normalized. 5,352 5.218 4,673 Allowance for funds used during construction (12,376) (14,009) (12,120) Amortization of deferred investment tax credits.. (10,415) (13,239) (11,996) j Equity in net income of unconsolidated subsidiaries.. (8,001) (14,071) (6,402) Loss on retirement of property. (2,754) (3,211) Deferred tax rate 6fferential (1,772) Other. (4,148) (3,717) (3,072) Totalincome tax expense, $ 143,209 8151.252 3157.113 Effective federalincome tax rate 32.3 % 36.0 % 38.8 % OTHER TAXES Property. 5 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 environmental 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 accmnts other than taxes. (4,990) (5.048) (5,091) TOTAL OTHER TAX EXPENSE $ 135,282 8131,536 8123.394 The saompanying notes are an integral part of the finandal statements

STATEMENTS OF CAPITALIZATION saltimore cas amt ucctrte company At December 31, 1987 1986 (In Thousands) COMMON STOCKiloll)ERS' EQl'ITY Common stock-without par value-100.000,000 shares authorized; 78,912,450 and 78,MO,475 shares issued and outstanding at December 31,1987 and 1986, respectively. (At December 31,1987, 899,691 shares were reserved for the Employee Stock Ownership Plan, and 5,433,708 shares were reserved for the Dividend Reinvestment and Stock Purchase Plan.). $ 817,513 8 809,554 Premium on preferred stock 157 157 Retained earnings... 944,526 820,156 Valuation allowance-investment securities of subsidiary. (6,828) (72) Total common stockholders' equity. 1,755.368 1,629.795 PREFERRED STDCK Cumulative, $100 par value, 1,000,000 shares authorized Series B,4 % %,222,921 shares outstanding, callable at $110 per share. 22,292 22,292 Series ':,4 %,68,928 shares outstanding, callable at $105 per share. 6,893 6,893 Series D, 5.40 %,300,000 shares outstanding, callable at fl01 per share. 30,000 30.000 Total preferred stock 59,185 59,185 PEEFERENCE SlDCK Cumulative, $100 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 3101 per share 40,000 40,000 7.78%,1973 Serier,200,000 shares outstanding, callable at $103 per share prior to December 1,1988 and at $101 per share thereafter. 20,000 20,000 9.35 %,1974 Series,350,000 shares outstanding in 1986.. 35,000 Irss preference stock called for redemption-see Note 3. (35,000) Total preference stock not subject to mandatory redemption 110,000 110.000 Redeemable preference stock 8.375 %,1979 5 cries, 300,000 shares outstanding in 1986. 30,000 12 %, 1981 Series A, 272.000 and 340,000 shares, respectively, outstanding... 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 1,1991 and at lesser amounts thereafter 50,000 50,000 6.75 %,1987 Series. 500,000 shares outstanding in 1987, callable at 3106.75 per share prior to April 1,1992 and at lesser amounts thereafter. 50,000 6.95%,1987 Series, 500,000 shares outstanding in 1987, redeemable in w hole at $100 per share on October 1,1995... 50,000 less current portion of redeemable preference stock-see Note 4... (6,800) (80.000) Total redeemable preference stock 186,400 50.000 Certain prior year amounts hase ticen restated to conform uith the current )rar's presentation. The accwnpanytng notes are an integral part of the financial statements. l 38 l

> STATEMENTS OF CAPITALIZATION satrimore cas andnectric company At December 31, 1987 1986 On Ttu>usands) LONG-TERM DEBT First refunding mortgage bonds Series Z 3 %, due July 15, 1989 8 36,754 3 36,754 3 % % Series, due December 1,1990. 29,682 29,682 4%% Series, dueJuly 15, 1992. 25,000 25,000 14 % % Series, due July 15, 1992. 39,268 4 % Series, due March 1,1993 24,095 24,095 4 % % Series, due July 15, 1994.. 29,989 29,989 5%% Series, due April 15, 1996. 26,680 26,680 8 % % Series, iue June 15,1997 100,000 6%% Series, due August 1,1997. 24,967 24, % 7 5%% Insta!! ment Series, due August 15, 1998. 60,775 62,140 7 % Series, due Dnember 15, 1998. 28,705 28,705 8 % % Series, due September 15, 1999. 22,198 22,198 8%% Series, due September 15,2000. I1,429 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 S. ptember 15, 2006 75,000 75,000 8 % % Series, due September 15, 2007.. 75,000 75,000 9%% Series, dueJuly 1,2008. 62,560 62,560 6.90% Installment 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 Cther long-term debt (unsecured) 4% % Sinking fund debentures, due August 1,1990 16,145 16,805 Loans under revolving credit agreements. 50,000 50,000 Floating rate notes. due July 1,1995. 100,000 100,000 Floating rate notes, due October 15,1995 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 Adjustable rate pollution control loan, due July 1, 2014. 20,150 17,368 Total other long-term debt. 370,295 368,173 l'namortized (discount) and premium. (7,I82) (5,919) less current portion of long term debt. (12,474) (11,942) Total long-term debt 1,519,514 1,471,905 TOTAL CAPITALIZATION. 83,630,467 33.320.885 Certain prior year amounts have been restated to conform skh the current year's presentation. The accompanying notes are an integral part of the financial statements. 39

CONSOLIDATED CONDENSED FINANCIAL STATEMEND-rn<vnso/4tated viserssped Schsidiary cf CONSTELLATION HOLDINGS, INC. AND SUBSIDIARIES Baltimorr Cas and nutric compmp Year Ended December 31, CONSOLIDATFD CONDENSED STATEMENU OF INCOME 1987 1986 1985 tio Thou> ands, Eucpt Pct share amounts) Resenues $ 30,405 $24,876 $ 13,545 Operating expenses. 17,497 5.912 2,651 Operating income, 12,908 18,964 10,894 Interest expense.. 11,300 6.376 3.502 Net income before income taxes. I,608 12,588 7,392 Income tax expense (benefit). fl 2,061) (12,237) (3,860) Net income. $ 13,669 $24.825 $11,252 Contribution to BGaE's earnings per share of common stock... $.17 $.32 $.14 CONSollDAEED CONDENSED MLOCE SilFEB At December 31, At December 31, 1987 1986 1987 1986 (in Thousands) (In Thousands) ASSETS WABILITIES AND STOChil01 DER'S EQIITY CL'RRENT ASSETS CL'RRENT UABluTIES Cash and cash equivalents $ 4,944 $ 10,095 Short-term debt. $ 25,497 $ 10,289 other current assets. 28,496 10.654 Other current liabilities. 6,306 2.724 Total current assets. 33,440 20.749 Total current liabilities 31,803 13,013 NONCL'RRENT ASSETS NONCL'RRENT LIABILITIES Insestment securities, net. I15,931 189,282 tong-term debt. 187,838 135,578 investment in alternative energy systems. 32,902 17,601 Deferred income taxes 50,097 40,949 Ins estment in les era;;cd leases. 39,291 43,232 Other noncurrent liabilities 4,463 28,273 l Investment in limited partnerships, 72,608 40,941 Total noncurrent liabihties, 242,398 204.800 Investment in insurance company. 29,261 27,645 Real estate and property STOChl! OLDER'S EQl'lTY and equipment, net. 63,759 34,395 Common stock (no par value, 100.000 Senior living and health care Shares authorned,10,000 shares institutions St. 24,745 25,368 issued and outstanding). 159,703 152,403 Deposits in escrow 32,112 Retained earnings. 52,205 39,744 Real estate loans. 28,982 9,931 Valuation a!!ow ance-investment Other noncurrent assets. 6,250 744 securHies. (6.828) (72) Total noncurrent assets. 445,841 389.139 Total stockholder *s equity. 205,080 192.075 TUTAL LIABILITIES TtTTAL ASSETS $479,281 $409.888 AND SlDCKilotDER'S EQl'ITY $ 479,281 8 409.888 40 The abme finarkial mformanon h prewnied in support of the company's trnestnwnt in constritadon Holding, Inc. and subskiimes whkh is actoented for under the equity method See Note 2 to Financial 5tatrments

NOTES TO FINANCIAL STATEMFX13 saltimore cas amt nectric company NOTE 1. SYSTEM OF ACCOl'N'13 accelerated depreciation on prol976 property additions. The SIGNITICANT The Company's anounting records are mamtained in accord-cumulative net amount of such Uming differences for ahich ACCOL'NTING ance with the L'niform S) stem of Accounts prescribed by the deferred income taxes have not been provided approximated POLICIES Federal Energy Regulatory Commission and adopted by the $253 million and 8266 ailllion as of December 31,1987 and Public Service Commissiott of Maryland (Maryland 1986, respeahely. Commission). Investment tax credits are deferred and allocated to income ratably oser the lives of the subject property. REVENLT.S Resenues are generally recognized at the time customers' LTillTY PIMT AND DEPRECIATION meters are read on a monthly cyde basis. L'tility plant in service is stated at original cost, which indudes material, labor, construction merhead costs, and, a here FLEL AND Pt'RCifASED GAS COS13 applicable, an allowance for funds used during construction. The Company may recover, subject to the approval of the Mary-Construalon work in progress, plant held for future use, and land Commission, the cost of fuel used in generating elearicity nudear fuel are stated at cost.' and the cost of gas sold through zero-based electric fuel ate Additions o utility plant and replacements of units of prop-and purchased gas adjustment clauses (see Note 12). To the erty are cap talized to utility plant accounts. The original cost extent resenues fmrn customers under the dauses exceed or of plant retired is removed from utility plant, and such cost, are less than saual fuel custs, the Company records deferred plus removal cost, less salvage, is charged to the accumulated fuel expenses a hich are accumulated and refunded 'o or provision for depredation. Maintenan(e and repairs of property recoscred from customers in future pcriods. and replacements of items of property determined to be less As implemented by the Mar) land Comnussion, the electric than a unit of property are charged to maintenance expense, fuel rate for.ala is based upon the latest twenty.four month Depreciation is generally computed using composite straight-generation mix and the latest three-month iverage fad cost for hoe rates, applied to the average inves* ment in dasses of each generating unit. The fuel rate does not change unless the depreciable property. Nudear decommissioning costs are calculated rate is more than 5 % above or below the rate then recovered separately through an internal sinking fund designed in effea During 1987, the Maryland Commission authorized to accumulate a decommissioning reserve of $333,407,000. The 'he Company to rectner $30 million of under-trcovered dectric composite depreciation rates by class of depreciable property fu'l rosts tia an elcaric fuel rate surclurge over a period of fur the years 1985 through 1987 were as followt 24 months beginning with Apnl 1987. Through s)ecember 31 Prior to Effecure 1987, 8117 million of these costs had ten recovered through Sept 1.1985 SePL 1.1985 the surcharge. Electric: The purchased gu adjustment is based on recent annual Nudear. 3.40 % 2.80 % volumes of gas and the related current prices char,;ed Ly the Brandon Shores.. 2.75 % 2.75 % Company's gas suppliers. Any deferred under or over-Other., 3.26 % 3.26 % i recoseries of purchased gas costs for the twelve months ended Gas 3.12 % 3,12 % l November 30 each year are chrged or credited to custoniers Common (a). 4.02 % 4.02 % '#" ' ""U** e under s eferred under the fuel dauses The September 1,1985 revision in the nudear depreciation were as fc,! lowr: rate increased 1985 earnings, net of related tax effects, by At December 31, l 1987 1986 81,425,000, or 2c per common share. This revision was the on twundo result of the Nudear Regulatory Commission's action extending Flectric. $74,199 $31,931 the facility operating licenses for the Cahert Cliffs Nudear Gas (10,306) 5.475 Power Plant consistent with the Company's earlier application. Total. $63,893 $37A6 The amendments to the operating licenses changed the expira-tion date for l' nit l's license from July 7,2009 toJuly 31,2014 and for l' nit 2's license from July 7,2009 to August 13, 2016. INCOME TAXES la the rate proceeding conduded during 1987, the Maryland The Company and its a holly owned. sbc' diaries file a con-Commission determined that the Company had a 832,373,000 solidated federalincome tax return. Income taxes are allocated excess balance in accumulated nudear depreciation at to the individual cocupanies based upon their respective taxable December 31,1985 caused by the extension of the Calvert Cliffs incomes and tax credits. operating licenses. Effecthe June 1,1987, the Mar) land Com-Certain revenue and expense items are recorded for financial missi n instructed the Company to extinguish this excess by l reporting purpnses in a year different from the 3eu in w hich transferring $1,560,000 to the nudear decommissioning they are recognized for income tax purposes. Deferred incorne reserve and amortizing the 824,813,000 balance over the 41 taxes are provided on certain timing differences, primarily remaining life of Cahert CLffs as a credit to depredation those attnbutable to accderated depredation on post-1975 expense. Based on the current estimate of decommissioning property additions, deferred fuel costs, the perctntage repair c sts and the internal sinking fund approach, no further allowance, contributions in aid of construalon, capitalired cust mer c ntributions are presently being made to the interest and overheads, unbilled revenues, and nuclear decom-nuclear decommissioning reserve. missioning costs. Deferred income taxes are not provided on certain other timing differences, primarily those pertaining to

Baltimore Gu and Hectric Company Al104BCE FOR ITNDS LSED DL' RING CONSTRLLTION being amortized over the remaining hfe of th plant. The The allow ance for funds used during construction ( AFC) is an balances deferred as of December 31,1987 and 1986 were accounting procedure whereby the after-tax cost of borrowed $7,304.000 and $7,568,000, respectisely. These balances are and other funds used to finance construction projects is included in Other Deferred Charges. capitalized as part of utility plant on the balance sheet and is credited as a non< ash item on the income statement. The cost LONG-TERM DEBT of borrowed and other funds is segregated between net interest The discount, premium, or expense of issuance associated with charges and other income, respedigely. The Company may long term debt is deferred and amortired mer the hves of the reco er, subject to the approval of the Mar) land Commission, respeal e debt issues. Gains and losses on the reacquisition of the capitalized AFC and a return thereon after the related utihty debt are amortized over the remaining original lises of the issues. plant is placed in senice and included in depreciable assets and rate base. AFC is not ta able income and the depredation of ACCOl'NTING STBDARDS ISSLID capitalized AFC is not a tat deductible expense. During 1987, the Financial Accounting Standards Board issued As prescribed by a rate order of the Maryland Commission, three Statements of Finandal Accounting Standards (SFAS) an after-tax AFC rate of 9 08% compounded annually, had which prescribe financial accounting and reporting polides been applied to all major electric projeas from 1984 through different from those presently used by the Company under May 1987. The May 1987 rate decision reduced the AFC rate existing generally accepted accounting principles. SFAS No. 94, to 8.55 % beginning in June 1987. "Consohdation af All Majority-Ow ned Subsidiaries," requires the consolidation in the Company's financial statements of all INVESTMENT IN St BSIDIARIE3 majority-owned subsidiaries (see Note 2), SFAS No. 95, "State-The imestment in subsidiaries is accounted for and reported ment of Cash flows," mandates the presentation of Statements under the equity method. of Cash Flows in place of the Statements of Changes in Finan-cial Position; and SFAS No. 96, "Aco>unting for income Taxes,' INVENTURY \\AllATION adopts the liabihty method of accounting for deferred income Fud stocks and materials and suppbes are generally stated at taxes. SFAS Nos. H and 95 will be adopted in 1988 and are not aserage cost. expected to have a significant impact on the Company's finan-cial position or results of operations other than the presenta-DEFERRED NTCLFAR MAINTENANCE EXPENDITlRES tion of conse!idated financial statements. Changes in accumu-The Company has incurred a total of $10.653,000 in main-lated deferred income taxes arising from the initial application tenance expenditures for inspecting and repairing seismic pipe of 5FAS No. % in 1989 generally wiU be deferred and recovered supports to meet Nuclear Regulatory Commission requirements from or refunded to ratcpa)ers in future lears in acwrdance at the Calvert Chffs Nuclear Power Plant. As approsed by the with the normalization requirements of the federalincome tax Maryland Commission, such costs hoe been deferred and are laws and the regulatory practices of the Maryland Commission. NOTE 2, Imestrnents in subsidiny companies were as follows: The Qinsolidated Condensed Financial Statements of Constel-I IM ESTM ENT At December 31, lation Holdings, Inc. and Subsidiaries are presented on page 40. l lN SI'BSIDI ARlFS 1987 1986 The foHowing is condensed finandal information for Safe l 3%g llarbor Water Power Corporation. Similar information is not presented for BNG, Inc. as its financial position and results of (ns are mmaterialin relation to the Gimpany's financial are r r w er Corporation. 0 ,2 BNG, Inc. 7,216 g %,g, $ 2 52,3 47 $ 225,795 Pouer corporation 1987 1986 1985 As of December 31,198?, Constellation iloidmgs, Inc., a RESL LTS OF OPE RATIO' NS wholls ou ned subsidiary, holds all of the stock of fine other subsidiaries, Constellation Imestments, Inc., Constellation Operating res enues. $34,665 $35,010 $19,178 Properties, Inc., Constellation Doelopment, Inc., Constellation Operstmg npenws. 19,312 19 M IL8M Operating Services, Inc., and Constellation Vater Systems, Inc. Income from utility operatmns. 15,353 15,045 6,344 These companies are engaged in disersified activities indudmg Net other income 63 185 1,431 financial investments, real estate doelopment, ow nership and Net interest expenw. 5,483 6,582 3,777 management of senior Intng and health care institutions, and Net income $ 9,933 $ 8.M8 8 3.998 deseloping, ou ning, and operating alternatne energy and d ~ BGAE's equit) in earnings S 6,622 5 5,765 $ 2,605 emironmental projeds. The imestment in Safe Harbor Water Power Corporation, a producer of hydroelectric power, represents two-thirds of Safe At December 31, Harbor's total capital sto(k. including one-half of the votin8 1987 1986 stock, and a two-thirds interest in the subsidury's retained on hane earnings flNANCI AL COWm0N BNG, Inc., formerly Constellation Biogas, Inc., is a w holly Current assets $ 3,705 5 5,756 os ned subsidiary whkh invests in natural gas reserses and Noncurrent aswis. 130,851 133,568 obtains gas from non-traditional sourtes The stock of this sub-Total Assets. $ 13 4,5 56 $139.324 sidiar) was transferred from Constellation Holdmgs, Inc. to the Company on March 31,1987 Current habihties. $ 2,901 $ 3,03 The capital simLs of Constellation iloidmgs, Safe Harter, Noncurrent liabihties. 71,142 M 5,6% and BNG are sub ed to a hen under the mortgage under whkh Stodholders' equit) 60,513 50.580 l the Company's Mortgage Honds are issued Total liabihties and Stodholders' Equity. $ 13 4,5 56 $ 139.;g

Baltimore Gas and /Jectric Company FOTE 3. Cumulative CH ASGES IN Common Stock Preference Stock COMWON Sharts Amount Shares Amount OWlar Amaunu in Nuune) STOCK SOT Balance at December 31,1984. 78,621,798 8809,942 1,750,030 8175,000 St BJECT T9 Costs associated with stock split (419) MASDATORY Balance at December 31,198i. 78,621,798 809,523 1,750,000 175,000 REDEMPTION Redemption of 8.75 % Cumulative Preference Stock, 1970 Series. (300,000) (30,000) Common Stock issued under Dividend Reinvestment and Stock Purchase Plan 18,677 6V Costs associated with issuance of 7.50 % Redeemable Preference Stock,1986 Series. (619) L Less 9.35 %,1974 Series Cumulatise Preference Sto k called for redemption effective April I,1987 (350,000) (35,000) - Balance at December 31,1986. 78,MO,475 809,554 1,100,000 110,000 Common Stock issued under: Dividend Reinvestment 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). (1,008) Balance at December 31,1987. 78.912.450 8817.513 1,100,000 $ 110,000 A tu&for-one stock split was effected by the distribution of one been restated to give retroactise effed to the stock split. additional share for each share of stock already issued to stock. Effective April 1,1987, the Company redeemed all out-holders of record on August 22,1985. All per share amounts standing shares of the 9.35 % 1974 Series Cumulative and numbers of common shares presented in this report have Preference Stock at $104 per share plus accrued dividends. l SOTE 4. In January 1987, the Company issued 500,000 shares of 6.75 % the Tax Reform Act of 1986, the Company eleded to repurchase REDEEMABLE Cumulatise Preference Stock,1987 Series ($100 par value). This all of such shares. The owners of the 12 % Series shares PRFFIRESCE series is subject to an annual sinking fund requiring the disputed the right of the Company to repurchase the shares and STOCK redemption of 15,000 sh res at par value, beginning in 1993 contested the repurchase. In July 1987, the l'nited States At the Company's option, in any year, commencing in 1993, an District Court for the Southern District of New York found in additional number of shares, not to exceed 15,000 shares, may fasor of the plaintiffs and ordered that the terms of the l be redeemed for the sinking fund at par value. Preference Stock Purchase Agreement remain in full force and In August 1987, the Company issued 500,000 shares of effect. The Company has reinstated on its books the 12 % l 6 95 % Cumulative Preference Stock,1987 Series (8100 par Cumulatise Preference Stock,1981 Series A and B, although an l value). The 6 95 % Stock will be redeemed in u hole at 8100 appeal of the court decision has been filed. per share on Oaober 1,1995 and is not otherwise redeemable. The 12 %,1981 Series A and B issues consist of 272,000 and The Company tendered pa) ment to repurchase, effectise MO,000 shares ($100 pat value), respectively. Series A will 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 Cumulative Preference years 1988 through 1991, u hile f.eries B siD be redeemed in its Stock issues at par salue plus accrued dividends plus the entirety at par on July 1,1991. Pursuant to the requirements of indemnity payment described below. The Purchase Agreements Series A 68,000 shares were redeemed at par in 1987. under w hich the shares were issued permit the Company to With regard to pay ment of dividends or assets available in repurchase such shares if the Company makes a good faith the event of liquidation, Preferred Stock ranks prior to determination that there is a substantial risk that indemnity Preference 5tock; all issues of Preference Stock, w hether sub-pay ments would have to be made to the owners because of the lect to mandatory redemption or not, rank equally; and all loss of any part of the dividends received deduction. As a result Preferred and Preference Stock tank prior to Common Stock. of the redudion in the dividends receised deduction pursuant to 43

&dttmore Gas and nectric Company NOTE 5. Nortgage hen ment, to be made on or before July 31 of each year through LONG-TIRM Substantially all of the principal properties and franchises 1989, requires an annual payment of 8600,000 in cash, in prin-DEBT owred by the Company are subled to a tien under the mort-cipal amount of the debentures, or in a combination thereof. In gage under whkh the Company's first Refundirig Mortgage any year, at the Company's elecion, an additional sinking fund Bonds are issued. pa) ment of up to $600,000 (noncumulathe) may be made under the indenture. Mortgage Bond Sinking fund ns)ments On August I of each ) ear, the Company is required to pay to The Company maintains a roolving credit agreement pro-the Mortgage Trustee an annual sinkinit fund payment equal to viding for borrowings of up to $50 miulon. This agreement eIP res in December 1989. L'ndcr the terms of the agreement, i 1% of the largest amount of Mortgage Bonds outstanding under the mortgage during the precedmg twelve months. Such funds the Company, at its option, may obtain loans at various interest are to be used, as prosided in the mortgage, for the purchase rates. The Company pays 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 350 million available under the revolving credit agreement. 2004. Purchases may be made by the Trustee in the open in December 1984, Anne Arundel County, Mar) land issued market andbr through responses to imitations for sealed $22 mi!! ion of its Adjustable Rate Pollution Control Revenue tender offers if purchases are possible at or below the topli. Bonds (Baltimore Gas and Eledric Company Pro lcct) 1984 Series due July 1,2014. The net proceeds of the issue were cable redemption price, or directly through the reden an provisions to w hich the Mortgage Bonds are subject il pur_ deposited uith a trustee to be loaned to the Company as chases at a more fasurable price are not possiNc. The Company needed to finance the Compan)'s acquisition and construdion may purchase outstand ng Mortgage Bonds from time to time f certain air pollution control facihties at the llerbert A. Wagner and may submit its scaled proposal for the sale of such Mort. Power Plant l' nit No. 3. On July 1,1987,51.85 mi!! ion remain-gage Bonds to the Trustee for the sinking fund. Ing in the construdion 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 pa)aNe as to principal on the fifteenth day of August in the had borrowed the remaining $2015 million. ) ears and the amounts as foDows: In July 1985, the Company issued $100 million of Floating Rate Notes Due 1995. Interest rates on the Notes are determined Principal Amount Years Each Year quarterly based on the 91-day Treasury Bill suction rate (espressed or. a bond-equivalent basis) plus 1.1 %. The interest "" * ""40 rate may vary from 8 % to 12 % per annum. 1988 through 1990 $ 2,000 in Nosember 1985, the Company issued $100 million of 1991 through 1995 3.000 Floating Rate Notes Due 1995 Series 11. Interest rates on the 1996 and IW7 4,000 Notes are determined quarterly based on the 91-day Treasury 1998 33,000 Bill auction rate (c1 pressed on a bond-equivalent basis) plus 1.125%. The irterest rate may sary from 7.9% to 11.9% per The Installment Series Mortgage Bonds, due July 15,2002 annum. are pa):Ne as to principal on the fifteenth day of July in the in December 1985, Baltimore County, Maryland issued ) ears and the amounts as fouoss: 336 miUion of Pollution Control Resenue Bonds (Baltimore Gas Principal Amount and Electric Company Projed) Series 1985 due July 1,2011. The Years Each Year proceeds of the sale were loaned to the Company and subse-na %.m quently made asailaNe to the Trustee to redeem Baltimore Countfs PoHWon Control Resenue Notes (Baltimore Gas and 1993 $ 420

• "I

'O** P b'N' E* 1994 430 creds of the Notes financed the Company's poUut;on control 1995 through 1997 605 a es c nuruded in connection with the comersion to coal 1998 and 1999 690 of tw esisting steam eledric generator units at the Company's 2000 and 2001 865 Charles P. Crane Power Plant. 2002 6,725 Also in December 1985, Anne Arundel County, Maryland issued 348 million of Port Facihties Resenue Bonds (Baltimore The installment Series Mortgage Bonds, due September 15' Gas and Electric Company Projed) Series 1985 due June 1, 2009 are payaNe as to principal on the fiheenth diy of 26 W proceeds oMe sale were loaned to the Company September in the lears and the amounts as follows: and subsequently made available to the Trustee to redeem Anne Principal Amount Arundel County's Port Facihtles Resenue Notes (Baltimore Gas Years Exh Year and Electric Company Projed) Commercial Paper Series, The 44 on %un49 proceeds of the Notes original!) financed the Company's 2005 through 2008 8 3,250 acquisition of certain coal handhng port facthties at the 2009 42,000 Brandon Shores Power Plant. In Odober 1987, the Company estaNished a $100 milhon

• MN"M Medium-Term Note program under a hkh notes having The Company is required to make an annual sinking fund pay' maturiues ranging from one to fifteen ) ears may be issued. As ment (in cash andbr Sinking Fund Debentures) to the Trustee of December 31,1987, no Notes had been sold under this under the 4%% Sinking fund Debenture Indenture. The pay-program.

Baltimore Gas and Electric Company The weighted average interest rates for other long-Term Debt Aggrrgate Naturities during 1987 and 1986 were as fouows: 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 nye ) ears are as follows: Floating Rate Notes, due July 1,1995. It.00 8.09 Year Requirements floating Rate Notes, due Oaober 15,1995 gi, tw,,,n43) Series 11. 7.99 8.10 Pouudon Control loan, due July 1, 2011. 4.56 4.78 1988 8 12, M Port Facilities loan, dueJune 1,2013 - 4.47 4.93 1989 101,000 Adjustable Rate Pollution Control loan, due 1990 60,000 July 1,2014. 4.63 4.88 1991 16,000 1992 42,000 NOTE 6. The Company contracts for certain facdities and equipment The future minimum lease payments as of December 31, LELSES under lease agreements with various expiration dates and 1987 for leases reported as capital leases and noncancellable renewal opuons. Consistent with the regulatory treatment, operating leases are as follows: lease payments for capital and operating leases are charged to capital operaung operating expenses in the Statements of income. Such costs are le85e5 te25es summarized as follows for the three ) ears ended December 31: (in Thousands) 1988 81,466 8 6,335 1987 1986 1985 1989 654 5,193 on m"*) 1990. 486 5,122 Capital Leases. 8 1,484 8 3,092 8 2,548 1991 386 3,945 Operating leases. 11,101 10.146 10,130 1992 285 3,763 Total lrase Espense. $ 12,58 5 813.238 812,678 Thereafter. 860 3,184 Total minimum lease pay ments. 84,137 827.542 Capital leases induded in the financial statements but not less interest poruon. 1,108 disclosed separately represent assets and obligations of 83,029,000 at December 31.1987 and 83.996,000 at Present value of net minimum December 31,1986. lease payments. 33,029 NOTE 7 The Company maintains bank lines of credit to provide backup w hich have no withdrawal restrictions. Borrowings under the SHORT TI.RM financing capacity for commercial paper notes issued to satisfy lines are at the Sanks' prime rate, base interest rates, or at BORROWINGS interim financing requirements and to permit short-term various money market rates. Informadon concerning short-AN D LINf5 borrowing Dexibibty. In support of such lines, the Company term borrowings and lines of credit is set forth below: OF CRFDIT pays commitment fees and maintains compensaung balances 1987 1986 1985 tDntlar Amounts in Thousand:) At December 31 Short-term borrowings outstanding Commercial paper notes. 8 45,000 8120,000 8 86,975 Weighted )etage interest rate. 7.74 % 6.61 % 7.80 % L'nused lines of credit. $ 150,200 $150,200 8150,200 Compensating balances. 8 790 790 8 790 During the Year Ended December 31 Maximum short-term borrowings. $ 184,500 8167,275 8189,500 Average daily short-term borrowings(s). 8 73,006 8 51,634 8 82,708 45 Teighted aserage interest rate (b). 6.67 % 7.13 % 8.21 % (a) The sum of dollar days of outstanding terrowings daided b) adual dap in the period. (b) Actual aarved interest dunng the p(nod da-ided by average dady borrowings. i

Baltimore Gas and Electric Company NOTE 8. Pursuant to a contna with the Department of Energy (DOE) included in other deferred charges and are being amortized as SPENT Nt' CLEAR for the disposal of spent nuclear fuel under the provisions of recovered through base rates. FL'EL DISPOSAL the Nuclear Taste Polky Act of 1982, the Company, in June The contraa with the DOE also provides for :he disposal of COSU 1985, paid the DOE $71,829,000 for the disposal of spent spent nuclear fuelgenerated after April 7,1983 at a fee of one nuclear fuel which existed at April 7,1953. As of December 31, miU per kilowalthour of nuclear generation. This fee, w hich is 1987 and 1986, the Company had couected $71,236,000 and payable quarterly, is a component of fuel cost subject to $68,152,000 of that amount, respectively, through base rates. recovery through the clearic fuel rate. The remaining balances of $593,000, and 83,677,000 are - NOTE 9. The Company sponsors several noncontributory defined benefit 8 5,249,000, 8 5,188,000, and 15,848,000, respectively, was . PENSION pension plans, the largest of u hich (the Pensbn Plan) cosers 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-POSTRETIRFMENT whouy ou ned subsidiaries. The other plans, w hich are not tuarial assumptions u hich resulted in lower pension empense BENEFID material, provide supplemental benefits to certain key and increased 1985 earnings by $3,803,000, equivalent to employees. Benefits under the plans are generally based on age, St per common share. years of service, and compensation levels. The Company's policy is to fund annuauy the cost of the 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 all ofits pension plans. De effect of adopt-December 31,1987 consisted primaruy 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 pen ion cost for the Company and its The following tables set forth the combined financial status uhouy owned subsidiaries for 1987,1986, and 1985 wu of the plans and the composition of total net pension cost for 86.301,000,86,212,000, and 87,101,000, respectively, of w hlch 1987: At December 31, At January 1, 1987 1987 (Ikear Anunu to Thousands) Accuraulated benefit obligation: Vested. 8293,476 8309,629 Nontested. 18.272 19.225 Total 8311,748 8328.854 Plan assets at fair value 8417,538 8407,647 Less: Projected benefit 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'namortized net asset from adoption of SFAS No. 87 3,171 3,398 Accrued pension cost 8 (2,054) 8 - Assumptions: Discount rate.. 9.25 % 8.5 % Average increase in future compensation levels. 4.5 % 4.5 % Expened long-term rate of return on assets. 9.5 % 9.5 % Year Ended December 31,1987 On Ttwusands) Total net pension cost: Service cost. 06 Interest cost 33,398 Actual return on assets. (29,227) Net amortization and deferral (8.976) 46 Total. 8 6,301 In addition to providing pension benefits, the Company pro-active emplo>ees is generally recognized as the benefits are paid. The total cost of he benefits and the number of active and sides certain health care and life insurance benefits for retired t employees. The cost of these benefits and similti benefits for retired et9plo>res covered by these benefit plans were as fouows: 1987 1986 (DuGat Amounts in Thousands) Cost, $ 2 5,839 824,090 Anive employees. 8,767 8,833 Retired emplo)ees. 2,889 2,773 . - -=

Ba:timore Gas and Electric Company NOTE 10. In December 1986, the Public Service Commission of Mary-1986. The after-tax effect of this w rite-off was a redudion in D:5AL10% ED land issued a decision denying recovery of certain replacement earnings of 3C per common share. The Commission's dedslon DiFDtRED energy costs because an emplo)ee error caused the extension of was affirmed by the Orcuit Court of Calvert County, and the Tt1L r0513 a 1985 planned outage at the Calvert Giffs Nuclear Power Plant Company has appealed the Orcuit Court's decision to the (see Note 12). The Company charged $3.9 million of previously Mar) land Court of Special Appeals. deferred fuel costs to Purchased Fuel and Energy Expense in NOTE 11. The Company owns an undivided interest in the Keystone and The following data represent the Company's share of the JOINTLY Cmemaugh mine-mouth electric generating plants located in jointly ow ned properties as of December 31,1987: 0%NED weern ?enns)lvania, as well as in the transmission line w hich Transmission ELECTRIC transports the plants' output to the joint owners' service terri-M sk,ne Conemaugh IJnc LTILITY tories. Financing and accounting for these properties are the (twnar Amounts in Thousando PL4NT same as for whouy owned utihty plant. The Company's share Ow nership Interest. 20 99 % 10.56 % 7.00 % of the dired expenses of the joint property is induded in the ttaty Plant in Senice, 864,500 837.926 81,e6 corresponding operating expenses in the Statements of Income. Acumulated Prosision for Depreciation. 19A33 12,390 555 Construcuon Hork in Progress. 4.551 912 NOTE l2. Commitments and Guarantees COMMITMEN13 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 liabdity in the event of a nudear CONTINGENCIF5 The Company has agreed to guarantee 20.99% of borrowings inddent at any licensed nudear power plant in the country is of up to $212 milhon by Keystone Coal Mimng Corporation, an amount up to $10 minion per nudear incident (85 miUion the major coal suppher for the keptone Plant (see Note 11). for each reador at Cahert Chffs), wG a maximum contingent As of December 31,1987, the total outstanding loans were liability of $20 million per lear in the event of more than one $112 milUon, of which $3.0 million was guaranteed by the nuclear incident in a particular } car. Company. Additionally, the Company has agreed to guarantee Effenive January 1,1988 the policies of nudear liabihty two-thirds of up to $125 miUion ofindebtedness incurred by insurance at Cahert Giffs have been amended to exclude radia-Safe linbor Water Power Corporation (see Note 2)in connec-tion in}ury claims presented by certain nudear workers New tion with the expansion of its h)droelectric generating facil-policies prosided through the nuclear insurance pools have ities. As of December 31,1987, the outstandmg debt totaled been issued to cover such claims, up to a linut of 3160 million l $50 minion, of wluch $33 million represents the Company's per incident. Claims are funded by an after loss assessment of two-thirds share. The Company asesses minimal risk of default each member insured equal to 95 % of the claims less accum-on the loans it has guaranteed. ulated reserves and earnings. The contingent liabihty to the Company in any one year would be 35 miUion. It is the opinion l Nudear Contingencies of the Company that Secondary Financial Protection, as The two units at the Company's Cahert Chffs Nudear Power described in the preceding paragraph, could be effealve after Plant are its principal gcnerating facihties and produce the two full limits in losses have been paid. lowest cost power available to the Company. An inddent at this The Company's insurance for phpical damage to its nudear plant could be a substantial adserse effect upon the Com-power p ant is strudured to proside a lesel of Primar) l pany. The primary conCngencies resulting from an incident at Insurance and a lesel of Excess insurance. The Primary the Cahert Cliffs Plarit would intohe the Company's liability to insurance, prosided through nudear insurance pools, cosers third parties for property damage and bodily injury, the up to $500 milhon of physical damage, induding contamina-phpical damage to the plant, and the cost of replacement tion, to the plant. The Excess Insurance currently prosides pow er. coverage for an additional ll 025 billion (or a total of f1.525 The Price-Ander>an Act (Act) currently hmits the liabihty to billion) of phpical damage to the plant, induding contamina-the public of an owner of a nudear 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 8720 million for be the finandal responsibdity of the Company. The Excess a single nudear incident, as defined in the Act. The Company Insurance protection is presided through a combination of is proteded against this potentialliability by a combination of nudear insurance pools and an industry-owned mutual b, commercial insurance (currently $160 million through the insurance company. The major portion of any claim paid nudear insurance pools) and Secondary Finandal Protedion through the Excess Insurance coserage for damage to any currently amounting to a maximum of $ 560 miUion. Under nudear 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 Protedion for public liability resulting insurance company reserses and an after-loss assessment of from a nudear incident would be provided through an after-each member. The contingent liability to the Company for such loss asessment of each nudear powered utiht) in the country after-loss assessments currently is 881 million in any one at a rate of up to $5 miUion per reador, with a $10 million per polig year.

Baltimore Gas and Electric Company In the event of an outage at Calvert Chffs, the Company the Calvert Cliffs units; howeser, the insurance described above would obtain replacement power from other sources. Due to is the only insurance currently available to cover such public the relatively low cost of the power generated at the Company's liability, property damage, and replacement energy costs. nudear plant, replacement power would be more expensive. In As additional amounts of insurance become available, the Com-the event of an outage caused by physical damage to the pany will consider increasing its insurance limit after evaluating nuclear plant u hich is insured as discussed abose, other the economic lustification for such increase. The Company insurance provided through an industry-os ned mutual in-would seek to have any unrecovered costs included in its surance company would provide coverage for a portion of the service rates, but the Company cannot assure that the Public replacement power costs if the outage lasts more than 26 Service Commission of Maryland (Mar) land Commission) would weeks. Currently this insurance provides for a maximum week-allow such recovery. ly indemnity per unit of the lesser of 83.5 million, or 90% of tiie Company's calculated replacement power cost for that unit.

1. ccureraMity ofElectr(c Eueirosts This maximum weekly indemnity will be available for up to a By statute, actual electric fuel costs are recoverable so long as '

52-week period, after a hkh the maximum weekly indemnity is the Maryland Commission finds that the Company demonstrates - reduced by 50% for the ensuing 52-week period. For one that, among other things, it has maintained the productive insured occurrence causing both Calvert Chffs units to be capacity of its generating plants at a reasonable level. The shut down beyond 26 weeks, the weekly indemnity payments Maryland Commission and Maryland's highest appellate court weuld then begin for each unit at a rate of 80% of the fore-have interpreted this as permitting a subjective evaluation of going. This replacement power insurarxe would fund a claim - each unplanned outage at the Company's generating plants to paid to any member of the industry-owned mutual insurance determine w hether or not the Company had implemented all company through insurance company reserves and an after loss reasonable and cost effective maintenance and operating con-assessment of each member. The contingent liabihty to the trol procedures appropriate for preventing the outage. The Company for these after-loss assessments currently is 89.7 Company is periodically involved in fuel rate proceedings and million in any one policy year. Mes concerning individual plant 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 coser the costs that could of re;lacement 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 E!ICTRIC g, m,% INFORMATION Operating Revenues. S t.393,735 81,388,251 81,301,463 operating income before income Taxes. 453,739 445,698 432,540 Operating income 326,658 305.011 291,849 Depreciation. I I 8,081 113,365 111,365 Construction Expenditures 230,067 130,513 204,180 Identifiable Assets at December 31 3,498,032 3,371,785 3,264,559 GAS Operating Revenues. 8 415,456 8 445,769 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 Identifiable Assets at December 31 346,681 345,145 343,556

TOTAL, Operating Revenues.

$1,809,191 81,834.020 81,754,772 Operating income before income Taxes. 509,841 488,525 480,814 operating locome 366,379 334,563 324,242-Depreciation. 132,332 127,274 124,%I Construction Expenditures 254,530 254,142 225,771' 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 'loctodes steam J

Baltimore Gas and Elktric Company NOTE 14. The foDoming data are unaudited but, in the opinion of Manage-winter months. Accordingly, comparisons among quarters of QL'ARTERLY ment, include all adjustments necessary for a fair presentation. a ) ear may not be indicative of overall trends and changes in FINANCL4L The business of the Company is seasonalin nature with the operations. DATA peak sales periods generally occurring during the summer and (L'NAl~DITED) Operating Earnings 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................. 8 522,544 8 98,171 8 73,580 $ 68,304 $.87 June 30,1987.................. 391,599 76,032 51,657 47,002 .60 Septembee 30,1987........... 506,579 150,047 126,157 116,502 1.48 Decembee 31,1987.............. 388,469 73,068 48,704 41,884 .53 $ l,809.191 $ 397,318 $ 300,098 $ 273.692 $ 3.47 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 $ 365.016 8 274.619 $ 247.743 8 3.15

• The Allouance for Funds Used Dunng Construcuon (for Bortourd Funds and Other Funds)is added to Operating Income in determining operating income for ratemaking purposes.

I l l l l l 49 i i

CONSTELIATION SUBSIDIARIES to/timore car and nectric 0;mpany Constellation iloidings, Inc. ~ Vr Christian 11. Poindexter, President .,';.a . 1 b ??'i and ChiefErecutite Officer 301-783-2803 ) f f f-4

• Constellation Properties, Inc.

G. Wendel lleineman, President a 301-783 2827 ^ h;. Constellation Dewlopment, Inc. ConsteUation Operating Senices, Inc. 3 ConsteUation Vater Sptems, Inc. p Bruce M. Ambler, President 301 783 2805 left to right, front rorc Christian !!. Poindexter, President and Chief Executise Officer-Constellation lloldings; E Becki Kurdle, Vice President, Constellation imestments, Inc. OmstePation Properties. Steven D. Kesler, President back rorce llenty A. Jurand, Vice President and Chief Financial 0fGcer, '301 '83-2831 Constellation lloidings; Steven D. Kesler, President, Omstellation imestments; Paul 11. Steinbach (deceased), President, Constellation Operating Services; 250 West Pratt Street G. Wendel lleineman, President, Constellation Properties: Bruce M. Ambler, Baltimore, Maryland 212012423 President, Constellation Deselopment. Mr. Paul 11. Steinbach passed away suddenly on December 18,1987. lie joined Q)nstellation Operating Senices in April 1987 after 39 years with Baltimore Gas and Electric Company. Ilis contribution will be missed. Constellation lloldings, the parent company of Constellation Properties, Constellation Deselopment, Constellation Operating Services Constellation water Sptems and Constellation imestments,is a w holly ou ned subsidiary of Baltimore Gas an<! Electric Compam. O Constellation iloidings Constellation Deteloprnent This company prosides 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 O nstellation Deselopment, we i and accounting senices. In addition, the search and screening participate in a number of qualified alternatise energy and co-for new investment and acquisition opportunities is controlled generation projects producing electricity for sale to other utilities. from Constellation lioldings. Constellation Operating Serthes is the group member w hich l handles our plant operating and maintenance artisities. ) Rounding out the group is Omstellation IQlcr Nrstems from 30 w hich we manage our actiuties in water and wastewater projects. Constellation Properties Constellation investrnents This member of the group is the focus of Constellation's actisit) The largest single company at this time, Constellation imest-in the real estate marketplace. Current projetts include in-ments is the funding source for the other actisities as well as a dustrial parks, office buildmgs, retail and resideatial deselop-permanent prusider of current income from its assets in various ment. In addition the company has a significant imestment in secunties, imestment partnerships and operating financial j the senior lising industry. Joint ventures with other regional senice companies. and national deseloprs are the dominant business strutture. 1 i i - - - - - - - - - - -.. _ _ - _ - - - - -. -. -.. -. ~ -. - - - ~ - _. - - -.,.

0FFICERS n,atimore c;as amt uutnc compa,,y l George V..\\kGowan lkrbert D. Coss,Jr. Arthur E. Lundvall, Jr. Chairrnan of the Board i1ce President, General 11ce Prcsident, Fossil and Chief Evecutive Officer Sertices Energy Edward A. Crooke George D. England Joseph A. Tiernan President and Chief Operating 11ce President. ila Pusidnt Nuclear Officer-l'tility Operations ~ Enugy Distribution Charles W. Shivery Thomas F. Brady Jon M. Files &casurer and Secretary 11ce President Accounting 11ce President,.flanagernent and Economics and StaffSmices jeffrey L. Datis Assistcnl Secretary Michael J. Chesser John W. Gore, Jr. 11ce President. Consurner lice President, Electric Thomas E. Rusiin, Jr. Sm ices Interconnection and Operations Assistant keasurer m; ~ : ;... -,z y,, yyg a. m ...y.,p-- ~ - 3 m o. [. -2 U *'.. =g

y

+ _'s O p.' ey wp g - .y 4 f - O l ff, .. q ) s ~ g s. e i ' e a V ~ S 4 n1 / N *' .& Q lep to right: Mr. England, Mr. Gore, Mr. Files, Mr. Brady, lep to rigb/ Mr. Coss, Mr. Chesser, Mr. Tiernan, Mr. Cmoke, Mr. McGowan Mr. Lundvall CilANGES IN DIRECTORS AND OFFICERS Effectise April 1,198', Michael J. Committee of the Ikard of Directors of Shisery became Secretary in addition to Chesser, formerly Manager, Southern the Compan). retaining his duties as Treasurer and Distnbution, became Vice President. Effectise January 1,1988, Edward A. Manager, Finance. Consumer Sersices succeeding Raymond Crooke, formerly Vice President-Finance Also effectis e January 1,1988, Jeffrey C. Bryant w ho retired on that date. and Accounting and Secretary, became L. Dasis became Assistant Secretary and Effectise July 1,198', George D. President and Chief Operating Offker-Thomas E. Rusrin, Jr., became Assistant g England, formerly Manager Sorthern l'tilit) Operations succeeding Mr. AkGow an. Treasurer. Distnbution, became Vice President-In addition, Mr. Crooke and Chri:.tian The Board also elected George C. Di>tnbution succeeding llenry 11. Miller

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

Executive Officer Constellation iloidings, tive March 1,1988, replacing Arthur E. Effectise January 1,1988, George V. Inc., were elected to the Baltimore Gas f undvall,Jr., who will retire on that McGowan, formerly President and Chief and Ekctric Company Board of Directort date. Mr. Creel was formerly Manager, Operating Officer, became Chairman of Effettise January 1,1988, Thomas F. Fossil Operations. the fkard and Chief Executise Officer Brady, formerly Manager, Accounting. During the lear, Charles S. Sanford, Jr, succeed ng Bernard C. Truexhler w ho became Vice President of the restructured resigned as a Director of the Company in I retired on that date. Mr. Trueschler will Accounting and Fconomics Division. order to meet his increased responsibilities I continue as Chairman of the Executise Fffecthe January 1,19x8, Charles W at the Bankers Trust New York Corporation.

BOARD 0F DIRECTORS sainmore cas andtiectric company l George V. McGowan Jerome W. Geckle George G. Radcliffe Chairman of the Board Chairman of the Board Chairman of the Board and ChiefErecutite Oljicer and Cblef Ereculite Oficer, and ChiefErecutitt Officer, of the Company, Baltimore Pilli Group, Inc, The Baltimore Life Insurance Baltimore (Relocation, Company, Baltimore (Insurance) ). Owen Cole fibicle, Atiation, and Chairman of the Erecutite Ofia Resoura Satlas) Dr. John B. Slaughter Committee of the Board of Directors, Chancellor, Unitersity of First Slaryland Bancorp, Willard llackerman Alaryland at College ihrk, Baltimore (Bank floiding Company) President and Gief Ereculite College (krk, Staryland Oficer, The Wbiting-Rtrner (Education) Edward A. Ctooke Contracting Company: B"Ilim0" (C0"SIMII 0" Bernard C. Trueschler President and Chief Operating Oficer-Clility Operations and ConstmHon 3fanagment) (ga,,,,, g, gg, g,,(,,,,, of the Company, Baltimore Committee of the Company, Paul G. Miller Baltimore Leslie B. Disharoon Chair nan of the Board, Chairman of the Board Supac mputw Systms, Inc, lg277y g, wel15 andPresident, Afonumental Isun!, Staryland(Computa (y,,,,,, g,,g, gna,g, Corporation Baltimore Sytms and Soflu'au Mkages) AlcCormick & Company, Inc, (Insurance) Baltimore (Food Processing, Christian 11. Poindexter Spices, etc) Sister Nathleen feeley, S.S.N.D. President and ChiefEreculite President College of Notre Ofpn4nstellaHon lloidings, Inc, Dame ofStaryland, &dtimore (Education) COMMITTEES OF TIIE BOARD Audit Committee Executise Committee Committee on Nuclear Power Str. Radchfe, Chairman .tfr Trueschler, Chairman air. KVils, Chairman .tfr. Cole Sir Crooke Sister feelty Air. Afiller 31r. Disbaroon Afr. llackerman Sister freley air. Ibindexter Committee on Management Sir. AlcGou'an Dr. Slaughter Air Geckle, Chairman Air Radchffe 3fr Cole 317. Wells Alr. Disbaroon 52 3Ir IVueschler I j 1

i SHAREHOLDER INFORMATION narimore cas and necufc company COMMON STOCK DIVIDENDS AND PRICE RANGES 1987 1986 Disidend Price Disidend Price } Declared High Low Declared liigh low First Quarter. S.45 $37% $30% 5.425 528% $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 31.775 DIVIDEND POLICY ANNt'AL MEETING The Common Stock is entitled to disidends w hen 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 April 20,1988, in the llunt Valley Ballroom other agreements on payment of dividends; however, holders of of Marriott's llunt V11lcy Inn,245 Shawan Road (1-83 Preferred 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 profits, cumulative yearly duidends at the fixed preferential rate FORM 10-K specified for each series and no more, payable quarterly, and to l'pon w ritten request, the Company will furnish, aIthout receive w hen due the applicable preference stock redemption charge, a copy of its Form 10-K annual report, including finan-payments, before any dividend on the Common Stock shall be paid cial statements, after it is filed with the Securities and Exchange oe set apart. Commission in March 1988. Requests should be addressed to Dividends have been paid on the Common Stock continuously since Charles W. Shisery, Treasurer and Secretary, P.O. Box 1475, 1910. Future disidends depend upon future earnings, the financial Baltimore, Maryland 21203. condition of the Company, and other factors. Quarterly dividends were declared on the Common Stock during 1987 and 1986 in the Al'DITORS amounts set forth above-Coopers & L) brand COMMON STOCK DI)lDEND DATES EUCt:TIVE OFFICES Recor6 dates are normally on or about the 10th of March, June, Gas and Electric Building September and December. Quarterly dividends are customarily mailed Charles Center to each shareholder on or about the 1st of April, July, October and Baltimore, Maryland 21201 January. Mail: P.O. Box 1475 Baltimore, Maryland 21203 DIVIDEND REINVESTMENT AND STOCK Pt'RCll ASE PL%N SilARillotDFRS'1%QtIRIES AND AS$1 STANCE The Company's Disidend Reinvestment and Stock Purchase Plan Shareholders desiring assistance with lost or stolen stock certificates or presides an opponunity for holders of the Company's Common Stock disidend checks, name changes, address changes, stock transfers, or j to acquire additional shares of such stock in a convenient and other matters should call the Investor Sen kes Representatises on our economical manner. Participants in the Plan may reinvest cash toll-free telephone numbers. disidends on all or a portion of their shares of Common Stock andA>r The following toll-free telephone numbers are available during our make optional cash payments not exceeding 56,000 per quarter. business hours,8.00 a.m. to 4:45 p.m. STOCK TRADING a m te Metropohtan Area 78M920 The Company's Common Stock, which is traded under the ticker Within Maryland 1 800-492 2861 symbol BCE, is listed on the New York, Midwest, and Pacific stock Outside of Maryland 1 800 225-2432 exchanges, and has unlisted trading privileges on the Boston, Cincinnad, and Philadelphia exchanges. As of December 31,1987, there wetc 75,682 Common Stockholders Baltimore Gas and Electric Company I"*I # b*I of recd P0. Box 1475 Baltim(,re, Maryland 21203 TRANSFER AGF.NT AND REGISTRAR Maryland Nations! Bank, Baltimore

l 1 l N B A LT IM O R E GAS AND ELECTRIC Gas and Electric Building Charles Center PO. Bot 1475 Baltimore, N!aryland 21203 .}}