ML20151K074
| ML20151K074 | |
| Person / Time | |
|---|---|
| Site: | Calvert Cliffs  |
| Issue date: | 07/31/1997 |
| From: | Cruse C BALTIMORE GAS & ELECTRIC CO. |
| To: | NRC (Affiliation Not Assigned) |
| References | |
| NUDOCS 9708050328 | |
| Download: ML20151K074 (72) | |
Text
,
Cal ARLES II. CRUSE Baltimore Gas and Electric Company 1
Vice President Calvert Cliffs Nuclear Power Plant Nuclear Energy 1650 Calvert Cliffs Parkway Lusby, Maryland 20657 410 495-4455 July 31,1997 U. S. Nuclear Regulatory Commission Washington, DC 20555 ATTENTION:
Director, Nuclear Reactor Regulation
SUBJECT:
Calvert Cliffs Nuclear Power Plant Unit Nos.1 & 2; Docket Nos. 50-317 & 50-318 Guarantee of Retrosoective Premium In accordance with the requirements of 10 CFR 140.21, we are attaching the guarantee of payment of deferred premiums for our Calvert Cliffs Nuclear Power Plant reactors.
Exhibit I A copy of the 1996 Annual Report to Shareholders of Baltimore Gas and Electric Company containing certified financial statements Exhibit II A copy of quarterly financial statements as of June 30,1997 Exhibit III A copy of Projected Cash Flow for the twelve months ended July 31,1998 Exhibit IV -- Narrative statement on curtailment / deferment of capital expenditures (if any) to ensure that retrospective premiums up to $10 million per reactor per year for each nuclear incident would be available for payment Should you have questions regarding this matter, we will be pleased to discuss them with you.
Very truly yours, I
/
l-l' n ii n y/
CHC/DWM/bjd
Attachment:
As stated 9708050328 96'1531 kkkhhh I
p Director, Nucle:r Reactor Regulition July 31,1997 5
4 Page 2 cc:
(Without Attachments)
Document Control Desk,NRC R. S. Fleishman, Esquire J. E. Silberg, Esquire Director, Project Directorate 1-1, NRC A. W. Dromerick, NRC T. T. Martin, NRC j
Resident Inspector, NRC R. I. McLean, DNR J. H. Walter, PSC 4
4 r
I i
QUARTERLY FINANCI AL
SUMMARY
j June 1997 i
2 e
C@C:K$LGATED STATECENTO CF l#CSC'E (UNAUDifED)
ThreeMonthsEnded SixMonthsEnded Twelvemonths Ended June 30 June 30, hne 30, 1997 1996 1997 1996 1997 1996 (In Ihousands, Except Per Share Amounts)
Rr.Tm;cs Electric
~
5 498,066
$ $17,780
$ 1,015,362 51,072.224
$ 2,151,683 3 2.289,546 Gaa 92,338 93,515 306.046 312,779 510,558 492.531 Diversified businesses.
156,032 120,412' 312.714 209.034 531,891 385,452 Tota 1 revenues..
_ 746.436 731.707 1.634.122 1.593 037 3,194,332 3,167,529 Emsses Ontm THAN ltmxrsr AND INCOME TAXIS Electric fuel and purchased energy 112,836 120,704 248,008 274,556 520,866 572,775 Disallowed replacement csergy costs.
6,764 6.764 88,605 6.764 Gas purchased for ret, ale... -
48,167 49,384 181,421 178A12 287,452 265,490 Operations 133,157 130,196 265,031 262,364 529,091 547,047 Maintenance 62,650 60,811 102.195 95,252 181,065 175,278 Diversified businesses-selling, general, and administrative........
127,417 64,251 249.047 151.824 408,276 278,651 Write-downs of real estate invcstments 49,146 67,596 67,596 Depreciation and amortization....... -.
85,186 82,332 170,786 167,730 333,246 333,132 Taxes other than income taxes 49.078 48,628 107.323 106,183 215,887 211.890 Total crpenses other than interest and income taxes.
667.637 583.070 1.391,407 1,243.085 2,632,104 2.391.027 incomc from Operations 78,799 148,637 242,715 349,952 562.228 776.502 OrnEn INCOME Allowance for equiry funds used during a
i construction.... -
1,206 2,006 2,416 3,971 4,953 7,933
)
Equity in carnings of Safe 1larbor Water i
Power Corporation -
1,231 1,123 2,461 2.247 4,811 4,591 Net other income and deductions -
(1.3R4)
(1,950)
(2,661)
(4,098)
(3,737)
(8.062)
Total other income -
1,053 1.179 2.016 2,120 6.027 4,462 _
laceme Before Interest and Income Taxes..
79.852 149.816 244,731 352.072 568,255 780,964 -
INMEST EXrE.NsE Interest chargcs -
59,827 53,054 116.114 105.772 227,965 215,151 Capitalized interest.
(1.740)
(3,416)
(4,024)
(6,568)
(13,121)
(14,451)
Allowance for borrow ed funds used during construction.--
Net interest expense -
(653)
(1,083)
(1J06)
(2,146)
(2,680)
(4,289) 57,434 48,555 110.7A4 97.058 212.J 64 196,411 Income Beforc lncome Taxes 22.438 10L261 133.G47 255,014 356,091 584.553 INcout taxes Current.
u.75 23.232 68,838 70,131 146.686 139,341 Deferred.
(15,467) 15,387 (18,208) 23,372 (15,571) 71,471 Investment tax credit adjustments........
(1.883)
(1.911)
(3,764)
(3,823)
P,595) 0.857)
)
Total income taxes..
Nellaceme.
7,448 36.708 46 566 69.660 123,520 202,955 14,970 64.553 87,081 165,334 232,571 381,59s Prefened and Preference Stock Dividends.
7,874 12,104 15,758 21.768 32.526 42.442 Earnings Appilcable to Common Stock....... $
7.096 52.449 5
71.323
$ 143,566 5 200.045 5 339.156 Average Shares of Common Stock Outstandmg 147.667 147,527 147,oto 14i,w 147,o16 147,527 EAPRNoS PfR $ HARE OF COMMON STOCK Eamings per darc from current-year operations:
Utility business....
Diversified businesses *
$0.23
$0.29 S0.62 50.86
$1.72
$2.06 (0.18) 0.10 (014) 0 14 0 03 027 Total earnings per sharc from current. year operations.
50.05
$0.39
$0.48
$1.00
$1.75
$2.33 Disallowed replacement energy costs..
(0.03)
($0.03)
(10.39)
($0.03)
Total earnings per share of common stock 10.05 S0.36 50.48 50 97 SL36 S2.30 C O N S TELI. ATION COM P ANIES
- Revenues...., *
$92,412
$66.769
$160,465 5109,965 5263,343 5225,092 Nct Income (26,301) 13,637 (20,571) 19.457 2,290 37.210 Total Assets-End of Period -
1,403,546 1,230,678 1,403,546 1,230,678 1,403.546 1,230,678 BGEs investment-E,d of Period._
308,773 37L235 308.773 371,235 308,773 371,235 Informatwn for the Constellation Companies does not reflect consolidating eliminationsfor intercompany balances and transaction.t The Interim information con;ained herein ref ects apportionments and estimates of some items subject tofinal adjustments at the calendar year-end. Fess hsfor interimperiods. which can be largely influenced by weather conditions, are not necessarily indicative of results to be expectedfor an entireyar.
- 1997 results reflect a $0.22 per share real estate write-down in the three-monthperiod and$0.30per share in real estate write-downs in the sh and twelve-month periods.
Balri*nore Gas ond Electric Company andSubsidiaries
C00S$L10ATED BALANCE SNEETS (Ut ACSITE3)
June 30, ASSETS 1997 1996 Cr.iRRENT ASSETS (in Wusands)
Cash and enh equivalents Accounts receivable (ner of allowance for uncollectibles of $16,416 and
$ 271,212
$ 38,034
$17.673, sespcstivc1 ) -
1 Fuct stocks._.m.
400.483 418.823 80,173 59.240 Materials and supp!ics. -
1.
Prepaid taxes other than income taxes 166.320 147,866 3,049 1,953 Deferred ineome taxes... -
Trading &ccurities..
12.810
....c 64.956 64.175 Other 39.051 29.380 Total current assets.
IMytsTMDM AND Ontes, Assers 1.045.244 772.281 Real estate projects -
440,846 4 %,591 Powergeneration systems. --
404,868 364,447 Financialinvestments -
198.037 201.490 Nuclcar decommissioning trust fund
'28,723 101,871 Net pension asset...
%.849 76.108 Safe 11 arbor Water Powcr Cor Senior living facilities poration.....
34.385 34.334 Other...
46,351 29,056 Totalinvestments and other assets._.,
._ 99.019 75,550 UnuTY PWT 1,449.078 1,379.477 Utility Plant 8,315,395 8.093.821 Accumulated deprc:lation -
_(2,715,425)
(2.577.104)
Net utility plant -
5.599:97v 5.516 7W DEnaneo Cuncas
... ~
=
Regulatory assets (nct)m.
464.514 610.170 Other Total deferred charges -
10&475 67.293 572,989 677.463
~
ToTAt. Assen
$ K667.281 58.345N LIABIIJTIES ANDCAPITALIZAT10N CunazwT U AstuT!Es Short-tcrm borrowings -.
Current portions of long-term debt and preference stock.
..c 3 116,900 5 274,845 324.783 133,953 Accounts payable-
...mm.-
147.536 147,859
_.m.
Customer deposits. --
=
Accrued taxes m
28,419 27,447
. - ~ -
3,247 2,404 Accrued interest.-..
61,356 56,72d Dividends declared -
68,402 67,924 Acerned vacation costs. - '
-...c Other -
38,872 35.621 Total current liabilitics...... --
23.486 27,645 DmaRED CREDITS AND OTnen 1.'As utits 813.001 7/,8.422
~
Dcferred income taxes 1.276.242 9.307.231 Pcnsion and postemployment benefits.
Decommisjoning of federal uranium enrict. ment facilities...
180,530 155.269 38,599 43.694 Other __.
Total deferred credits and otherliabihties --
64,542 70.005 1.559.913 1.570.199 CAPITAUZATION 1 oso Trau Dest First refunding mortgage bonds 1,619.357 1,637.341 Otherlong-term debt of BGE..... -
937.785 637,000 Img-term debt of Constellation Companics Long. term debt of other diversificd businesses S19,105 561,374 Unamortized discount and premium.
22,000 (14,3'.7)
(14,911)
Current portion oflong. term debt-J 21.583)
(94 953)
Total long-term debt 3.163 147 2.723.851 REDEEMAntt PREERENCE S'!OCK :
216.000 266.500 Current portion of redeemable preference stock --
_QO3.000)
(39.000)
Total redeemable preference stock.....
1 6000 227.500 PRUERf.NCE STOCK NOT $US4CT To MAnoATony REDEMm0N ~
210.000 210.00T COMMON SHAKEN 0wERs' EotriTy Common stock 1,431,748 1,425.641 ReLained carnings Net unrealized pin on available.for. sale r,ecuritics -
1,370,778 1,408,437 6.694 3,888 Total common shareholders' equity
_2109.220 2.837.966~
Total Capitalization -
....... ~.
_6.294.367 6.001.3 f7 To'rAL DAmum5 AND CAYAUZAftON.
M667.281 1834SN38 Baltimore Gas andElecuit Company andSubsadiaries
~.
~ ~ _ - _ _ _
[
CCNOttL1DATE2 STAf tCENTO CF GAssi FLCWS (UNAUDITED)
Six Mcmths Ended TwekeMonthsEnded June 30, June 30, 1997 1996 1997 1996 i
CAsn Flows FaoM OPraATING AcrivtTirs Net income 5 87,081 5165.334 5232,571 5381.598 l
Adjustments to reconcile to net cash provided by operstmg activities Depreciation end amortization 195,730 191,549 387,336 390,357 Defenedincome taxes.
(18,208) 23,372 (15,571) 71,471 Investracnt tax credit adjustments..
(3,764)
(3,823)
(7,595) p,857)
Deferred energy conservation ses enue-28,500 1,283 Deferred fuel costs -
27,738 20,060 8,206 5,648 Disallowance of replacement energy costs--
~.-
6,764 88,605 6,764 Accrued pension and postemployment benefits (116)
(9,999)
(3,909)
(6.136)
Write.down of real estate investments 67,596 67,596 l
Mlowance for equity funds used during construction (2.416)
(3,971)
(4,953) p,933)
Equity in earnings of affiliates and joint ventures (net)-
(15,604)
(22,944)
(40,965)
(38,624)
Changes in current assets, other than sale of amounts receivable 57.882 26,530 (59,697) -
(109,997)
Chant,es in current liabilities, other than short-term borrowings Q1,943)
(49,651) 13,311 18,536 Other....... m (816) 23.352 5.103 38,803 Nct cash provided by operating activitics.
363.160 366,573 698,538 743,913 i
CASH FLOWS FROM FUV.NCINc AcT!vmts l
i Not issuance (maturity) of short4enn lairrowings....
(207,500)
(4,460)
(149.160) 161,345 l
Proceeds from issuance of j
)
long-term debt 519.557 161,346 741,394 335,074 1
Preference stock.....
59,329 4
Common stock.....
5.542 212 l
Procccds from sale of receivables 10.000 2,000 j
Reacquisition of long-term debt (60,147)
(70,615)
(168.0a3)
(365.269) i Redemption of preferred and preference stock -
(1,500)
(63,559)
(50,500)
(136.559)
Common stocL dividends paid.......-
(128,133)
(115,071)
(236,172)
(230,142)
Preferred and preference stock dividends paid (15,767)
(19,785)
(33,032)
(39,968)
Other 1,201 (436)
(1,349)
(1,004}
Net cash used in financing activitics.
97,711 (112,580) 118.640 (214.982)
CAsn Flows FnoM INvtsTtso AcrnTrits Utiltry construction expenditurcs (including AFC).
(166,006)
(164,747)
(361,744)
(353.453)
N1owance for equity funds used during construction 2,416 3,971 4,953 7,933 Nucicar fuct expenditures (17,078)
(15,125)
(48,714)
(45,145)
Deferred cocrgy conservation expenditures (13,149)
(14,735)
(29,797)
(41,370)
Contributions to nuclear decommissioning trust fund..
(8.816)
(16,667)
(17,632)
(21.558) i Costs to achicyc the proposed merger (22,355)
(4.897)
(45,920)
(8.944)
I
~. _
Purdmes of marketable equity securities (9,904)
(22.709)
(19,859)
(34.397)
Sales of marketable squity securities 21.488 24.223 36.922 41,842 Othen financiatinvestments..... -
(853) 5,938 278 11,492 Realestateprojcets...
(5.058)
(19,913)
(40.490)
(31,039) l Powergenciationsystems -
(1S,047)
(9.798)
(21,011)
(30.766)
.~
Other._.....
,,fl9,005)
(4,943)
(40.986)
(12.706)
Net cash used in investing activitics.
[256.367)
C39,402)
(564.000)
(518,131)
. ~...
Net inercase (Decrease)in Cash and Cash Equivalents 204.504 14,591 233,178 10.800 Cash and Cash Equisalents at Beginning of Period-66.708 23,443 38.034 27,234 Cash and Cash Equivalents at End of Period 5271.212 1 38.034 5271.212 5 3R034 J
OTna CASH Ft.ow 1xronuATiow Cash paid during theicar for:
Interest (net of amounts capitalized)--
5100,569 5 96,790
$191,783 5199,230 Income taxes.
5 57,901 5 74.759 5141,957 5138,611 Cenainprior-year amounts have t.wn restated to conform ah the current year'spresentarson.
Dahimore Gas andElectric Company and Subsidzarses
UTILITY GPE2ATING STATISTICE
- Juze30, June 30, June 30, ELECTRIC 1997 1996 1997 1996 1997 1996 Rtvwas (In Thousazds)
Residential-with househeating
$ 83,106 3 88,793
$ 202,167 5 230,007 5 395.277 5 437,294
-other.
121,138 130.587 237,875 253,494 520,0fC 565,588
---total 204,244 219,350 440,042 483.501 915,277 1,002,582 Commercial.
213,829 211,657 408,743 403,074 567,011 886,929 Industrial 52.050 52.397 98.555 98.185 207.949 211.271 System sales. ~
470,123 483.434 '
947,340 964,760 1,99P37 2,101,082 laterchange sales and other sales 22.783 29,333 58,427 77,945 136,359 168,628 Other _
5.213__
5,220 9,727
_ 9.948 25.272 20.681 4
Total Sats (in Thousands >-.hnvH 5 498.119 5 517.987 51.015.494 51.072.653 52.151.868 52.290 59T Residential-with houscheating 974 1,047 2,614 3.032 4.959 5.508
)
-9ther..
1.272 1.366 2.638 2.820 5,685 6,137
-total,. -
2.246 2,413 5,252 5,552 10,644 11.645 Commercial-2,995 2,970 6,088 6.138 12.541 12,774 lodutrial 1,138 1.152 2.263 2.296 4.562 4.661 System sales....
6.379 6,535 13,603 14,256 27,747 29,080 Interchange sales and other sales 1.108 1,502 2,863 3,612 6.831 7.996 Total 7.487 8.037 16 466 17,898
'44.578 37.076 OAS Rsvm'l;s (in Thousards)
Residential %th homeheating -
S 49,712 5 45,630
$ 171,889
$ 173.6%
5 279.652
$ 270,847
-other-6,865 7,701 19.358 22.790 35,213 37.397
-total.... -
56,577 53,331 191,247 196.466 314,565 305,244 Commercial.
--<xcluding delivery service 17,478 20,018 70,405 79,903 115,554 128,045
--delivery service 3,020 1,704 6,915 2,956 11,176 4,796 Industrial
-excluding delivery service 1.607 2,564 6,557 10,025 13,597 17,316
-delivery service.
4.267 4.181 8,384 6.142 16 S40 14.110 System sales 62,949 81.798 283,508 295,512 472,032 472,5W
)
Off-system sales 7,486 9,627 18,765 13,328 32,036 13,328 Other 1.903 2,090 3.773 3,939 6,490 6.692 Total...
92.338 5 93.515 5 306 046 5 312.779 5 510_558 5 492.531 5
Sats un Thousands)~DTH Residential-.-with househeating.
5.893 5.651 21,990 24,569 36,628 39,541 other 723 529 2.154 2,789 3,941 4,6%
-total.
6,616 6,480 24,144 27.350 40,569 44,237 Commercial
.-.-excluding delivery service.
2.531 3.432 11,196 14,50S 19,387 24.558
-delivery service..
878 2,254 6,878 3,795 11.838 7.194 Industrial.
.-excluding delivery service.. ~...
366 470 1.175 1.725 2,338 3,452
- 41elivery service.........
9.681 9.184 18.766 16,713 38.254 35.278 System sales.
22,072 21.82u 62,159 64.099 112,386 114,7Fi" Off. system sales 4.035 3.773 9.399 4.658 14.944 4,658 Total 26,107 25.593 71,555 68,757 127,330 1193 77 Unbry operating statistics do not reflccr consolidating elminations for intercompany transactions.
Certain prior-year amounts have been reclassified to conform nuh the currentyear'spresentation.
HEATINQ/ COOLING DEGREE D AYS (Calendar. Month Basis)
Heating degree days-Actual 671 597 2,923 3.222 4,840 5,103
-Normal. _
558 558 3,090 3,120 4.901 4,931 Cooling degree days-Actual _
179 279 182 279 689 1.083
-Normal -
217 217 220 220 804 804 ELEc7Ric 0ENER A7 ION s T ATI5 TIC 5 T*che Months EndedJune 30, Purchased
~
Hydro PowerNet of Nuclear Coal Od
& Gas interchangeSales Total Generation by Fuci Type (%)
1997 42.5 58.4 0.8 3.6 (5.3) 100 0 1996-40.5 57.9 1.7 3.3 (3.4) 100.0 Thousands of MWH 1997 12,519 17.194 236 1,053 (1,553) 29.440 1096... m 12.461 17,793 520 1.021 (1.054) 30.741 Average Cost of Fuel (Cents per Million Btu) 1997:
47.11 141.01 299.51 101.96 1996 46.65 148.06 290.70 107.77 Baltimort Gas and Electric Company a nd Subsidiaries
CUPPLE'2ENT AL FIN AL;CI AL CT Af tDTsc0 TwelvsAf? thsEnded June 30,
\\
Utility Consolidated 1997 1996 1997 1906
{
CsttrAuz. Anon long term debt 46.8 %
41.9%
50.0 %
44.0 %
Short-term bonowings 2.29 5.1%
1.7%
4.3%
Preference stock..
7.8%
8.8%
6.3%
7,4%
Common equity...
43.2 %
44 2 %
41.0%
44.3 %
1 Rswaw odt AvraAce COMMON EOUTTY Reported.....
8.1%
12.5 %
7.0%
12.1 %
Excluding disallowed replacement energy costs 10.6 %
13.0%
9.1%
12.6 %
RAT 1o or EARNINos (SEC Method)
To fixed charges 2.93 4.00 2.50 3.62 To fixed charges and preferred and preference dividends combined 2.30 2,92 2.05 2.79 AFC as a % of Earnings Applicable to Common Stock 3.9%
4.1%
3.8%
3.6%
Effective Tax Rate 34.5 %
34.2 %
34.7 %
34.7%
COMMON STOCK DATA Three MonthsEnded TwelveA'onthsEnded
\\
June 30 June 30, 1997 1996 1997 1996 COMMON $rDCK DMDENDS PCR bHARE
-Declared..
$0 41
$0.40
$1.61
$1.57
-Paid --
$0.40
$0.39
$1.60
$1.56 MRK1T vat.UE PF.R SHAXE
- High.-
$27
$28%
$2A%
$29%
-1.ow -
$24%
$25M
$25
$24%
i
--Close
$20%
$28%
$26%
$28X 1
Sharcs Outstanding-End of Periad (In Thousands) 147,667 147.527 147,618 147,527 Book Value per Share-End of Period..
$19.02
$19 24
$19.02
$19.24 Inquiries concerning this summary should be directed to:
DavidA. Brune Kevin J. Millcr Baltimore Gas undElectric Company Vice President,
- Director, P.O Box 1475 ChiefFinancialOficgr, Financia! Planning Balitmore. Afaryland21203 and Secrstory (410) 234 5434 (410) 234-5511 O
Baltunore Gas andElectric Company andSubsidiaries wayma
< s s ns.n
f
- Exhibit III Page 1 of 2 Internal Cash Flow Projection For Calvert Cliffs Nuclear Power Plant Percentage Ownership in all Operating Calvert Cliffs Unit No. I 100.00 %
i Nuclear Units Calvert Cliffs Unit No. 2 100.00 %
Maximum Total Contingent i
Liability (000) per Nuclear Incident
$159,000 Payable at Per Year (000)
$20,000
)
Projected i
Twelve Months Twelve Months
~
Ended 6/30/97 Ended 7/31/98 i
Non - Cash Exoenses ($000) 1 Depreciation and Amortization
$392,759
$430,877 i
Deferred Income Taxes and Investment Tax Credits (13.610) 1.891 i
Total
$379,149
$432,768 -
l Percentage of Total to Maximum
}
Total Contingent Liability Payable Per Year 1,895.7 %
2,163.8 %
Retained Earninus ($000)
)
Net Income After Taxes
$232,571 j
Plus Disallowance of Replacement
- Energy Costs 88,605 Less Allowance for Funds Used During Construction 7,633 Less Disidends paid 269.203 Total
$ 44,340 TotalInternal Cash Flow
$423.489 Percentage of TotalInternal i
Cash Flow Maximum Total Contingent Liability Payable Per Year 2,117.4 %
l
Exhibit III i
Page 2 of 2 Baltimore Gas and Electric Company Underivina Assumotions for Projected Cash Flows j
(1)
Projected cash flow does not include an estimate of retained earnings. However, internally generated funds without retained carnings are well in excess of the maximum possible retrospective premiums.
(2)
Depreciation is generally computed using composite straight-line rates applied to the average investment in classes of depreciable property. Vehicles are depreciated based on their estimated useful lives.
(3)
Estimates of Federal income taxes and other tax expense are based upon existing tax laws and any known changes thereto.
(4)
Accounting policies are consistent with those in effect June 30, 1997.
2 4
i l
4 i
Exhibit IV l
4 1
j -
Baltimore Gas and Electric Company Curtailment of Canital Exnenditures
)
Estimated construction expenditures including nuclear fuel, Allowance for Funds j
Used During Constmetion, and conservation expenditures for the twelve months ended July 31,1998 are $407 million. - To insure that retrospective premiums under the Price
]
Anderson Act would be available during the aforementioned twelve month period without
]
additional funds from external sources, construction curtailments would affect all j
construction expenditures rather than impacting a specific project.
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i Technical Review Form Preparation of Reculatory Correspondence (RM 100 Revision 0)
In accordance with the requirements of 10 CFR 140.21 for the Guarantee of Retrospective Premium, for Calvert Cliffs Units Nos.1 & 2 and the Independent Spent 1
Fuel Storage Installation; Docket Nos. 50-317 & 50-318, certain documents must be submitted to the Nuclear Regulatory Commission. Exhibits 1 & 2 have previously been prepared, reviewed, and approved.
1 Documentation for the preparation, review, and approval of Exhibits III and IV are shown below Date Exhibit III - Internal Cash Flow Projection Actual data prepared by:
Actual data reviewed by:
l Projected data prepared by:
Projected data reviewed by:
Exhibit IV - Curtailment of Capital Expenditures i
Projected data prepared by:
i Projected data verified by:
l The internal cash flow projected reflect the most recent information and are the best estimates available as of the date shown above.
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BGE at a Glance As the nation's oldest gas utility and one of the earliest electric utilities, the B Electric Company brings gas and electricity to more than 2.6 million residents in Central Maryland. BGE's four main subsidiaries also enhance customer service and increase revenue growth.
In 1996 combined revenues totaled $3.2 billion from utility and diversified operations.
In September 1995 BGE signed an agreement to merge with Potomac Electric Power Company (Pepco) to form Constellation Energy Corporation, one of the 10 largest utilities in the United States.
The merger is awaiting regulatory approvals.
Electric and management of real estate and senior-living Provides electricity and related services to more facilities.
than one mi' lion customers in a 2,300-square-mile BGE Energy Projects & Services, Inc.
area of Central Maryland. The company owns and Pmvides a broad range of customized energy operates 10 generating plants, including two services to commercial and industrial customers.
nuclear units. Our total generating capacity Among its business lines are power quality exceeds 6,200 megawatts.
services, electrical system improvements, lighting Gas and mechanical engineering and installation, Serves more than 555,000 customers in about a district energy systems, and private electric and 600-square-mile area in Central Maryland. We gas distribution systems.
provide storage and distribution as well as BGE Home Products & Services, Inc.
commercial transmission through two gas plants Sells and services residential and commercial and nine gate stations in and around Baltimore.
customers' electric and gas appliances and heating Constellation Holdings, Inc.
and ir-conditioning systems, and offers home Consists of Constellation Power, Constellation improvement services to residential customers.
Investments, Constellation Real Estate, and Constellation Energy Source, Inc. (formerly BNG, Inc.)
Constellation Health Services. These businesses is in the natural gas brokering business, hicating, are involved in the development, ownership, and purchasing, and arranging for transmission of gas operation of power generation projects; financial for large industrial, commercial, and residential investments; and the development, ownership, customers.
Contents More Reader-Friendly Financials 1
Behind Every Customer.
in 1996 BGE became the first utihty to sign up for the A Team of BGE Employees Secunties and Exchange Commission's " Plain English Program," which aims to make investor communications 2 Highlights clearer and easier to read. See page 20 for details.
3 Chairman's Letter to Shareholders Visit Us on Our Website at http://www.bge.com 9 Energy Has Come a Long Way There you'!! find financial and merger information, as well as the latest residential and business products and services 17 Financial Contents BGE has to offer.
54 Directors and Officers Committed to Equal Oppariui@i 57 ShareholderInformation As an Equal Opportunity Employer. BGE does not discriminate on the basis of age, color. disability, mantal status, national origin. race, religion, sex. sexual orientation.
@ Printed on recycled paper or veteran status.
l
B e hin d eve ry c u s to m e r...
1 i
hen BGE's predecessor, the Gas Light Company of Bahimore, began in 1816, it had a i
Wfew thousand doHars in assets,five unusually able inen, and on i
j t
city. Thanks to the strength of one team ofpeople committed to servejust one customer, the City of Baltimore, this company trali:ed a vision to become thefirst to bring gaslight to America.
a team of BGE employees i 4
"u m
O Today, our vision has grown much broader and more responded beautifully to every request and problem,"
brilliant than this pioneering team could have imagined.
says Diane. "I know there are so many employees With Constellation Energy in our future, we are well whose work is never recognized, and I just wanted to on our way to becoming one of the largest energy say thank you."
companies in the nation.
Our goal is to have every customer feel that way.
Yet as we did 180 years ago, we know our success
,,s a goal we've strived for since the beginning. Behind rests on the strength of our team to serve each Diane on our covers are four white-marble figures customer. Longtime BGE customer Diane Lewandowski, symbolizing light, heat. knowledge, and power. For 80 pictured on our cover, understands that. And last fall, eus these " Ladies of Lexington Street" have adorned during National Customer Service Month, Diane the facade of our company headquarters. They repre-dropped us a note just to tell us how we're doing.
3 sent the cornerstones of our enduring commitment to "Over the 25 years I've been a BGE customer, your our customers.
employees have always been courteous, and have i
r
HighIights In millions. except per-share am<mnts 1996 1995
% Change Common Stock Data Earnings per share Earnings per share from current-year operations Utility business
$1.96
$ 1.84 6.5%
Diversified businesses 0.31 0.18 72.2 %
Total earnings per share frorn current-year operations $2.27
$2.02 12.4 %
- Disallowed replacement energy costs (0.42)
Total earnings per share
$1.X5
$2.02 (8.4)%
Dividends declared per share
$1.59
$ 1.55 2.6%
Average shares outstanding 147.6 147.5 0.1 %
Return on average common equity Reported 9.5 %
10.8 %
(12.0)%
- Excluding disallowed replacement energy costs 11.7 9 10.87c 8.37c Book value per share-year end
$ 19.35
$ 19.07 1.5%
Market price per share-year end
$26%
$28%
(6.1)9 Financial Data Revenues Electric business
$ 2,209
$ 2.230 (0.9)%
Gas business 517 400 29.39 Diversified businesses 427 305 40.0%
Total revenues
$3.153
$ 2.935 7.49 Net income
$311
$338 (8.0)%
Earnirtiapplicable to common stock
$272
$297 (8.4)%
Assets Utility business
$7.150
$7,051 1.49 Diversified businesses 1,401 1.266 10.79 Total assets
$ 8.551
$ 8.317 2.8%
Utility construction expendi'ures (excluding AFC)
$349
$344 1.5%
BGE investment in the Constellation Companies
$396
$352 12.5'7c Utility System Data Electric sales-megawatt-hours 28.4 28.2 0.7%
Gas system sales-dekatherms 114.3 110.8 3.29
- A nonrecurring charge to earnings discussed in Note 12 to the Consolidated Financial Statements.
Earnings and Dividends Declared Return on Common Stock MarkelPrice per Share of Common Stock Average Common Equity and Book Value
$2.50 12*/.
$25 10 %
$2.00 ;.
s 8%,
$20
$1.50
,t 6%.
$15; t
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$1.00,
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$5 I @J N N
$0.50 2'/.
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92 93 94 95 96 92 93 94 95 96 92 93 94 95 96 T Earnings (Consolidated) l MarketPrice(Year-EndClose)
I DividendsDeclared I BookValue(YearEnd)
Teamwork a powerf ul concept Chairman's Letter To Shareholders "Thejarther backward you can look, thejartherforward you are likely to see." tt'inston Chiurhill knew that tomorrow's strategies are apparent to those who practice the art of the long view. Rewinding through I80 years, we see clearly that the events rocking our industry today arejust the latest in a long erobation.
Once again the energy industry is in the throes of consolidation. And once again we are creating a stronger company by forming an alliance with a neighbor utility. This time our merger partner is the Potomac Electric Power Company (Pepco). Constellation Energy Corporation is the new company we are forming through our proposed merger. I've summarized the rationale for the merger and the status of the regulatory approval process on pages 7 and 8.
This report illustrates a year of exceptional teamwork. More than 400 BGE men and women served on teams with their Pepco counterparts to build the framework of Constellation Energy. The rest of our people kept us moving forward on all fronts. Our employees also gave this company a big vote of confidence when they chose to remain union free following an intense union organizing campaign.
Shownfh>m hft: George C. Creel. Execiaire
\\1ce President and Acting Chief Operating Officer; Christian H. Poindnter, Chairman of the Board and Chief Etecutive Ollicer; and l
Edward A. Crooke, President and Chief Operating Officer.
3 1
We owe these, and the many other successes of last of energy suppliers. The 105th Congress will also be year, to the quality of our people. Now here was considering the issue of electric industry restruc-quality more evident than in the leadership shown by turing. One of our key goals is to make sure that our President and Chief Operating Officer Edward A.
representatives understand the unique issues facing Crmke and Executive Vice President and Acting our industry.
Chief Operating Officer George C. Creel. Along with The Federal Energy Regulatory Commission his Pepco counterpart John hi. Derrick, Ed guided the (FERC) continued to expand competition in the transition teams through the many complex tasks wholesale power market. Last year the FERC ruled needed to create Constellation Energy Corporation.
that public and investor-owned utilities must open As Acting Chief Operating Officer, George kept BGli their transmission lines to competitors. The FERC running well and guided our union-free campaign.
also required members of power pools to offer Taken together, our efforts strengthened the value of service to all users on the same terms as pool your investment in BGE. We also cleared our finan-members. BGE's power pool, the Pennsylvania-New cial picture by resolving tw o long-standing cases with Jersey-hiaryland Interconnection (PJhi), has ofTered
/
the hiaryland Public Service Commission. The cases to make this service available on hiarch 1,1998, concemed outages at our Calvert Cliffs Nuclear subject to the FERC's approval of the terms being Power Plant between 1987 and 1991. The resolutions, proposed by the pool members, which we consider fair, resulted in a $62-million, noncash charge to 1996 after-tax camings.
States Move at Different Speeds In 1996 state regulators continued to move at flere's a brief recount of how your investment in different speeds toward full competition. As of BGE performed last year.
the date of this letter, four states had passed laws that a Earnings from current-year operations equaled will give all customers a choice of energy providers,
$334 million, or $2.27 per share. That's a 12-while 10 had okayed pilots that will allow the percent inc.ose over 1995 before the 42-cents-industry to test how a fully open electric market per-share, nonrecurring charge to settle the couid work.
Calvert ClitTs fuel rate cases.
hlaryland's regulators reopened their case and are a BGE's Board of Directors voted to increase the evaluating when and how to restructure the electric annual dividend to $1.60, up 2.6 percent over last market. The Commission Staffis expected to issue year. This marked our 87th straight year of its report this hiay.
paying dividends. Also, we have never reduced our dividends.
ast year BE won appmval from the Commission to conduct a residential gas pilot program. This a We continued to strengthen our dividend payout follows about a decade of changing regulation on the ratio. Before the Calvert Cliffs settlement, the gas side of our business aimed at opening the natural payout ratio at year end 1996 would have been gas market to competition. Under the plan, w hich 70 percent, a sizable improvement from an 88-begins in November 1997,25,000 of our customers percent ratio in 1992.
will & t thir own natural gas suppliers.
m Eamings from diversified businesses totaled
$45.7 million, representing a 73-percent increase Gas Targets Strong Growth j4 over 1995.
Cle rly we are at a criticaljuncture in our gas busi-ness's 180-year-oki history. We have responded with Competition Heats Up increasingly ambitious goals for gas growth in our On the federal and state levels, regulators continue territory. Leading that elfort is Frank O. Ileintz, who to wrestle with how best to offer customers a choice l
oldeially took over as BGE's Vice President, Gas, BGE nearly 20 percent higher than the industry on January 1,1997, average for customer satisfaction.
Chainnan of the Maryland Commission for 13 We still have some work to do to with our in-years, Frank presided over the recucturing of the dustrial and commercial customers, however.
state's pas industry. After lea.mg the Commission Recognizing that these customers are affected by in 1995, Frank worked wP.n the American Gas both momentary and sustained outages, we set out Association on high-level issues affecting the gas to reduce those last year. Focusing on 100 key industry. Frank is a vue visionary w hose leadership industrial and commercial customers, we decreased abilities Ed and I have admired for years.
their outages 25 percent compared with 1995.
Learning to Differentiate Custome's Price is another key success factor in the Increasing custon.er choice has r,alvanized our national energy market. Our employees have efforts around the del goals of customer growth and been unrelenting in improving the areas that most retention. This calls for a much more detailed knowl, affect our ability to compete on price. They have edge about the different categories of customers we raised operating efficiency, increased generating serve. We look at all the factors that affect their deci-output, and lowered expenses. As a result, BGE sion making. Ilow much energy do they use? Ilow is n w among the lowest cost generators in its I
sophisticated is their equipment? What competitive regional comparison group, the PJM power pool.
pressures do they face? With this knowledge, we can Grow ng Diversified Businesses give our customers the advice they need to get the While competition squeezes profit margins on the best value for their energy dollars.
le of natural gas and electricity, it also offers Just as it is important that we understand our new and promising opportunities for growth and customers' businesses, we believe it is equally important th it our customers understand our busi-
'" "" "E#" *#
ness. To that end, last year we conducted a number of seminars and field trips to help our customers retention, factors that have elevated undery,and both the competition in our industry and the role our sales the issues we face m. providing them the reliable repn sentatives play service they want. Large m. dustrial customers, hospi-in ensuring eaccHent tals, and military organizations are just a i.ew of the customer groups ta which we reached out in 1996.
National Account Going Nallonal in 1997 E.tecutive Danielle As we move both BGE and Pepco to Constellation it'illiams etplains, "rm my Energy, we plan to establish a national brand that customers' advocate within will help us market niche products and services BGE. Tm always enhancing that have broad appeal. We are evaluating our my knowledge of their industry, positioning and will move forward with the business and operations. I use Constellation Energy branding to strengthen this Anowledge to sofre problems our marketing efforts in targeted areas.
and impnne their bottom line,"
- r "P u d "# to flu m 5
AdJ d"
Increasing competition has also caused us to eval-that t/u>n imni value in luing uate more closely our strengths and shortcomings, Take reliability as one example. Our residential customers see this as a strong BGE positive, rating s
j I
profitability in nonregulated businesses. In fact, banking industries make him the ideal person to within days of signing this letter, I expect to guide this venture.
announce the fonnation of Constellation Power Employees Work With Forces of Change Source, Inc., a subsidiary that will give BGE a In 1996 Ed, George, and I ekicked a lot of hours substantial presence in the emerging power-speaking to our ernployees about our changing marketing business.
industry. I am thankful that our employees recog-Constellation Power Source will buy and sell nized that it is better to work with the forces of electric power and related derivatives, develop risk change rather than working against them by voting management strategies, and ofter a wide array of for a union. More than 70 percent of employees products that help customers gain greater control whose votes were counted chose to preserve the of their energy costs. It will draw upon the risk advantage BGE has as a nonunion compay in a management and trading expertise of one of the unionized industry. There is no doubt in my mind world's most prestigious investme-t banks, Goldman, that we are a stronger, more focused company for Sachs & Co., through an exclusive advisory relation-having gone through this experience.
ship with its subsidiary, Goldman Sachs Power.
Commitment to Shareholder Value Charles W. Shivery has been elected President and I believe our shareholders, too, are aware of the way Chief Executive Officer of Constellation Power our industry is changing. That's why 97 percent of Source, which will be a wholly owned subsidiary of those who voted favored the merger. Our plans are BGE. Chuck has served as BGE's Chief Financial to model Constellation Energy's dividend policy Ollicer and Corporate Secretary as well as Vice after BGE's-that is, with an emphasis on President, Finance & Accounting. Chuck's leadership consistency and appropriate gmwth.
abilities, financial acomen, and his connections in Obviously a more competitive market dictates a both the electric and investment greater need to reinvest in the business to provide growth opportunities, and indeed our payout ratio has decreased. We are achieving the goal not by Chuck Shivery, President and Chief decreasing the dividend but by increasing our Executive Officer of Conste#ation earnings. We plan to continue as an excellent yield-Power Soun c, ine., our newest riented investment, funding dividend increases subsidiary, spent the latter part of through eamings growth.
1996 developing a strategic planfor On behalf of our entire team, I thank you for your BGE's entry into the electric power continued faith in the Baltimore Gas and Electric rnarketing and risk-managernent Company. We kmk forward to making the i
business. Constellation Power transition to Constellation Energy Corporation in Sourte combines the sinngths of the near future.
l two top notch organizations-BGE's l
180-years of c.tcellence in the energy j
l/
industry with the unparalleledfinancial g'
r risk-rnanagernent e.tpertise of Goldman Sachs." Chuck says. This advisory tria-
!6 Christian H. Poindexter
}
tionship-thefirst ofits kind in the power-marketing industrv-puts us in Chairman of the Boani and l
a superb position to benefit in a ChiefEtecutive Officer i
den gulated environment. "
February 18,1997 t
---l l
1
'B G E-P e p c o m e rg e r...
l This historic merger not imly strengthens <mr position in the increasingly competitive energy i
industry, it also ensures that the energy products and services we offer our customers in the i
future will be among the best in the country.
I a winning combination l
Mergers Gain Momentum This sharp increase in the number of proposed As of the date of this letter,17 proposed mergers mergers caused the FERC to revisit its await FERC approval. Several represent the combi-30-year-old merger policy. The FERC will now nation of large electric and gas companies. That concentrate its evaluation of each merger on the bears out what BGE has been saying for 90 years:
merger's effect on competition, on rates, and on j
'Ihere is a competitive advantage in being able to state and federal regulation. This merger policy deliver both gas and electricity. It also lends credi-will be applied on a case-by-case basis to bility to speculation that the leaders of the energy pending mergers.
industry of the future will be larger companies, created through consolidations.
is A Seamless Shift for
' !s :
Constellation Customers I
i Oth BGE and Pepco have f
I excellent reputations for Cong{gllgtig[
quality customer service, reputa-
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Energy
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f i
tions the Customer Relations
}
l Activity Team set out to preserve N
when we become Constellation Energy Corporation. Made up of a diverse group of BGE and Pepco employees, team members had one thing in common: Every one of them was an experienced problem solver who knew how to successfully handle customer concerns.
The team's mission was to research our current methods and those used by best-practice companies, then recommend ways to bridge the transition from two companies to one. "Sure there were differences in the way the companies operated," says Pepco's leader Joy Cole. "But we were all driven by the same coramon goal-to provide seamless service to Constellation's customers,"
7 "It's a job that was made easier," adds BGE's leader Mary Ellen January, "by the fact that we were able to pool our resources and talents and stay focused on our customers." Shown from left: Terry Gastfield, Rose Darone, Carolyn Cardwell, John Disney, Joy Cole, William Latlief, Priscilla Savoy, Robert Atkins Ill, and Mary Ellen January.
As a combined company with over $15 billwn j
in assets, C mstellation Energy will be among
\\
C**'s F d,'f*
the 10 largest electric utilities in the United Z
States, serving a diverse population of more i
than 1.8 million electric customers and more
%.')/
e than 555JX)0 gas customers.
k ow Constellation Energy will be structmed as a vYre9m~~
I single utility with subsidiaries conducting the nonutility operations. Its service territory will m
encompass all or part of 10 Afaryland counties.
Baltimore City, and \\Vashington, D.C.-virtually
' Y'%
m reoco wuosesa\\e customer
' " " " ~ " " ' " * ' " " * " "
all of Centnd Ataryland. including the entire l
Baltimore-\\Vashington corridor.
Constellation Energy will also sell electricity ni n holesale to the Southern Ataryland Electric Cooperative tSA1ECO).
i Approvals Progressing Customers will reap the benefits of improved opera-l Regarding FERC approval of the llGE-Pepco tions as well. The merger will allow us to keep rates merger, all required documents have been lower than we could as a stand-alone company. It submitted, all hearings have been completed, and will increase reliability at our common borders and we are awaiting an approval. The same applies to create a better customer mix. And, given our coal, the approvals needed from the Maryland nuclear, and gas resources, the merger will also Commission.
result in a more balanced fuel mix that will help us
)
The merger also requires the approval of the enhance price stability in changing maicts.
District of Columbia Public Service Commission, Commitment to Communily Will Continue which has postponed until late February 1997 hear-A larger but still kically based energy company will ings originally scheduled for early December 1996-also better serve the needs of the community at All documentation will be submitted by mid-large. The 13GE-Pepco merger does not disadvan-March. We expect the D.C. Commission to rule on tage kical interests. Our corporate headquarters will these matters promptly thereafter.
be hicated in Maryland's capital city, Annapolis, and
- *III *"I"I"I" *I "III'""' ' """'I"'I""' f S
Merger Strengthens Customer Focus Achieving cost savings is one of the prime motiva-employe s in both flattimore and Washington.
tions behind our merger with Pepco. We estimate Both IIGE and Pepco are regarded as excellent the merger will save $1.3 billion over the first corporate citizens. As individual companies, each is 10 years. In April 1996, we filed our joint merger known throughout the Bahimore-Washington area application with the Maryland and D.C.
for its commitment to economic development, Commissions, proposing that our shareholders and corporate philanthropy, low-income customer initia-8 customers share those savings and that we increase tives, and volunteerism. Together, as Constellation l
our already strong commitment to the community.
Energy Corporation, we will remain steadfast in that commitment.
l i
i
J
'E n e rgy has co m e a lo n g way...
l On the pages thatfidlow, you'll see some images Jh>m our past, mixed in with our i99b 1
l highlights. They remind us that we have inherited an important legacyfrom those who i
l preceded us: improving the lives of the people we serve.
and so have we I
ur job was not easy in the " good old days." Workers 4_
lacked the powerful technology and machinery we
,f' take for granted today. As this photo shows, laying electric
-[i
- -g cable circa 1900 was no small feat. Yet our archives are full gP}
6 P,
- L of pictures of proud men and women doing whatever they
,['j'_f needed to do to get the job done.
i Contrast that with one of our best teamwork stories of 1996:
I our role in renovating Annapolis, Maryland's state capital. As part of the $5.5 million upgrade of its historic Main Street District, the City of Annapolis asked BGE to put all electric lines underground and to l
replace and update gas lines. Employees from both the gas and electric siJes of our company worked on a fast track to complete the project on schedule.
"BGE's crews were absolutely outstanding," says Annapolis Mayor Al Hopkins (inset). "They understood the timeliness of the project, and they made all of our jobs a lot easier."
e included on the BGE team were, from left,
.x Terry Bowen, Gas Construct;on; Frank
,h[
}
Elliott, Customer Operations; and Jett N
N*
Jefferson, Public Affairs.
While our equipment and the l
methods are drastically different, the heart of our company remains JT5F the same. Now, as then, teams of
{
employees working together to p4 j
?
ch i
give our customers the best g4
(
possible service-a legacy we'll L
9 i l
continue at Constellation Energy i
i
+
Be hin d eve ry c u sto m e r...
I Thomas Alva Edison, the father of the Electric Age. Bec n 1997 we celebrate the 150th anniversary of the birth of his innovations, BGr has been providing electricity to a growing base of customers for much of our long history.
b)
(
Now, as competition moves into the marketplace, we're setting aggressive goals to remain among the industry's leaders. To write a F
new chapter in our history, we've been working to reduce generating costs, deliver reliable electric service, provide energy products and services that meet customers' needs, and successfully compete in the bulk-power market. Here are some of our accomplishments for the year.
Since /992 we're reduced Fossil Generating Costs year producing more than 18 million megawatt n2 in Five Years operations and mainte-hours, an all-time record for our fossil plants.
g nance costs at vurfossil-m In 1996 our Calvert Cliffs Nuclear Power Plant fueled power plants by
$150 generated 12.1 million megawatt hours-the nearly $28 million. Thv3e fourth highest generation total in the plant's reductions have been
$125; y;qg driven by continuous improvement processes,
$100l a Calvert Cliffs also earned the highest marks in such as cross-training three of four categories assessed by the Nuclear
$75 employces in both opera-
\\
M, ggj Regulatory Commission (NRC). The plant tions and maintenance
$59j Q Q G g y ead su& Mngs in endneedng, opew activitics.
92 93 94 95 96 tions, and plant support. The NRC also noted improvement in the plant's maintenance.
a Our cost reduction efforts helped us continue to generate competitisely priced power. BGE is a A new operating my g, 4
among the lowest cost producers of electricity strategy implemented in its regional comparison group, the PJM last year is helping us g
power pool.
reduce expenses and the time it takes to I
m Last year our generation employees also set return customers'
.~
new records for working safely. In both our sersice during storm-M Fossil and Nuclear divisions, our employees related outages. The l
had the lowest occupational injury rate in BGE improvements moved l
generation history.
our dispatchers and
{10 m New technologies and an aggressive predictive system operators to a l
maintenance program helped us produce an central hication during stonus, giving them l
additional 426.o(K) megawatt hours at our eight better, more direct access to needed storm key fossil-fueled power plants. We finished the system data.
4 l
a history of reliable electric service I,
i.
i, l
y
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Employces like Dewane Daley are a We intensified our reliability efforts by estab-
{
helping BGE prepare to compete lishing a R liability and Power Quality Master
+
3 i
.y successfully. As project manager Plan. It i a broad-based program to develop S
y of our Distribution System Pon er system inn weture changes that improve
~
Guality A3sessment Project, Dewane reliability and power quality, This year we also f
orcrsees the installation of 3pecial focused our reliability efforts on our industrial l
meters that track disturbances in our and commercial customers.
l power supply to industrial customers.
m To make the transition to the emerging competi-
"One thing that will act us apart is 1
- yg g
re continuing to electric service our industrial expand our efforts to market wholesale elec-customers can trust," says Dewane.
tricity. In 1996 our Hulk Power Arrangements
" Knowing where we 3tand now in Group made great strides as they engaged in terms ofpower quality will give us an 9
9 ;;;;,
ggg g g;
cJge in tomorrow's competitive electric market.'
n l
l I
Responding Rapidly to Electric Needs B ehind Al Reid (inset) is a team of BGE Customer Operations employees working to Reid is president of Rapid Response. a direct-mail marketing business that depends on sensitive electronic l
equipment to produce customized brochures. Last year a power surge caused Rapid Response to lose critical information from its databases, and caused Reid to call BGE.
In response, he got a whole team. Helen Handy, Special investigator-Customer Operations, received the infor-
~
mation on Rapid Response from our Customer e
nw Communications Center. Her initial analysis uN i
m y w..ns revealed a reliability problem. She turned
~"
j I
that information over to John Mathews, an i
m i
m l;
Assistant Distribution Technician who went into the field and found the problem-faulty insulators on the power lines that supply j
Rapid Response. The work order then went to i
Al Leightner, a Distribution Construction l
supervisor, who along with crew members Gary Diffenderfer and Bob Fogle, Jr., quickly repaired the line and put j
Rapid Response back in business.
t 11 i j
"When BGE learned about our power problem and how critical it was for us to find a permanent solution, an expert 1
team arrived the next day," says Reid. "I was impressed with the response, and I was impressed with the results."
I j
Shown from left: John Mathews. Bob Fogle, Jr., Al Leightner, Helen Handy, and Gary Diffenderfer.
I 1
l l Behind every c u sto m e r..
i j
hen artist and entrepreneur Rembrandt Peale lit a gas-powered light in his Baltimore museum in 1816, he planted a seed that's still growing today. Peale's successful demonstration of the value of gas led to the founding of the Gas Light Company of Baltimore, our forerunner. From that modest start, BGE has developed a gas business that continues to expand rapidly in a competitive energy marketplace.
)
With more customers demanding natural gas in their homes and busi-
~
nesses, we've developed aggressive, profitable growth strategies to meet i
j their needs. Over the next couple of years, we plan to continue to increase the number of new residential, commercial, and industrial customers we serve, and to capitalize on the value of home gas-heat comfort and other gas applications. This year we made great strides in our gas growth, including the following.
C(mtinuing an exec //ent Gas increases Share Conunission. The new program pmvides cam-e nu adet firc-year growth trend, nps opportunities and financial incentives for 4
we again 3ignificantly IlGE to reduce the cost of buying gas and to 100*.
increased var sharc of the share the savings with our customers.
new home-heating marAct. 80 %
More than 9/w of the g7
.-system gas during the 9
g7 ]99
.g.
,,g,(
new houses built in 60%
4, y
Central Maryland last L
year connected to our gas l,.
9ggg
,g
- gg g. y
- 9. nim on w
49 t
NY sysicm, establishing a new 20 %
{f s Our Gas Construction employees teamed with market penetration record 0
the Gas Research Institute, the gas industry's of 72 per ent.
92 93 94 95 96 leading research and development organization, a In our continuing effort to expand our gas I
in a pilot program testing new applications for business, we converted almost 6,(XX) residential hiW i
The pilot has reduced average customers to natural gas heat last year.
installation time from six hours to under one l
m Measuring our growth in miles, the gas system hour, a significant benent in lowering installa-grew by 339 miles in 1996, giving us a total of tion costs. We plan to begin using the new flex-nearly 5,4(X) miles of gr.s mains serving about ible pipe regularly in 1997.
555,(XX) customers in Baltimore City and nine
, p.
look to fmkr impmve gas sales to Mary land counties.
large customers through several initiatives.
s in October we began a market-based rates First, we're educating architectural and engi-
]
program approved by the Maryland neering firms about the benefits of choosing i
..e
),
a gro)ving gas business gas equipment for their industrial and commer-cial customers. We also began an advisory group with several of our larger customers, j
including Johns llopkins llospital, General l
Motors, and Maryland's Department of General Services. The group provides a forum to address customer needs and
/
concerns on natural gas inues.
i; j
Q Last year we began retiring the last
. ]
three of our huge steel gas ho'ders, 2
w hich are memorials to the earliest days of our gas supply. With their retirement, we're saving nearly
$1 million per year in operations and maintenance costs and an additional
$7 million that would have been spent f
for a scheduled maintenance.
i l
l Extending Ourselves to Mael Gas Demand L.
I eamwork is helping us quickly meet customer FranA O. #cint:, llGE s new
+
demand for natural gas. Take the case of AAI tice President, Gas, brings g
a top-level view of th.
turer. When it was awarded a contract to build car shells emerging comprative gas l mdustry, tFanAs to his 13 l p int booth, and BGE needed to quickly extend a gas main years as Chairman of the for it.
Garyland Public Service Commission. " Growth Enter Keith Brock, Energy Sales & Services. Knowing AAI is ourforemost was on a fast track to meet the contract, Keith took it upon strategy,' 3ays FranA.
himself to pour a concrete pad to accommodate the meter "trc're growing by needed for AAl's new booth. That done, employees from I
positioning our3c/rcs to Gas Engineering and Construction, led by supervisor Lee tale advantage of new Cavey and crew members Tim Wilson and Charles Kelly, opportunitics and by took over with the digging and welding needed to extend finding better ways t" l
the main and install the metering equipment.
deliver gas and service to e
f Together, the team finished the job in time for AAI to meet l
the customer.
its deadkne, which included a planned celebration with the l
i r
f governor for the rollout of the first car. "We were impressed 13 i
with BGE's commitment to get the job done on time," said i
AAl facility engineer Steve Brodbeck (inset). "They went j
above what you'd normally expect from a utihty."
f Shown from left. Tim Wilson, Keith Brock. Lee Cavey, and l
Charles Kelly.
l
Behin d eve ry c u sto m e r...
Acentury ago fie
\\
struggle for survival. To rise above the rest, Baltimore's dominant electric company and its largest gas company made the bold decision to merge in 1906, forming the area's first combined gas and electric company.
i Ninety years later utilities again find themselves facing competitive challenges.
By combining the talents of the utility and its subsidiaries, BGE holds an advantage as it moves forward. In 1996 our subsidiary operations both increased overall profitability and helped strengthen ties with our customers. Here are a few highlights.
- GE's diversiped Diversified Earnings Nearly n In liawaii the Puna Geothennal Project husiness carnings
' f,992 expanded its generating capacity. It now I'
were $45.7 million, a provides nearly 25 percent of the electrical 73-perrent increase
$50 power used on the Big Island.
over 1995 thanks to a
$40 m Constellation Investments cashed in on strong strong performance hv financial markets to post record eamings, Constellation Holdings.
$30p paced by excellent results from its marketable b 1R' securities program and investments in financial ka.a m.
A
$20 Constellation Holdings qq y
partnerships.
i a
1y e Constellation Power m Constellation Real Estate's asset and property
$10 strengthened its niche management division merged with KLNB in the domestic energy 0
- " E 92 93 94 95 %
market while it expanded Realty Management, the hirgest company of its its interests in Latin America.
Lind in the Baltimore region.
e Power magazine and Power Engineering a Constellation llealth Services continued to magazine named Constellation *s Colver Power expand. It now has investments in 520 of the Project in Pennsylvania the 1996 Power Plant more than 2,000 senior-living units it manages of the Year.
and is developing more than 700 additional units.
hf
" i '
.N.:
BGE Energy Projects & Services i
y.
("#
y[
j a Serving large commercial customers throughout r
( --
-.~
the Mid-Atlantic region, BGE Energy Projects 4
4'
& Services' projects included such things e.3 Agagg j
lighting retrofits for retail stores in five states; energy system upgrades for several U.S. Post
(%,. -
?
i M f( f Offices; and installation of a portable turf-
,1
.TA 1.1. - :.
heating system for Baltimore's new NFL team, Bolivia's \\alle Hermoso Power Plant one of the Ravens.
\\
ConstcIlation Power's lanin American investments.
i 1
j a diversity of energy solutions i-l i
l 0 PowerDigm Systems *, Inc., provides power quality l
pmducts and services to utilities and other large electric users. In 1996 the company signed five M
contracts for its PowerDigm* Transfer
- system, a l
technology that can dramatically improve power s
quality. It also launched its PowerDigm Automation" t
3 A. L service line to help utilities improve power quality
"*t" I
through distribution and substation automation.
W; r "
g v
~d BGE Home Products & Services c
a BGE Ilome Pnxtucts ana Services (HP&S)
.fN t
continues to meet residential and commercial customers' high demand for quality products and 1
services. One of the biggest growth areas in 1996 has been assisting kical commercial customers with their building systems. For example, when j
Baltimore City Schools needed to overhaul their heating systems, they turned to HP&S' Commercial COMFORTl./NK" C00lS Services Temn to help solve their problem.
Convent lOn Center hen Baltimore expanded its Convention l
Constellation Energy Source Center last year, CowonrL/NK-a partnership j
s in the past year, BGE's gas-between BGE and The Poole & Kent Company-marketing subsidiary changed i offered the Center's executive director Peggy Daidakis its name from BNG to 1
(inset) a great deal: Let us build our first central Constellation Energy Source.
cooling plant there, and then reap the benefits of It also established itself in three I w< st ak conMoning togears M come.
regions of the country to launch its gas-marketing effort. By Thanks to Dennis Manning. Greg Fox, Poole & Kent's the year 2(X)0 it plans to Bill Parsons, and the rest of the CouronTLINK team, the have a major presence Convention Center now houses the plant. And more throughout the U.S.
downtown businesses have recognized its advantages.
CouronrLINK now has agreements to cool nine Partilevelady, Vice President.
buildings, including Oriole Park at Camden Yards, the Constellation Energy Soun e, runs Ravens' new football stadium, and two of Fidelity &
the daily operations of our gas-Deposit Company of Maryland's office build:ngs.
marketing subsidiary at a time 0#U"'
U"
' " O' 0 when the whole industry is bn aking pump hot and cold water beneath city streets to heat new ground. "Thefuture of the j
industry is energy marActing, notjust f and cool downtown Baltimore buildings.
gas, oil, or eIertricity marketing. I see j Shown from left Bill Parsons, Greg Fox, and 15' Constellation Energy Soun e playing Dennis Manning.
a key role in ourfull-service u;
efforts," says Patti.
9 B e hin d eve ry c u st o m e r...
l a leading corporate c.tizen i
n December 1,1958, BGE President J. Theodore Wolfe rolled up j
his sleeve to donate the first unit to BGE's blood program. Today 9wn,
)
as then, we recognize that the vitality of our company depends on the
'o well-being of the communities we serve. In 1996 we rolled up our i;
n sleeves to strengthen the economic, environmental, and social fabric of T/
)
i s
Central Maryland. The results are nothing less than dramatic.
1 u 13GE has a long-standing commitment to busi-m Our employees have always been our greatest ness growth and retention, job creation, and asset, and we are constantly encouraging them to economic expansion in Maryland. That's w hy take their talents and expertise beyond the walls we began offering an of our company. More than 6.(XX) BGE Economic Development employees and retirees volunteered over Discount to businesses for 9,1(X) hours of their own time in 1996. raising rekicating or expanding in a total of $1.4 million for charity through our Central Maryland. Sixteen Employee Volunteer Program, companies have already a As an industry leader in pollution prevention, p"
signed on for these tempo-BGE has created a balance between the need to
- L rary electric-price reduc-provide safe. reliable, and economical energy tions, bringing an service and the need to protect the environment.
estimated 1,6(X) jobs to our i
r our efforts camed us two WasteWi$c area. Chesapeake Biological Laboratories is but Awards from the Environmental Protection one example.
Agency. We recycled 60 percent of our solid u Our desire to improve the quality of hfe for the waste, saving the company 55.7 million.
1 members of the communities we serve is what drives our corporate-giving program. In 1996 w e remained the largest corporate giver in Central For mon than a </narter of a century, Maryland, granting $4.3 million to a variety of Df"ne Gaines has used ha3Acthall as nonprofit groups. A major focus of our
" hair" to Acep hundreds of Aids ofJ i
corporate giving is early childhomi j
ri'J Streets and awayfrom crime.
des clopment, a cause we see as an l
Teara ago, nlu n I heard i
Prop c AdJ "R l/Jo" C""Id l
i investment in Maryhtnd's future.
i
\\g just sare onc,' that Wasn't l
u With rapid technological change
!# 3 y
altering the state of local industry, a p
y
,,,,d m A
th rii d m p
-\\
k the BGE Udunteer highly skilled and adaptable work force j
is more critical than ever to Maryland's y,
f,g, g,,.,..gy, economic strength. BGE awarded grants j#
im / re A that 16 to six of Maryland's community g
,g
,g colleges to help Maryland citizens g,g,,y,g,,
acquire the skills needed in today's high-perfonnance workplaces.
s
Financial Contents g
18 Utility Operating Statistics 30 Report of Management 36 Consolidated Statements a$ahadon 19 Selected Financial Data 30 Report ofIndependent Accountants 38 Consolidated Statements 20 Management's Discussion Uncome Taxes and Analysis 31 Consolidated Statements 20 m introduction ofincome 39 Notes to Consolidated Rnancial Satements 20 m Resultsof Operations 32 Consolidated Balance Sheets 54 Directors and Officers 34 Consolidated Statements D rsiied Businesses 35 Consolidated Statements 57 Shareholder Information 28 m Liquidity and Capital Resources of Common Shareholders' Equity 1
Sales of Electricity Sales of Gas Utility Construction Expenditures Billions ofKilonatt-Hours Millions ofDekatherms Millions of Dollars
$500 0
92 93 94 95 96 92 93 94 95 92 93 94 95 96 97 I
(est.)
Residential Residential I Construction I Commercial E Commercial
[ AllowanceforFunds I Industrial Industrial Used During Construction 17j i
Baltimore Gas and Electric Cornpany and Subsidiaries
U t i l i t v.i Operatinn Statistics U
Compound 1996 1995 1994 1993 1992 Growth Dectric Operating Statistics 5-Year 10-Year Revenues (In Tiwusands>
Residential
$ 958,736 5 955,239 $ 931,711
$ 931.M3 5 839,954 1.67 % 5.23%
Commercial 861A13 879.438 852,989 869,829 842,694 0.26 3.49 Industrial 207,579 208,44]
205,611 199fM2 201,950 (0.50) 0.77 System Sales 2,027,658 2 N3,ll 8 1,990,311 2,(X K).514 1,884,598 0.83 3.93 Interchange and Other Sales 155,877 166,964 118,027 91,543 M,323 45.57 5.26 Other 25,492 21,029 19.083 20.090 16.611 3.44 8.07 Total
$2,209.027
$2,231,111
$2,127,421
$2,112,147 $ 1,965,532 2.10 4.05 Sales (in ThousandshMwH Residential 11,243 10.966 10,670 10.614 9,735 2.17 3.73 Commercial 12,591 12.635 12,351 12,395 11,909 1.47 2.98 Industrial 4,596 4,591 4,433 3,763 3/63 439 1.26 System Sales 28,430 28,192 27,454 26,772 25.307 2.19 2 96 Interchange and Other Sales 7,580 8.149 5.684 4.149 3,180 45.41 6.57 Total 36,010 36341 33,138 30,921 28,487
- 6. I8 3.62 Customers Residential 995,197 988,179 978,591
% 8,212 956.570 1.15 1,54 Commercial 104,501 103,399 101,957 100,820 99,673 1.24 1.99 Industrial 4,261 4,161 3,967 3,8(X) 3,761 3.52 5.38 Total 1,103,959 1.095,739 1,084,515 1,072.832 l j kW),(X M 1.17 1.60 Average Use per Residential Customer 4wn 11,297 11,097 10,903 10,963 10,177 1.01 2.15 Average Rate per Kwu (System Saleshe Residential 8.53 8.71 8.73 8.78 8.63 (0.49) 1.46 Commercial 6.84 6 96 6.91 7.02 7.08 (l.I8) 0.48 Industrial 4.52 4.54 4.64 5.29 5.51 (4.67) (0.47)
Peak Lead (One-IlourFMw 5,955 5,947 6,038 5.876 5.558 0.15 2.58 Capability at Summer Peak-Mw 6,800 6,731 6,722 6,701 6,687 0.57 1.61 System Imad l' actor 57.5 %
57.2%
54.7 4 55,2 %
54.8 %
1.87 0.21 Gas Operating Statistics Revenues Iin Thousandd Residential
$ 320,105 $ 248,283 $ 262,736 $ 265 fill 5 242,737 7.73 2.14 Commercial Excluding Delivery Senice 125,052 109,859 121JW)5 121,832 112,147 539 (0.03)
Iklivery Sen ice 7,217 3.696 2,285 3,287 3.591 18.95 9.83 Industnal Excluding Delivery Senice 17f)64 16,730 20,140 22,250 21,123 6.57 (3.55)
Delivery Senice 14,598 16332 9,635 12,920 14.290 (4.69) (3.23)
System Sales 484,036 294.9(K) 415.801 425,890 393,888 6.76 1.14 Off-System Sales 26,600 Other 6,656 5/44 5,448 7,273 6,511 (036) (6.90)
Total
$ 517,292
$ 4(XI,5(4
$ 421,249
$ 433,163 $ 400,399 7.77 1.50 Sales (In ThousandsHmi Residential 43,7M 40,211 40,279 40,029 39JM2 3.70 1.26 Commercial Excluding Delivery Senice 22,698 23.612 23,712 23.830 23,478 1.87 0.49 Delisery Service 8,755 6,982 6,490 7,428 7,102 636 6.55 Industrial Excluding Delivery Service 2,887 4,102 4.410 5.298 5314 (434) (6.39)
Delivery Service 36,201 35,925 33.837 31,390 33,638 1.12 3.01 System Sales 114,325 110,832 108,728 107,975 108,574 2.41 1.62 oft-System Sales 10,204 Total 124.529 110.832 108,728 107,975 108.574 4.18 2.49 I
Customers Residential 516,523 506,739 498,152 491,165 486,863 139 0.69 Comn ercial 38,861 38,422 37,891 37,518 37/XX) 1.23 1.23 Industrial 1,350 1,334 1,354 1,353 1,412 (0.51) 0.42 Total 556,734 546,495 537,397 530,036 525,275 1.37 0.72 Average Use per Residential Customer-Therms 848 794 809 815 802 2.27 0.57 l18 Average Rate per Thernw$
Residential
.73
.62
.65
.66
.62 4.(K) 0.86 l
Commercial (Excluding Dehvery Service)
.55
.47
.51
.51
.48 3.64 (0.53) j Industrial (Escluding Delivery Senice)
.59
.41
.46
.42
.40 11.61 3.16 Peak Day Sendout-tmi 708,966 706.287 761,900 657,700 609.200 3.05 1 1 Peak Day Capability-tml 870,000 847/00 847/100 847/XX) 847,000 1.27 Utahty operatmg statistics do not reflect the elivr\\iruitkin ofirutervorriguiny trartuscrions.
}
Ball more Gas and Electuc Company and Subsidiahes
i Selected Financial Data Cem,,nnd 19's6 1995 1994 1993 1992 Growth
)
Ithilar anumnn in tiunnamh. erapt p r sluur anumnto 5-Year 10-Year Summary of Operations i
Total Revenues
$' 153,247
$2,934,799
$2.782.985
$2.741,385 $2.559.536 4.63% 4.639 j
Expenses Other Than interest and Income Taxes 2,483,782 2,239,107 2,147.726 2,124,993 2.024.227 4.15 5.21 Income From Operations 669,465 695.692 635,259 616392 535,309 6.54 2.73 Other income 6,130 8,819 32365 20310 22.132 (26.25) (9.83)
Income llefore Interest and income Ta'.es 675.595 7(4,511 667.624 636.702 557,441 5.55 2.49 Net interest Expense 198,438 196,977 190,154 188,7M 189.747 0.19 5.82 l
Income ikfore income Taxes 477,157 507,534 477,470 447,938 367.694 837 139 income Taxes 166J33 169,527 153,853 138,072 103,347 14.22 1.65 Net income 310,824 338,007 323,617 309.866 264,347 4.17 1.25 Preferred and 1%ference Sixk Dividends 38,536 40.578 39.922 41.839 42,247 (2.05) 3.67 Eamings Applicable to Common Stock
$ 272.288
$ 297.429 $ 283.695 $ 268.027 $ 222.l(K) 5.26 0.95 1
Eamings Per Sha e of Common Stock
$1.85
$2.02
$1.93
$1.85
$1.63 2.07 (1.26) l Dividends Declared Per Share of Common 4
Stock
$1.59
$1.55
$1.51
$1.47
$ 1.43 2.58 3.03 i
i P.atio of Eamings to Fixed Charges 3.10 3.21 3.14 3.00 2.65 6.43 (2.97)
.l Ratio of Earnings to Fixed Charges and Preferred and 1%ference Stock Dividends Combined 2.44 2.52 2.47 234 2.08 6.(M (2.68)
Financial Statistics al Year End Total Assets
$8,550,970
$8316.663
$8.037.502
$7.829.613
$7.208.660 3.68 6.44 Capitahzation long-term debt
$2,758,769
$2,598.254
$2,584,932 $2.823,144 $2,376.950 2.91 5.62 i
Prefened stock 59,185 59.185 59.185 59,185 Redeemable preference stock 134,500 242,(No
" 9,500 342.5(X) 395,500 (19.53) 10.40 Preference stock not subject to mandatory redemption 210,000 210.(x10 150.000 150.lKO 110.000 13.81 6.68 Common shareholders' equity 2,857.113 2.812.682 2.717.866 2.620,511 2.534.639 5.82 5.77 Total Capitalization
$5.960,382
$5.922.121
$5.791.483
$5.995340
$5.476.274 3.12 5.63 Ikok Value Per Share of Common Stock
$19,35
$19.07
$18.42
$17.94
$17.63 2.62 3.43 Number of Comnon Sharehoklers 77.550 79.811 81,505 82,287 80,371 1.74 0.07 i
i H
19 I
i l
Baltimore Gas and Uectnc Company and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction In Management's Discussion and Analysis we explain the general obtain all regulatory approvals. Dese matters are discussed in financial condition and the results of operations for BGE and its more detail in Note 12 beginning on page 48 and in a Registra.
diversified business subsidiaries including:
tion Statement on Form S-4 (Registration No. 33-64799). The a what factors affect our business, merger may impact many of the matters discussed in Manage-ment's Discussion and Analysis meluding earnings, results of a what our eamings and costs were in 1996 and 1995, electric operations, expenses, liquidity, and capital resources.
m y those camings and costs were different from the year De electric utility industry is undergoing rapid and substantial change. Competition is increasing. The regulatory environment a where our eamings came from, (federal and state) is shifting.These matters are discussed briefly a how all of this affects our overall financial condition, in the " Competition and Response to Regulatory Change" section on page 22 in Management's Discussion and Analysis. They are a what our expenditures for capital projects were in 1994 discussed in detail in our Annual Repons on Form 10-K. BGE through 1996 and what we expect them to be in 1997 continuously evaluates these changes. Based on the evaluations, through 1999, and BGE refines short and long term business plans with the primary a where cash will come from to pay for future capital goal of protecting our security holders' investments and pro-expenditures.
viding them with superior retums on their investment in BGE. In et suppo this primaiy goah we also focus on other groups As You read M " 8' ment's Discussion and Anal sis,it maY e who{ impact our prinuuy goal. For example, we stre Y
b helpful to refer to our Consolidated Statements of Income on page 31, which present the results of our operations for 1996,1995, and low cost, reliable power to our electric customers. As you read 1994. In Management s Discussion and Analysis, we analyze and Management's Discussion and Analysis, many BGE initiatives
]
explam the annual changes m the specific line items in the Con-to suppon our primary goal are mentioned. These include the solidated Statements of income. Our analysis may be important t proposed merger with Potomac Electric Power Company, you in making decisions about your investments m BGE' designed to position us to remain competitive as the industry changes, and our diversification effort. We enter new businesses You may notice some changes in this year's discussion, which we believe will support our primary goal. For example, compared to past years. This is because we volunteered to new businesses may be opportunities to:
participate in a pilot program with the Securities and Exchange Commission to write financial documents in plain English As a a provide customers of our core energy business additional services, or result, we have re-written our entire Management's Discussion l
and Analysis section. Our goal is to discuss our financial condi.
e attract new customers for our core energy business, or J
tion in language that is more easily understood.
m expand our diversified stream of revenues.
.)
BGE and Potomac Electric Power Company have agreed to We believe our newest subsidiary, Constellation Power Source, merge into a new company named Constellation Energy Inc., will satisfy all three criteria. hs proposed power marketing Corporation. We plan to complete the merger as soon as we business is described in detail in the front of this report.
Results of Operations In this section, we discuss our 1996 and 1995 eamings and the 1996 factors affecting them. We begin with a general overview, then Our 1996 total earnings decreased $25.1 million, or $.17 per separately discuss camings for the utility business and for share, from 1995. Our total camings decreased because we diversified businesses, reserved for disallowed replacement energy costs. We discuss this in detail in the " Disallowed Replacement Energy Costs" Overview section on page 23.
Total Earnings per Share of Common Stock In 1996, we had higher utility camings from current-year opera-tions due to three factors: we sold more electricity and gas due 1996 1995 1994 to colder winter weather (people use more gas and electricity to Eamings per share from heat their homes in colder weather), there was an increase in the current-year operations:
number of customers, and we had lower operations and mainte-Utility business
$1.96
$1.84
$1.81 nance expenses. We would have had even higher utility camings Diversified businesses (subsidiaries)
.31
.18
.12 from current-year operations except we sold less electricity in Total camings per share from the third quarter due to milder summer weather. We discuss our 20 current-year operations 2.27 2.02 1.93 utility camings in more detail beginning on page 22.
Disallowed replacement energy costs (see Note 12)
L42)
Total earnings per share
$1E
$2.02
$1.93 Baltirpore Gas and Electric Company and Subsidiafles i
4
,In 1996, we had higher carnings from our diversified business From time to time, w hen necessary to cover increased costs, we subsidiaries mostly because the Constellation Companies had ask the Maryland Commission for base rate increases. Not every higher camings from power generation projects and financial request for base rate increases is granted in full. However, the investments. We discuss our diversified business earnings in Maryland Commission has historically allowed BGE to increase more detail beginning on page 26.
base rates to recover costs for replacing utility plant assets, plus a profit, beginning at the time of replacement. Generally, rate 1993 increases improve our utility eamings because they allow us to Our 1995 total camings increased $13.7 million, or 5.09 per c Ilect more revenue. However, rate increases are normally share, from 1994.
granted based on historical data and those increases may not always keep pace with increasing costs.
In 1995, we had higher utility camings mostly due to greater sales of electricity during an extn mely hot sumraer and higher elec-Weather tricity arti gas sales resuldng fmm colder f di weather. We would Weather affects the demand for electricity and gas, especially have had even higher utihty eamings except for the mild weather among our residential customers. Very hot summers and very m the first half of the year, lower act other income and deductions cold winters increase demand. Mild weather reduces demand.
(miscellaneous non-operating income and expenses), and lower allowance for funds used dunng constmetion (an accounting pro-We measure the weather's effect using " degree days.".A degree cedure used to exclude the cost of capital from expense and day is the difference hetween the average daily actual tempera-include it as part of the cost of utility plant construction).
ture and a baseline temperature of 65 degrees. Cooling degree days result when the daily actual temperature exceeds the 65 in 1995, we had higher camings from our d.iversified businesses degree baseline. Heating degree days result when the daily i
mostly beause the Constellation Compam,es had higher cam' actual temperature is less than the baseline.
ings from power generation projects and financial investments.
During the cooling season, hotter weather is measured by more Utility Business cooling degree days and results in greater demand for electricity t operate cooling systems. During the heating season, colder, Before we go into the details of our electric and gas operations, weaWer,s incasured by more heating degree days and results m i
we blieve it is important to discuss four factors that have a strong influence on our utility business perfonnance: regulation, greater demand for electricity and gas to operate heating systems.
the weather, other factors including the condition of the economy The following chart shows the number of cooling and heating in our service territory, and competition.
degree days in 1996 and 1995, shows the percentage changes in the number of degree days from prior years, and shows the Regulction by the Maryland Public Service Commission number of degree days in a " normal" year as represented by the De Maryland Public Service Commission (Maryland Com-30-year average, mission) determines the rates we can charge our customers. Our 30-Year rates consist of a " base rate" and a " fuel rate". The base rate is 1996 1995 Aserage the rate the Maryland Commission allows us to charge our Coohng degree days 786 1,056 804 customers for the cost of providing them service, plus a profit.
Percentage change We have both an electric base rate and a gas base rate. Higher compared to prior year (25.6)%
11.3 %
electric base rates apply during the summer when the demand Heating degree days 5.138 4.601 4,901 for electricity is the highest. Gas base rates are not affected by Percentage change seasonal changes.
compared to prior year 11.7 %
(1.5)%
The Maryland Commission allows us to include in base rates a component to recover money spent on conservation Other Factors programs. This component is called an " energy conservation Other factors, aside from weather, impact the demand for elec-surcharge. However, under t,as surcharge the Maryland tricity and gas. These factors include the " number of customers" Commission limits what ou profit car be. If, at the end of the and " usage per customer" during a given period.
year, we have exceeded cur allowed rmfit, we lower the amount of future surcharges to c ir customen to correct the amount of The number of customers in a given period is affected by new overage, plus interest.
home and apartment construction and by the number of busi-nesses in ur service territory.
In addition, we 6.uge our electric custon, rs separately for the fuel (nuclear fuel, coal, gas, or oil) we use to generate electricity.
Usage per customer refers to all other items impacting customer De actual cost of the fuel is passed on to the customer with no sales which cannot be separately measured. These factors profit. We also charge our gas customers separately for the include the strength of the economy in our service territory.
natural gas they consume. De price we charge for the natural When the economy is healthy and expanding, customers tend to gas is based on a Market Based Rates incentive mechanism consume more electricity and gas. Conversely, during an approved by the Maryland Commission. We discuss Market economic downtrend, our customers tend to consume less Based Rates in more detail in the " Gas Cost Adjustments" electricity and gas.
section on page 24 and in Note 1 on page 39.
We use these terms later m our discussions of electric and gas operations. In those sections, we discuss how these and other factors affected electric and gas sdes during 1996 and 1995.
21 i
Baltirnore Gas and Electnc Company and Sutsidiaries
Competition and Response to Regulatory Change Electric Operations Our business is also affected by competition. Electric utilities are Electric Resenues facing competition on three fronts:
The changes in electric revenues in 1996 and 1995 compared to e in the construction of generating units to meet increased the respective prior year were caused by; demand for electricity, 1996 1995 m in the sale of their electricity in the bulk peer markets, g,,,,,,3,,,y and Electric system sales volumes 50.4 5 43.4 e in the future, for electric sales to retail customers which Base rates (2.5 p 23.2 utilities now serve exclusively.
Fuel rates t 12.31
( 13.8) lotal change in electric revenues We regularly reevaluate our strategies with two goals in mind: to mme tne Ptem sales (1 41 52.8 improve our competitive position, and to anticipate and adapt to regulatory changes. In September 1995, we decided that a merger Interchange and other sales (11.1) 49.0 Other
_4.5 1.4 with Potomac Electric Power Company would help us compete by maintaining low-cost production and increasing our size.
Total change in electric revenues 5(21.01
$1012 lhe pending merger is more thoroughly discussed in Note 12 on page 48. Although we believe the merger will improve our com.
Electric System Sales Volumes petitive position in the future, no one can predict the ultimate
" Electric system sales" are sales to customers in our service efTect competition or regulatory change will have on our carnings territory at rates set by the Maryland Commission. These sales or on the camings of the merged company.
do not melude interchange sales and sales to others.
We will continue to develop strategies to keep us competitive.
The percentage changes in our electric system sales volumes, by These strategies might include one or more of the following:
type of customer, in 1996 and 1995 compared to the respective pnor year were:
a the complete or partial separation of our generation, transmission, and distribution functions 1996 1995 Residential 2.5%
2.8%
u other intemal restructunng Commerc. l to.3) 2.3 ia a mergers or acquisitions of utility or non-utihty businesses Industrial 0,1 3.6 a addition or disposition of portions of our service territories In 1996, we sold more electricity to residential customers for a sp.m-off or distnbution of one or more busm. esses three reasons: colder weather in the first quarter, greater elec-We cannot pn dict whether any transactions of the types tricity usage per customer, and an increase in the number of described atuve may actually occur, nor can we predict w hat customers. We would have sold even more electricity to residen-their etfect on our financial condition or competitive position tial customers except for milder summer weather. We sold about might be.
the same amount of electricity to commercial and industrial l
customers as we did in 1995. As mentioned above, weather
)
We discuss competition in our electric and gas businesses in impacts residential, more than commercial and industrial, sales.
more detail in our Annual Reports on Form 10-K under the In 1996 other items offset the impact of weather on commercial headings " Electric Regulatory Matters and Competition" and and industrial sales. Other items include the demand for power
" Gas Regulatory Matters and Competition."
to fuel manufacturing equipment and office machinery, w hich vary with changes in the customers' businesses. For example, if Utility Business Earnings per Share of Common Stock a manufactunng plant has a slow year, it will make less product 1996 1995 1994 and use less power to run its assembly lines.
Utihty earnings per share from in 1995, we sold more electricity to residential and commercial current-year operations:
customers mostly because we had an increase in the number of Electric business
$1.75
$ 1.70 51.71 customers and we had extremely hot summer weather and cold Gas business
.21
.14
.10 fall weather. We would have sold even more electricity to those Total utility camings per share customers except we had milder weather in the first half of l
from current-year operations 1.96 1.x4 1.81 1995 compared to 1994. We sold more electricity to industrial Disallowed replacement customers mostly because we had an increase in the number of energy costs (see Note 12)
L42) customers and more demand for electricity from Bethlehem Total utility camings per share
$1.54
$1.84
$181 Steel (our largest customer).
Base Rates Our 1996 total utility cumings decreased 544.5 million, or In 1996, base rate revenues were atuut the same as they were 5.30 per share, from 1995. Our 1995 utility camings increased in 1995. Although we sold more electricity this year, our i
55.6 million, or 5.03 per share, from 1994-revenues did not increase because the higher sales occurred We discuss the factors affecting utility eamings below.
during the winter when our base rates are lower.
l22 i
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Baltimore Gas and Electot Company and Sut sidiaries
I, __._ _. _ __ _ _ _ _ ___- ___ _ ___ _ ~ - -
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4
,In 1995, base rate revenues were higher than in 1994 heause of Electric Fuel and Purchased Energy Espenses j a higher energy conservation surcharge and also because we did 1996 1995 1994 l not have to reduce conservation revenues as we did in 1994, ururabw i
when we exceeded our allowed profit-Actual costs
$539.2
$554.5
$541.2 From July 1,1993, through June 30,1994, we exceeded our Net recovery of costs profit limit under the energy conservation surcharge..To correct under electric fuel the overage, we lowered the surcharge on our customers' bills rate clause (see Note 1) 8.2 24.3 1.1 from [2ecember 1993 to November 1994. As a result, we billed Disallowed mplacement
$20.1 million less than we would have otherwise. We also energy costs (including exceeded the limit on our pmfit during 1996. Therefore, we carrying charges) -
excluded $28.5 million of our 1996 surcharge billings from (see Note 12) 95.4 revenue, and we will lower the surcharge on our customers' bills Total electric fuel and bginning in July 1997 to correct the overage, purchased energy expenses
% 82.8
$578.8
$542.3 FuelRates Actual Costs De fuel rate is the rate the Maryland Commission allows us to in 1996, our actual cost of fuel to generate electricity (nuclear charge our customers for our actual cost of fuel with no pmfit to fuel, coal, gas, or oil) and electricity we bought from other utilities us. If the cost of fuel goes up, the Maryland Commission was lower than in 1995 because the price of electricity and prmits us to increase the fuel rate. If the cost of fuel goes down, capacity we bought from other utilities was lower and we sold less our customers benefit from a reduction in the fuel rate. The fuel electricity. De price we pay for electricity and capacity we buy rate is impacted most by the amount of electricity generated at from other utilities changes based on market conditions, complex the Calvert Cliffs Nuclear Power Plant because the cost of pricing formulas for PJM transactions, and contract tenns.
nuclear fuel is cheaper than coal, gas, or oil. (See Note 1 on page 39 for a further discussion of how the fuel rate increases in 1995, our actual cost of fuel to generate electricity and elec-and decreaseQ tricity we bought from other utilities was higher than m 1994 mostly because we generated more electricity and the price of Changes in the fuel rate nomially do not affect camings.
electricity and capacity we bought from other utilities was However, if the Maryland Commission disallows recovery of higher. Our actual costs would have been even higher except we any part of the fuel costs, our camings are reduced. (We discuss were able to use a less-costly mix of generating plants, mostly this more thoroughly in the " Electric Fuel and Purchased Energy because of shorter refueling and maintenance downtime at our Expenses" section below and in Note 12 on page 50.)
Calvert Cliffs Nuclear Power Plant.
In 1996 and 1995, fuel rate revenues decreased due to a lower Electric FuelRate Clause fuel rate beause we were able to operate plants with the lowest ne " electric fuel rate clause"(determined by the Maryland fuel costs to generate electricity during the previous 24 months.
Commission) requires that we defer (to include as an asset or Fuel rate revenues would have been even lower except we sold liability on the balance sheet and exclude from income and more clectricity. In 1995, the fuel rate was also lower compared expense) the difference between our actual costs of fuel and our
)
to 1994 heause of lower fuel costs.
fuel rate revenues collected from customers through the fuel tate.
We bill or refund that difference to customers in the future, j
Interchange and Other Sales
" Interchange and other sales" are sales of energy in the in 1996 and 1995, our actual fuel costs were lower than the fuel Pennsylvania-New Jersey-Maryland Interconnection (PJM) and rate revenues we collected from our customers. As a result, we to others. The PJM is a regional pawer pool of eight utility n: covered fuel costs which we ind deferred in prior years.
membr companies, including BGE. We sell energy to PJM membrs and to others after we have satisfied the demand for Disallowed Replacement Energy Costs electricity in our own system.
During 1989 through 1991 we expe ienced extended outages at our Calvert ClitTs Nuclear Power Plant. These outages have been in 1996, we had lower interchange and other sales compared to the subject of ongoing fuel rate proceedings before the Maryland 1995 heause we generated less electricity at our Calven Cliffs Commission for several years (see Note 12 on page 50).
Nuclear Power Plant. This meant that we had less electricity to sell outside of our service territory. We generated less electricity In December 1996, we entered into a settlement agreement with at that plant mostly because the 1996 outage for regular refueling the Maryland People's Counsel and the Maryland Commission and maintenance took longer than in 1995.
Staff. We agreed not to bill our customers for $118 million of electric replacement energy costs associated with these extended in 1995, interchange and other sales increased because we were outages. We set up a reserve for $35 million of these costs in able to oprate plants with the lowest fuel costs to generate elec^
1990. In 1996, we increased that reserve by $83 million and we tricity, had available capacity, and had lower costs than other wrote off $5.6 million of related carrying charges, in addition, utilities. Specifically, we had greater generation from our coal' we wrote off $6.8 million of fuel costs that were disallowed by fired Brandon Shores Power Plant, and our Calvert Cliffs the Maryland Commission in May 19% (we discuss these costs j
Nuclear Power Plant generated a record level of electncity funher in Note 12 on page 50). These write-offs and the increase during 1995.
. in the reserve significantly increased our total purchased fuel and energy expenses in 1996. The remainder of the replacement energy costs associated with the extended outage has already been recovered from customers through the fuel rate.
3 23 1
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i Baltimore Gas and Electric Company and Subsidiaries y-s y q py y
w_m,m.__.___,
~
g.
w
Gas Operallons Effective Octobr 19%, the Maryland Commission approved a Gas Revenues modification of the gas cost adjustment clauses to provide a 1
" Market Based Rates" incentive mechanism. In general tenns, The changes in gas tevenues in 1996 and 1995 compared to the under Market Based Rates our actual cost of gas is compared to respective prior year were caused by; a market index (a measure of the market price of gas in a given 1
1996 1995 period), and half of the difference belongs to shareholders. We gfy ygfjg discuss this in more detail in Note I on page 39.
Gas system sales volumes 58.2
$ 0.2 Delivery service customers, including Bethlehem Steel, are not Base rates IN.9 6.4 subject to the gas cost adjustment clauses because we are not Gas cost adjustments
_62.1 (27.4) selling them gas (we are selling them the service of delivering Total change in gas revenues their gas).
fmm gas system sales 89.2 (20.8)
In 1996, gas cost n: venues increased because we had to pay Off-system sales 26.6 more for gas and we sold more gas. In 1995, gas cost revenues Other 1.0 0.1 1
decreased because we paid less for gas and we sold less gas.
1 Total change in gas revenues
_$ 1_16.8
$(20.7)
Off-System Sales Gas System Sales Volumes Off-system gas sales, which are direct sales to suppliers and end ne percentage changes in our gas system sales volumes, by users of natural gas optside our service territory, also are not type of customer,in 1996 and 1995 compared to the respective subject to gas cost adjustments. We began sales of off-system gas
)
prior year were:
during the first quarter of 1996. The Maryland Commission l
1996 1995 appmved an arrangement for pan of the can,ngs fun omsystem
)
Residential H.9 %
(0.2)%
sales to knent customers (through reduced costs) and the Commemial 2.8 1.3 remainder to be retained by BGE (which benefits shareholders).
Industrial (2.3) 47 Gas Purchased For Resale Expenses in 19%, we sold more gas to residential and commercial 1996 1995 1994 l
customers due to colder winter and early spring weather and an (In nullions) increase in the number of customers. We would have sold even Actual costs
$295.4
$205.9
$222.7 more gas to those customers except that gas usage per customer Net recovery (deferral) of decreased. We sold less gas to industrial customers because costs under gas adjustment Bethlehem Steel used less gas. We would have sold even less clauses (see Note 1)
(11.0)
(7.8) 1.9 gas to industrial customers except for increased gas usage by other industrial customers, an increase in the number of Total gas purchased for customers, and colder winter weather.
resale expenses
$284.4
$198.1
$224.6 in 1995, we sold about the same amount of gas to residential Actual Costs customers as we did in 1994. We sold more gas to commercial Actual costs include the cost of gas purchased for resale to our customers for three reasons: an increase in the number of cus-customers and for sale off-system. These costs do not include tomers, increased gas usage per customer, and colder weather in the cost of gas purchased by delivery service customers, the fall of 1995. We would have sold even more gas to com-including Bethlehem Steel.
mercial customers except for milder weather in the first half of 1995. We sold more gas to industrial customers due to greater in 1996, actual gas costs increased from 1995 due to three gas usage per customer, factors: higher market prices of gas, higher sales volumes, and the purchase of gas to resell off-system (beginning in the first Base Rates quarter of 1996).
In 1996, base rate revenues were higher than in 1995 because in November 1995, the Maryland Commission allowed us to in 1995, actual gas costs decreased compared to 1994 because of increase our gas base rates. His increased our annual base rate the considerably lower market price of gas. This decrease would revenues for 1996 by $19.3 million, or approximately 3.7% of have been even greater except that we received supplier refunds total 1996 gas sevenues. That amount included $2.4 million to in 1994 which reduced actual gas costs that year.
recover higher depreciation expense (an accounting procedure Gas Adjustment Clauses which spreads the cost of utility plant in service over the years We charge customers for the cost of gas sold through gas adjust-l m which it is used).
ment clauses (determined by the Maryland Commission), as in 1995, our base rate revenues were higher than in 1994 discussed under " Gas Cost Adjustments" carlier in this section.
because of the energy conservation surcharge.
In 1996 and 1995, the ponion of our actual gas costs subject to Gas Cost Adjustments these clauses was higher than the revenues we collected from Prior to October 1996, the Maryland Commission allowed us to our customers. As a result, we deferred the difference and recover the actual cost of the gas sold to our customers through will collect the costs from our customers in the future. nese
" gas cost adjustment clauses." These clauses require that we deferrals decreased our total gas purchased for resale expenses defer the difference between our actual cost of gas and the gas in 1996 and 1995.
revenues we collect from customers. We bill or refund that N
difference to customers in the future.
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Battemore Gas ud Electric Company and Sutaidiaries
4 plher Operating Expenses Other income and Expenses 1
Operations and Maintenance Expenses Allowancefor Funds Used During Construction (AFC) in 19% our operations and maintenance expenses decreased AFC is an accounting procedure used to exclude the cost of
$1 H.5 million due to our continued etrorts to control costs. This capital from expense and include it as pait of the cost of utility decrease would have been even greater except we had higher plant construction. AFC is calculated at a rate authorized by the costs to maintain our nuclear plant. In 1995, our operations and Maryland Commission. We describe AFC funher in Note 1 on maintenance expenses were about the same as they were in 1994.
page 40.
Depreciation and Amortization Inpenses in 1996 and 1995, we had lower AFC compared to prior years We (k scribe depreciation and amortization expenses in Note I on because we completed several projects and started less new page 40.
construction. In 1996, we also had lower AFC because the Mary-land Commission decreased the gas AFC rate in November 1995 in 1996, our depreciation and amortization expense increased from 9A)% to 9.NCIhis meant we were not authorized to
$12.8 milhon from 1995 for two reasons:
record as much gas AFC in 1996 as we were in 1995 and 1994.
c we had more utility plant in service to be depreciated Net Other income and Deductions (as our level of utility plant that is m service changes, Net odier income and deductions represent miscellaneous income the amount of our depreciauon expense changes), and and expenses which are not directly related to operations.
O we had more energy conservation program costs to be amortized.
In 1996, net other income and deductions increased $4.9 million compared to 1995 mostly because the Constellation Companies The increase in these expenses would have been even greater had lower deductions not directly related to operations and BGE except that in 1995 depreciation arul arnortization expense had about $2 million more of other interest and finance charge included $14.2 million for the write-off of certain costs of our income.
Perryman site, which is covered in more detail below. In 1996, depreciation and amortization expense did not include any such in 1995, net other income and deductions decreased $16.2 million write-off, compared to 1994 because we had about $12 million less of other interest and hnance charge income, and we had about $4 million in 1995, our depreciation and amortization expense increased lower income from the sale of receivables (money customers owe
$21.5 million over 1994 because we had more utility plant in to us) and propeny. We sell receis ables to a financial institution service to be depreciated (mostly because of smne capital addi-under agreements uhich are discussed in Note 12 on page 48.
tions to our Calvert ClitTs Nuclear Power Plano, and we had a higher level of energy consenation program costs to be amor.
Interest Charges tized. In addition, we completed a study of the cost to decommis.
Interest charges represent the interest we paid on outstanding debt.
j sion Calven ClitTs. (Decommission is a tenn used in the nuclear in 1996, we had $2.1 million lower interest charges compared to nlustry for the permanent shut-down of a nuclear power plant 1995 largely because of lower interest rates. We would have had which usually occurs when the plant's beense exp,res.) The study even lower interest charges except we had more debt outstanding, i
resulted m, a higher estimated cost of decommissionmg, w hich increased decommissioning expense (included in depreciation in 1995, we had $5.3 million higher interest charges compared j
and amortization expense) by $9 million annually.
to 1994 because we had more debt outstanding and shon-term j
interest rates were higher.
1 Our 1995 and 1994 depreciauon and amom.zauon expense reflected the write <iff of expenditures associated with future Inmme Taxes.
Feneration facilities at our Perryman site which will not be built.
In 19% our income taxes decreased because we had lower We discuss the write-oft of expenditures at our Perryman site taxable income from utility operations. Our irtome taxes would further in Note 1 on page 40. The w rite-off of these costs base been even lower except that we had higher taxable income increased our 1995 depreciation and amortization expense by from our diversified businesses.
$14.2 million and increased our 1994 expense by $15.7 million.
In 1995, our income taxes increased because we had higher j
Taxes Other T/mn income Taxes taxable income from both our utility operations and our In 1996, taxes (other than income taxes) were 59.6 million diversified businesses.
higher than in 1995 mostly due to three factors: plant additions made in 1995 increased our property taxes about $7 million.
Environmental Matters higher 1996 revenues increased our gross receipts taxes about We are subject to increasingly stringent federal, state, and kical l
' $2 million, and higher labor costs increased our payroll taxes laws and regulations that work to improve or maintain the quality l about $1 million.
of the environment. If certain substances were disposed of or in 1995, taxes (other than income taxes) were $5.4 million higher released at any of our propenies, w hether currently operating or th;m in 1994 mostly due to higher property taxes resulting from not, these laws and regulations require us to remove or remedy the elTect on the environment. This includes Environmental l
! more utility plant in service.
Protection Agency Superfund sites. You will find details of our i
environmental matters in Note 12 on page 49 and in our Annual Repons on Form 10-K under item 1. Business - Emironmental Matters 'Ihese details include financial information. Some of the information is about costs that may be material.
25' 4
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l Baltimore Gas and Electric Compary and Sutsitharies i
i
Diversified Businesses power purchase agreement uith Jersey Central Power & Ught in the 1980s, we began to diversify our businew in response to Company back to that utihty. Energy pndects had higher cam-limited growth in gas and electric sales. Tmiay, w e continue to inn for a variety of reasons-some ongoing ihke improved c ency due to quipnwnt or procedure changes) and some e
diversify our business in respinse to regulatory changes in the utility industry. Some of our diversified businesses are related to one nw t or example, losses meurred m 1995-10 shut-dow n our core utility business and others are not. Our diversiGed busi-wn.nn opeahons at a plant 4d not oaur again in 1996L nesses include:
These increases w ere offset by:
m Constellation Holdings, Inc. and Subsidiaries, together a a S7.0 million alter-tax write-off of Constellation's imest-I known as the Constellation Companies ment in tw o geothermal w holesale power generating a IIGE Ilome Pnklucts & Services. Inc. and Subsidiary pndats.
m llGE Energy Projects & Senices. Inc. and Subsidiaries e a 510 nullion after-tax w nte-of f of development costs for a proposed coal-fired pmer pndect that will not be built, a C,onstellation E.nergy Source. Inc. (fonnerly named IING,,
and Ine.)
e a 56.2 million aher-tax write-off of a portion of an imest-Diversified Business Earnings Per Share of Common Stock ment in a solar power pmject, in w hich Constellation has a minority ow nership interest. expected to be restructured 1996 1995 1994 with the lender.
Constellation Companies 5.29 5.18 5 #)
In
, canunp nc om mosdy ue m our care IlGE ilome Pnslucts & Services
.02 00
.03 llGE Energy Projects & Services JM)
.00 of higher camings f rom energy projects and a proh.t made on the sale of some operating and maintenance contractt Constellation Energy Source JM) m
.m Total diversified business
.The Constellation Companies hase 5227 million imested in earnings per share 5.31 5.1 x s.I2 16 pojects that sell electricity in Cahfomia under pm er purchase agreements called " Interim Standard Offer No. 4" agreements.
Our 1996 diversified business carninp increased 519.3 million, or 5.13 per share, from 1995. Our 1995 diversified business Under these agreements, the pmjects supply electricity to utihty camings increased $N.2 million or $.06 per share, from 1994.
companies at:
These increases mostly; reflect higher eamings from the a a Oxed rate for capacity and energy the first 10 years of Constellation Compames.
the agreements. and We discuss factors affecting the camings of each disersified s a fixed rate for capacity plus a variable rate for enerp business subsidiary below.
based on the utilities' Eoided cost for the remaining tenn of the acreements.
Constellation Companies' Operations G,eneralls, a " capacity rate..is paid to a power plant for its as ail-The Constellation Companies engage in the following:
ability to' supply electricity, and an " energy rate"is paid for the a development, ownership, and operation of power electricity actually generated. "Amided cost" generally is the generation projects.
cost of a utihty s cheapest next-available source of generation to service the demands on its sy stem.
m financialinvestments,and From 1996 thmugh 2000, the 10-) ear periods for fixed energy a deselopment. ownership, and management of.real estate rates expire for these 16 power generation pniects and they and senior-hving facilities.
begin supplying electricity at sariable rates. When this happens.
1 Eamings per share from the Constellation Companies wcre:
the revenues at these pndects are expected to be lower than they are now. It is difficult to estimate how much lower the res enues W95 N
may be, but the Constellation Companies'camings could be Power generation 5.18 5.I3 5.10 affected signiGcantly.
Financial insestments
.14
.ox
.03 pndem gni suppWng electricity at variable rates m Real estate development and 1997 and 1998. This means the Constellanon Companies could senior-lising facilities
(.02)
(.02 )
(.03 )
experience lower earnings from those projects, llow es er, the Other
(.01)
(.01 )
(.01 )
remaining projects, which will continue to supply electricity at Total Constellation Companies' fixed rates, are expected to have higher res enues in 1997 and eamings per share 5.29 5.18 s n) 1998. These higher revenues may of fset the low er res enues from the variable-rate pndects during those yeart Power Generation The California projects that make the highest res enues will The Constellation Comp;mies' power generation business pn supp ng nu ch at s anaW ratn in 1999 and 2000 deselops, owns, and operates pow er generation facilities.
M a nsuh, we o not ex[wt k Considahon C ompanws to base significantly lower camings due to the switch from hxed in 1996. earnings increased from 1995 mostly due to our share to variable rates before 2000.
26 of higher carninp from energy pndects and a 514.6 million atter-tax gain on the sale by a Constellation partnership of a i
B e m e ta s W E k m C t m e r, a mt S u t s i d i a n e s
9 In the second quaner of lW6, Constellation determined that its Most of these pmjects are in the llattimore-Washington corridor.
- imestments in two of these plants are not expected to be fully The area has had a surplus of available land and office space recoverable. Accordingly, as mentioned earlier in this section, in recent years, during a time of low economic growth and j
the Constellation Companies recorded a $7.0 million after-tax corporate downsi/ings. Our projects have been economically write.off of the imestment in these plants.
hurt by these conditions. Earnings from real estate development and senior-living facilities in IW6 and IW5 were essentially
(,oostellation is pursuing alternatives for some of these power generation projects including:
unchanged from prior years.
Constellation's real estate podfolio has continued to incur carry ing a repow ering the projects to reduce operau.ng costs, costs and depreciation over the years. Additionally, the Constella-0 changing fuels to reduce operating costs, tion Companies bas e been charging interest payment = to expense o renegotiating the power purchase agreements to impmve r drnhan capitalizing them for some undeveloped land where the terms, development activities have stopped. These carrying costs, depre-ciation, and interest expenses have decreased eammgs and are o restructuring Gnancings to improse the financing terms, expected to continue to do so.
and Cash flow from real estate operations has not been enough to a selling its ownership interests in the proj.ects.
mde dw monddy loan payments on some of these pmjects.
We cannot predict the 'inancial effects of the sw itch from lixed Cash shortfalls have been cosered by cash from Constellation to variable rates on the Constellation Companies or on llGE, but iloidmps. Constellation lloidings obtained those funds from the the effects could be material.
cash now from other Constellation Companies and through additional borrowing.
Internattonal llistorically, Constellation's power generation pmjects have We will consider market demand, interest rates, the availability been in the United States. Over the last two years, howes er, of nnancing, and the strength of the economy in general when Constellation has sought projects in Latin America. As of making decisions about our real estate investments. We believe December 31 lW6, Constellation had invested about that until the economy shows sustained growth and there is
$17.1 million and committed another 56.5 million in power more demand for new development, our real estate values w ill projects in Latin America. In the future, Constellation's power not improve much. If we were to sell our real estate projects in generation business may be expanding further in both domestic the current market. we would have losses, although the amount and international projects.
of the losses is hard to predict. Management's current real estate strategy is to hold each real estate project until we can realize a Financial insestments reasonable value for it. Management es aluates strategies for all Earnings from Constellation's portfolio of financial investments its businesses, including real estate, on an ongoing basis. We include:
anticipate that competing demands for our financial resources, changes in the utility industry, and the proposed merger with O income from marketable securities, Potomac Electric Power Company, will cause us to evaluate O income from financial limited partnerships, and thoroughly all diversified business strategies on a regular basis so we use capital and other resources in a manner that is most 0 income from Onancial guaranty insurance companies.
beneficial. Depending on market conditions in the future, we in lW6, camings were higher than in lW5 because of better could also have losses on any future sales.
eamings from marketable securities and increased gains from 11 may be helpful for you to understand w hen we are required, by financial hmited partnerships. In IW5, camings w ere higher accotmting rules, to writedown the value of a real estate invest-compared to IW4 due to: increased eamings from marketable inent to market value. A writedown is required in either of two l
securities, increased gains from financial hmited partnerships, and cases. The first is if we change our intent about a project from an higher camings from financial guaranty insurance compames.
intent to hold to an intent to sell and the market value of that i
project is below book value.The second is if the expected cash Heal Estate Deselopment and Senior im,, g I,ac, ities now from the project is less than the investment in the project.
m d,
Constellation's real estate deselopment business includes:
O land under deschipment, BGE Home Products & Services' Operations 13GE ilome Products & Services engages in:
c office buildings, o retail projects, a sales and service of electric and gas apphances, o distribution facility projects, a hmne impmvements, and c an entertainment, dining, and retail complex in Orlando, a sales and sersice of heating and air conditioning systems.
- Florida, in IW6, eamings increased due to improved perfonnance in the C a mixed-use planned-unit deselopment, and service and installation business. In IW5, camings decreased compared to IW4 largely due to lower income from the s;de of 0 senior-living facilities.
mivables during IW5. We sell receivables to a financial institu-tion under agreements w hich are discussed in Note 12 on page 48.
i 27!
Baltimore Gas and flectnc Company and Subsidianes
~ ~ -. - - - - - - -.. -..~
.. -. ~ _.
l r
+
BGE Energy Proleets & Services' Operallons
. O district energy systems through Comfort Link (a partner.
BGE Energy Projects & Services provides a broad range of ship with the Poole and Kent Company), and customized energy services, including:
a private electric and gas distribution systems.
l m power q iality services, This subsidiary was fomied in November 1995, it had no significant camings in 1996 or 1995.
a customer electrical system improvement.s, a lighting and mechanical engineering and installation Constellation Energy Source's Operations
- services, Constellation Energy Source (formerly named BNG,Inc.)
a campus and multi-building energy systems, engages in natural gas brokering. This subsidiary had no a energy consulting and financial contracts, significant eamings in 1996 or 1995.
..__s Liquidity and Capital Resources l
Overview l
Our business requires a great deal of capital. Our actual capital requirements for the years 1994 through 1996, aking with estimated amounts for the years 1997 through 1999, are shown below.
1994 1995 1996 1997 1998 1999 i
Utility Business Capital Requirements:
IIn mitikmn Construction expenditures (excluding AFC)
Electrie
$345
$223
$219
$230
$216
$ 215 Gas 68 70 84 72 70 73 I
Common 42 51 46 33 39 37 Total construction expenditures 455 344 349 335 325 325 AFC 34 22 10 7
7 7
Nuclear fuel (uranium purchases and processing charges) 42 46 47 49 50 50 Deferred energy conservation expenditures 41 46 31 24 19 18 Deferred nuclear expenditures 8
j Retirement of hing-tenn debt and redemption of preference stock 203 279 184 173 117 270 Total utility business capital requirements 783 737 621 588 518 670 Diversified Business Capital Requirements:
Investment requirements Si 118 118 214 180 205 Retirement of long-term debt 37 55 52 108 165 186 Total diversified business capital requirements 88 173 170 322 345 391 j
Total capital requirements
$871
$910
$791
$910
$863
$1.061 i
i Capital Requirements of Our Utility Business Electric constn ction expenditures include:
Capital requirements for our udlity business do not include costs e installation of a 5,(00 kilowatt diesel generator which to complete the pending merger with Potomac Electric Power was placed in service in 1996 at our Calvert Cliffs Nuclear Company. These costs, curren:ly estimated to be $150 milliori, Power Plant, and are discussed in more detail in Note 12 on page 48.
e improvements to other generating plants and to our We continuously review and change our construction program, transmission and distribution facilities.
so actual expenditures may vary from the estimates for the years Our projections of future electric construction expenditures do 1997 through 1999 in the capital requirements chart. Addi-not include costs to build more generating units.
tionally, actual capital requirements may be different than the
}
- estimates for 1997 through 1999 because adjustments which Our utility operations provided about 969 in 1996,100% in j
may result from the pending merger with Potomac Electric 1995, and 72% in 1994, of the cash needed to meet our capital i
Power Company have not been considered in those estimates.
requirements, excluding cash needed to retire debt and redeem preferred and preference stock, in addition, in 1994, the sale of f
some receivables provided $70 million in cash. This is discussed l l28 in more detail in Note 12 on page 48.
I Baltimore Gas and Electric Company and Subsidianes l1
During the three years from 1997 through 1999, we expect Imestment Requirements utility oprations to provide 115% of the cash needed to meet The imestment requirements of our disersined businesses our capital requirements, excluGng cash needed to retire debt include:
and redeem preference stock. This estimate does not consider the pending merger with Potomac Electric Power Company.
a for the Constellation Companies. investments in financial limited partnerships and funding for the development and When we cannot meet utility capital requirements intemally, we acquisition of projects, as well as loans made to pmject sell debt and equity securities. The amount of cash we need and partnerships, and market conditions determine when and how much we sell.
During the three years ended December 31,1996, we sokl:
a for HGE Energy Pmjects & Services, fundmg for i
construction of district energy projects of Comfort Link.
0 $540 million oflong-tenn debt
- Investment requirements for 1997 through 1999 include esti.
c $60 million of preference stock, and mates of funding for existing and new projects and for our new I
3 $39 million of common stock.
power marketing business. We continuously review and modify those estimates. Actual im estment requirements could vary a Security Ratings great deal from the estimates on page 28 because they would be subject to several vanables, meluding:
Independent credit-rating agencies rate our Exed-income securi-ties. The ratings indicate the agencies' assessment of our ability a the type and number of projects selected for development, to pay interest, dividends, and principal on these securities. These a the effect of market conditions on those pmjects, ratings alTect how much it will cost us to sell these securities.The txtter the rating, the cheaper it is for us to sell. At the date of this a opp nunities for growth in the power rmtrketing business, report, our securities ratings were as follows:
a the ability to obtain financing, and Standard Moodys a the availability of cash from operations.
& Poors imestors Duff & Phelps Rating Group Senice Credn Rating Co.
Debt and Liquidity Mortgage Bonds A+
Al AA-Our diversined businesses plan to meet capital requirements by Unsecured Debt A
A2 A+
refinancing debt as it comes due, by additional borrow mg, and Preference Stock A
"a2" A
with cash generated by the busiacsses. This includes cash from operations, sale of assets, and camed tax benefits. BGE ilome Products & Services may also meet capital requirements through Capital Requirements sales of receivables as discussed in Note 12 on page 48, of Our Diversified Businesses ir Constellation can get a reasonable value for its real estate, it In the past, capital requirements of our diversified businesses could obtain additional cash by selling real estate projects. For only included the Consteuation Companies because they had the more information, see the discussion of the real estate business only significant capital requirements. From time to time, how, and market on page 27, Constellation's ability to sell or liquidate ever, our other diversified businesses may develop significant assets will depend on market conditions, and we cannot give capital requirements. As that occurs, we will include the capital assurances that these sales or liquidations could be made.
requirements of those businesses in the capital requirements in addition, Constellation has a $75 million revolving credit table on page 28. As discussed below under " Investment agreement and Comfort Link has a $50 million revolving Requirements " capital requirements for Comfort Link are also credit agreement to pmvide additional cash f or shon-tenn included this year.
financial needs.
Our Constellation Companies and other diversified businesses expect to expand their businesses. This will include our new power marketing business. It also may include expansion in the energy, financial im estments, real estate, and senior-living facility businesses. Such expansion could mean more invest-ments in and acquisition of new projects. Our Constellation Companies and other diversified businesses have met their capital mquirements in the past through borrowing, cash from their operations, and from time to time, loans or equity con-tributions from BGE. Our Constellation Companies and other diversified businesses plan to raise the cash needed to meet capital requirements in the future through these same methods.
29 l l
Baltmore Gas and Hectric Company and Sut)sidianes
Report of Management The management of the Company is responsible for the infonna-internal control pntedures. Coopers & Ly brand L.L.P., indepen-tion and representations in the Comrany's financial statements.
deni accountants, audit the financial statements and express their The Company prepares the financial statements in accordance opinion atuut them. Ihey perform their audit in accordante with with generally accepted accounting principles based upon avail-generally accepted auditing standards.
I able facts and circumstances and management's best estimates and judgments of known conditions.
De Audit {onuninx o w Hoard of Directors, w hich consists of four outside Directors, meets periothcally with Management.
The Company maintains an accounting system and related internal auditors, and Coopers & L) brand L.L.P. to resiew the system of intemal controls designed to provide reasonable activities of each in discharging their responsibihties. The assurance that the Gnancial records are accurate and that the internal audit staff and Coopers & Ly brand L.L.P hase free Company 's assets are protected. The Company's staff of intemal access to the Audit Committee.
auditors, which reports directly to the Chainnan of the Board, conducts periodic resiews to maintain the effectiveness of
/'
/ ~
dk) g Christian 11. Poindexter Charles W. Shivery Chainnan of the Board Chief Financial Officer and Chief Executive Officer l
Report of Independent Accountants lb the Sharehohlers of Baltimore Gas ami Electric Company We have audited the accompanying consohdated bakuice sheets also includes assessing the accounting principles used and and statements of capitalization of flahimore Gas arwl Electric significant estimates made by Management, as well as evalu-Company and Subsidiaries as of Ikccmber 31,1996 aux! 1995, ating the overall financial statement presentation. We belies e arw! the related consohdated statements of income, casb now s, that our audits proviJe a reasonable basis for our opinion.
common shareholders' equity, and income taxes for each of the three years in the period ended December 31,19(X>. %ese finan-I"""' opinion. Ow Onancial statements referred to atxn e present cial statements are the responsibility of the Company's Manace-fairly,.in au rnatnial respects, the consolidated financial position ment. Our responsibility is to express an opinion on these fina'ncial f Bahinmre Gas and Electric Company and Subsidianes as of
~
statements based on ou'r audits.
Ekcember 31,1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years We conducted our audits in accordance with generally accepted in the period ended December 31,1996 in conformity with auditing standards. Those standards require that we plan and generally accepted accounting principles.
perfonn the auda to obtain reasonable assurance atuut whether the financial statements are free of material misstatement. An f
[
audit includes examining, on a test basis, evidence sup[urting i
the amounts and disclosures in the financial statements. An audit f
O(.
, f, Coopers & L brand L.L.P.
3 Baltimore, Mary land January 17,1997 30 Baltimose Gas and Electuc Company and Sutis@ anes
Consolidated Statements of Income Year Duled De< em/wr 31, 1996 1995 1994 4In thouwmb. eu ept per share anwwris1 Resenues illectrie 52,208,744
$2.229,774 S2,126,581 Gas 517,292 4(x),5(M 421,249 Diversified businesses 427,211 3(M,521 235,155 Total revenues 3,153.247 2.934,799 2,782.985 Espenws Other Than Interest and Income Tases Electric fuel and purchased energy 547,414 578.801 542,314 Disallowed replacement energy costs Ne Note 12) 95,369 Gas purchaved for resale 284,443 198,069 224,590 Operations
$26,424 550,811 552,817 Maintenance 174,141 168,269 1(4,892 Diversified businesses - selling, general, and administrative 311,053 220,573 167,430 Depreciation and amortization 330,191 317,417 295,950 Taxes other than income tases 2f 4.747 205.167 199,733 Total expenses other than interest and income taxes 2,483,782 2,239,107 2,147,726 Income from Operations 669,465 695.692 635,259 Other income Allowance for equity funds used during construction 6,508 14,162 21,746 Equity in camings of Safe llarlor Water Power Corporation 4.596 4,559 4.349 Net other income and (deductions)
(4,974)
(9,902) 6.270 Tied other income 6,130 8,819 32,365 Income liefore Interest and Income Tases 675,595 7(M,511 667,624 Interest Expenw Inten st charges 217,622 219,689 214.347 Capitalized interest (15,664)
(15,050)
(12,427)
Allowance for borrowed funds used during construction (3,5206 (7,662)
(l1,766)
Net interest expense 198,43N 1%.977 140,154 Income liefore Income Taus 477,157 507,534 477,470 Income Taus 166,333 169,527 153,853 Net income 310.N24 338,007 323.617 Preferred and Preference Stock Disidends 38.536 40,578 39,922 Earnings Applicable to Common Stock
$ 272,28N
$ 297,429
$ 283,695 Average Shares of Common Stock Outstanding 147,560 147,527 147,100 Earnings Per Share of Common Stock 51.85 52.02 51.93 l
Sti Nutr510 Con.wlidated Finmcial Statements.
j 31 !
Baltimore Gas and Eicctric Company and Sur:sidiaries I
Consolidated Balance Sheets AI De< ember 31.
1996 1995 fin th<wamb b Assets Current Assets Cash and cash equivalents
$ 66,708
$ 23,443 Accounts receivable (net of allowance for uncollectibles of $18,028 and $16.390, respectively) 419,479 400,005 Trading securities 68,794 47,990 Fuel stocks 87,073 59,614 Materials and supplies 147,729 145,900 Prepaid taxes other than income taxes M,763 60,508 Deferred income taxes 2,943 36,831 Other 44,709 31,487 Total current assets 902,198 805,778 Insestments and Other Assets Real estate projects 525,765 479,344 Power generation projects 379,130 358.629 Financial investments 204,443 205,84i Nuclear decommissioning trust fund 116,368 85,811 Net pension asset 84,510 60,077 Safe liarbor Water Power Corporation 34,363 34,327 Senior living facilities 36,415 16,045 Other 92,171 71,894 Total investments and other assets 1.473,165 1,311,968 Utility 11 ant Plant in.sersice Elecuie 6,514,950 6,360,624 Gas 776,973 692.693 Common 523,485 522,450 Total plant in service 7,815,408 7.575,767 Accumulated depreciation 12,613,355)
(2.481,801)
Net plant in service 5.202,053 5,093,966 Construction work in progress 221,857 247,2 %
Nuclear fuel (net of amonization) 132,937 130,782 Plant held for future use 25,503 25.552 Net utdity plant 5,582,350 5.497,5 %
Deferred Charges Regulatory assets (net) 512,279 637,915 Other 80,978 63.406 Total deferred charges 593,257 701,321 Total Assets 58.550,970 58,316M3 See Notes to Conwlidated Fuwwial Statenwnts.
- 32 i
i l
i Ba;timore Gas and Electric Company and Suescaries i
. Consolidated Balance Sheets i
At Derender 3/,
1996 1995
" " ~ "
- l. labilities and Capitalization Current I.iabilities Short-term borrowings 5 333,1N5
$ 279,305 Current portions of long-term debt and preference stock 280,772 146,969 Accounts payable 172,889 177,092 Customer deposits 27,993 26,857 Accrued taxes 6,473 8,244 Acen ued interest 57,440 56,670 l
Dividends declared 66,950 67,198 Accrued vacation costs
.M,351 33,403 l
Other 37,046 39,417 5
Total current liabilities 1,017.099 835,155 4
4 1
Deferred Credits and Other 1.iabilities j
Deferred income taxes 13HI,174 1,311.530 lhtetirement and postemployment benefits 169,253 148,594 1
Decommissioning of federal uranium emichment facilities 38,599 43,695 Other 65,463 55,568 j
Total deferred credits and other liabilities I,573,4X9 1.559,3X7 i
Capitalization i
Long-term debt 2,75X,769 2,598.254 l
Preferred stock 59,185 Redeemable preference stock 134,500 242,(xx) l' reference stock not subject to mandatory redemption 210, TMH) 210.(XX)
Common shareholders' equity 2,857,113 2.812,682 l
Total capitalization 5,961 0 82 5,922,121 1
l a
i Commitments, Guarantees, and Contingencies - See Note 12 i
i Total I.iabilities and Capitalization 58,530,970 58.316.663 i
See Notes to GnuoMased Fuumcial Statements.
l l
l 33 i l
l 4
Baltimcte Gas and Eletitit Ccmpany and Subsidiaries l
Consolidated Statements of Cash Flows Ynu Louled Det emher 31, t996 l995 1994 tin thouwruh)
Cash Flows From Operating Actisities Net income
$310,824
$338,(K)7
$323,617 Adjustments to reconcile to net cash provided by operating activities Ikpreciation and amortization 383,155 378,977 351,064 Deferred income taxes 26,009 103A94 79,278 Investment tax credit adjustments (7,655)
(8,088)
(8.192)
Deferred fuel costs 528 5,565 11,461 Deferred energy conservation revenues 28,509 1,283 18,769 Disallowed replacement energy costs 95,369 Accrued pension and postemployment benefits t 13,792)
(7,64 l }
(41,113)
Allowance for equity funds used during construction (6,508)
(14,162)
(21,746)
Equity in camings of affiliates and joint ventures (nen (48,305)
(21,259)
(20,225)
Changes in current assets other than sale of accounts receivable (88,035)
(107,392)
(10,536)
Changes in current liabilities, other than short-term borTowings (4,905)
(7,293)
(24,447)
Other 26,762 6,661 (5,699)
Net cash provided by operating activities 701,947 668,152 652,231 Cash Flows From I inancing Actisities Proceeds f rom issuance of Short-term inrrowings tnet) 53.880 215/>05 63,700 long-temi deb 8 383,182 184,422 207,169 hrference stock 59,329 Common stock 3,729 318 33.h69 Proceeds from sale of receivables 10,1NN) 2,(KK) 70,(N K)
Reacquisition of long-tenu debt (158,5511 (315.105)
(240,853)
Reacquisition of preferred and preference stock (112,559)
(73,0(M))
(4,406)
Common stock dividen is paid (233,109)
(227,192)
(220,152)
Prefened and preference stock dividends paid (37,350)
(40,087)
(39,950)
Other (l.172) l3 (437)
Net cash used in financing activities 191,650)
(193,697)
(131,060)
Cash Flows From Insesting Artisities Utility construction expenditures (including AFC)
(360,485)
(366,037)
(488,976)
Allowance for equity funds used during construction 6,508 14.162 21,746 j
Nuclear fuel experkhtures (46.761)
(46,330)
(42,089)
Defened nuclear expenditures (8,393)
Deferred enerFy conservation expenditures (31,383)
(45,503)
(40,440)
Contributions to nuclear decommissioning trust fund (25,483)
(9.780)
(9,780) j Purchases of marketable equity securities (32,664)
(l8,447)
(52,099)
Sales of marketable equity securities 39,657 49,788 40,585 Other financial investments 7,068 9,423 2,469 Real estate pmjects (55,344)
(15,599) 14,926 Power generation systems (5,332)
(34,408)
(l,11 6) 1 Other 162,813)
(26.871) 13.650)
Net cash used in investing activities (567,032)
(489.602)
(566,817) l Net increase iDecrease) in Cash and Cash Equisalents 43,265 (15.147)
(45/46)
Cash and Cash Equisalents at lleginning of Year 23,443 38,590 84.236 Cash and Cash Equhalents at End of Year 9 66,708
$ 23.443
$ 38.590 Other Cash flow Information Cash paid during the year for:
Interest (net of amounts capitalized)
$182,431
$195,308
$184,441 Income taxes
$160,132 5 99,623
$ 83,143 i
- 34 See Notes to Cummlulated Fuumcial Statements, Certant priar-year 1munmts lutw ineen reclawfed to amform with the nortera year's prescruution.
I i
I altimore Gas and Elecint Ccmpany and Sutsidianes
- IConsolidated Statements
- of Common Shareholders' Equity Unrealized Gain (Ioss) on Available Pension Common Stock Retained For Sale Liabihty Totid j
l' ars Eruled December 31. /996, /995. uiul /9%I Shares Amount Eamings Securities Adjustment Amount e
l tin thousamh) llalance at December 31.1993 146,034 51,391,464 51.251,140 5 -
5(22.093) 52,620.51i Net income 323,617 323,617
' Dividends declared Preferred and pirference stock (39,922)
(39,922)
)
Common stock (51.51 per share)
(222,180)
(222,180) l
' Common stock issued 1,493 33,869 33,869 i Other 45 45 J Net unrealized loss on securities (5.609)
(5,609)
Ikfermd taxes on net unrealized loss on securities 1,%3 1,963 I Pension liabihty adjusunent E.573 M,573 j Ikferred taxes on pension liabihty adjustment (3.00] )
(3,(X)l) l Italance at December 31,1994 147,527 1,425,37K 1,312.655 (3.646)
(16.52I) 2,717.866 f
Net income 338.007 338,007 Disidends declared 4
liefernd and preference stock (40,578)
(40,578) a Common stock (51,55 per share)
(228.667)
(228,667) 4
! Common stock issued 31H 318 l Other 109 109 Net unrealized gain on securities 14,010 14.010 Ikferred tcmes on net unrealized pain on securitits (4,904)
(4,904) l Pension liabihty adjustment 25,417 25,417 j Deferred taxes on pension habihty adjustment (8,896)
(8.896)
' Italance at December 31,1995 147,527 1,425,805 1,381,417 5,460 2,812.682 Net income 310,824 310,H24 Dividends declared Preferred and preference stock (38,536)
(38,536)
Common stock (51.59 per share)
(234,640)
(234/>40)
Common stock issued 140 3,729 3,729 Other 408 40N Net unrealized pain on securities 4,071 4,071 Deferred tases on net unrealized gain on securities tI,425)
(1,425) llalance at December 31,1996
_147,667 51,429.942 51,419.065 58,106 5-52,857.113 See Notes to Cornohdated Iinam ial Statements 35; 1
]
Editimore Gas and Eletiric Company and subsidia!ies
Consolidated Statements of Capitalization At December 31, t996 1995 IIn thouumdo t xmg-Term Debt First Refunding Mortgage Ilonds of IlGE
$XG Series,due April 15,1996 5 26,187 6X'?r Series, due August 1,1997 24,935 24,935 Iloating rate series, due April 15,1999 125,(MN) 125,(KX) 8.4ffs Series, due October 15,1999 91.137 91,2(K) 5MG Series, due July 15,2(XX) 124,990 125,(XX)
HX% Series,due August 15,2(X11 122,377 122,427 7XG Series,due January 1,2(X)2 22,737 39,698 7XG. Series, due July 1,2(X)2 124,484 124,609 SMG Installment Series, due July 15,2(X)2 10,440 11,045 6MG Series.due February 15,2tK)3 124,822 124,882 6X4 Series,due July 1,2(W)3 124,855 124,925
$MW Series,due Apnl 15,2(KM 124,995 124,995 Remarketed Hoating rate series, due September 1,2(Kl6 125,(NH) 7M9 Series,due January 15,2007 123,652 123.667 6%% Series,due h1 arch 15,2tX)8 124,960 124,985 7MG Series,due March I,2023 124,973 124,973 7M% Senes, due April 15,2023 100AN)0 100,(x x)
Total First Refundmg Mongage Ilonds of !!GE 1,619,357 1,538.528 Other long-term debt of IIGE Term bank loan due March 29,2(XII 50JNN) 50,(XX)
Medium-tenn notes, Series A 10,5(K)
Medium-term notes, Series Il 100JNN) 1(K)JKM)
Medium-tenn nates, Series C 183JNN) 2(K),(KX)
Medium-term notes, Series D 138,000 28,0(K)
Pollution control kun, due July 1,2011 36JNNI 36,(KK)
Pon facihties kian, due June 1,2013 48JNNI 48,0(K)
Ad)ustable rate fullution control loan. due July 1,2014 20,(NH) 20,(XX) 5.559 Pollution control revenue refunding loan, due July 15,2014 47,(NK) 47JKX)
Economie development loan, due December 1,2018 35JNN) 35JKX) 6.(KV4 Pollution control revenue refunding hun, due April 1,2024 75)M)0 753MK)
Total other long-tenu debt of IlGE 732fMN) 649,500 Long-tenn debt of Constellation Companies Resolving credit agreement Vanable rates based on LillOR, due December 9,1999 65 ANN) 1JxK)
Mongage and construction loans and other collateralized notes rLOOG, due July 31,2001 141 8.(XF4, due October 30,2003 1,500 Variable rates, due through 2(KN 128,571 110.018 7,504, due October 9,2(K)5 9,846 9,989 7.357%,due March 15,2009 5,763 5,896 9.65%,due February 1,2028 9,746 Unsecured notes 387,160 420fXX)
Total long-tenn debt of Constellation Companies 607,727 546,903 Long-term debt of other diversified businesses I
leans under res oh ing credit agreements 12JWW)
Unamortized discount and premium (14,5431 (15,708)
Current portion of long-tenn debt (197,7721 (120,969)
Total long-term debt
$2.758,769 52,598,254 wntomwd <m page M
'36 See holes to Cruovhdated i inancwl Statements.
Bammcre Gas at:d Electric CcMary and Sut scanes
l Consolidated Statements of Capitalization l
! At December 3/,
1996 I995 (In tiummhi
! Preferred Stock Cumulative, $1(K) par value,1JKK),(KK) shares authorized Series ll,4K9,222,921 shares redeemed at $110 per share on May 28,1996
$ 22,292 Series C,4%,68,928 shares redeemed at $105 per share on May 28,1996 6,893 Series D,5.409,300JKK) shares redeemed at $101 per share on May 28,1996 303KK)
Total preferred stock 59.185 Prefet once Stock Cumulative, $ l(K) par value,6,5004KK) shares authorized Redeemable preference stock 7.50%,1986 Series 395JK K) and 425JK K) shares outstanding. Callable at $102.50 per share prior to October 1,2(K)1 and at lesser amounts thereafter 39,500 42,5(K) 6.75%,1987 Series,440JKK) and 455JKK) shares outstanding. Callable at
$104.50 per share prior to April 1,1997 and at lesser amounts thereafter 44JMM) 45,500 7.80%,1989 Series,500jKK) shares outstanding 50J100 50JKK) 8.25%,1989 Series,100lMK) and 3(K)JK K) shares outstanding 10JHio 30,(KK) 8.6254,1990 Series. 390/KK) and 650JKK) shares outstanding 39JMH) 65JKK) 7,85 9, 1991 Series. 350fKK) shares outstanding 35JKN) 35JKK)
Current ponion of redeemable pieference stock i83JNNb (26.(KK))
Total redeemable preference stock 134,500 242,(KK)
Preference stock not subject to mandatory redemption 7.789,1973 Series 20()JKK) shares outstanding, callable at 5101 per share 20JMMI 20jKK) 7.1259,1993 Series,400f KK) shares outstanding, not callable prior to July 1,2(K)3 40JHM) 40jkK) 6.97G,1993 Series,500JK K) shares outstanding, not callable prior to October 1,2(K)3 50JHNI 50jkK) 6,709,1993 Series 4(K),(KK) shares outstanding, not callable prior to January 1,2004 40JWM) 40JKK) 6.994,1995 Series,6(K)JKK) shares outstanding, not callable prior to October 1,2(K15 MijWW) 60JKK)
Total preference stock not subject to mandatory redemption 210JMK) 210JKK)
Common Shareholders' Equity Common stock uithout par value,175JKKijKK) shares authorized, 147,667,114 and 147,527,114 shares issued and outstanding at December 31,19% and 1995, respectively. ( At December 31,1996,166,893 shares were reserved for the Employee Savings Plan and 3,277,656 shares were reserwd for the Dividend Reinvestment and Stock Purchase Plan.)
1,429,942 1,425.805 Retained earnings 1,419,065 1,381,417 Unrealized gain (h>ss) on available-for-sale securities 8,106 5,460 Total common shareholders' equity 2,857,113 2.812.682 Total Capitalization
%5.9MI.3N2 55,922,121 See Notes to Conwhdated Financial Statements.
l 37 l j
l i
I I
l l
i e
Balbmore Gas and Electric Company and Sutsicianer, l
1
Consolidated Statements of Income Taxes Year l'n, led Det enther 3),
i996 l995 1994 rDollar umanmis m tiuunaruir) income Taxes Current
$147,979 5 74.121 5 82,767 Deferred Change in tax effect of temporary differences 22,516 118,3(K) 88,896 Change in income taxes recoverable through future rates 4,918
( ),(KV9 (8380)
Ikferred taxes credited (charged) to shareholders' equity (1,425)
( 13.8(W h (l.038)
Ikferred taxes charged to expense 26,(N)9 103,494 79,278 Imestment tax credit adjustments (7,655 (8,0x8)
(8.192)
Income taxes per Consolidated Statements of Income 5166,333 5169.527 5153.853 Reconciliation of income Taxes Computed at Statutory I'ederal Rate to Total Income Taxes income before income taxes
$477,157 5507,534 5477,470 Statutory federal income tax rate 354 359 3_5G income taxes computed at statutory federal rate 167,005 177,637 167,115 increases (decreases) in income taxes due to Ikpreciation differences not nonnali/ed on regulated actn ities 12,669 10,953 9,791 Allowance for equity funds used during construction (2,278)
(4,957)
(7,6I I )
Amortization of delerred im estment tax credits (7,655)
( 8,0X8 )
(8,lM)
Tax credits flowed through to income (520)
(521)
(1,754)
Amortization of deferred tax rate differential on regulated aetisities a1,958)
(2,013)
(l 885)
Other (930)
(3,484) i3,639) lbtal income taxes
_$166,333 5169,527 5153h53 Effectise federal income tax rate 34.9 %
33.49 32.29 At December 31.
t996 I995 Deferred Ineame Taxes tDo/ tar am.umn m ihousaruto ikferred tax liabilities Accelerated depreciation
$ 920,631 5 878.470 Allow ance for funds uwd during construction 209,183 210.928 Income taxes recoserable through future rates 92,%4 94.305 Ikferred termination and postemployment costs 45,624 49,591 Ikferred fuel costs 7,957 39,559 In eraged leases 27,581 29,842 Percentage repair allow ance 38,354 38,295 Energy conservation expenditures 26,622 28,121 Other 175,587 151,231 Total deferred tax habilities 1,544,123 1,520,342 Ikferred tax assets Alternatis e minimum in 32.626 Accrued pension and postemployment benefit costs 40,570 31,707 Ikferred investment tax credits 46,889 49,512 Capitalized interest and m erhead 42,509 39,439 Contnbutions in aid of construction 35,710 34,4(t4 Nuclear decommissioning liability 18,750 16,708 Other 62,464 41,247 Total deferred tax assets 246,892 245.M3 Ikferred tax liability, net
%I,297,231 51,274.699 E
See Notes to Comond,ned I mame tal.5tatemenn.
Balturote Gas and Electric Comany and Satsidianet
Notes to Consolidated Financial Statements j Note 1. Significant Accounting Policies Nature of the Business
$57.6 million, or 39 cents per share. In addition, the Maryland llahimore Gas and Electric Company (BGE) and Subsidiaries Commission issued a rate order in May 1996 disallowing certain (collectively, the Company) is primarily an electric ind gas utility full costs which were previously deferred by llGE. Accordingly, serving a territory which encompasses llahimore City and all or BGE wrote-off the defened fuel costs in 1996. The write-otT of part of ten Central Maryland counties. The Company is also these costs reduced after-tax camings by $4.5 million, or 3 cents
- engaged in diversified businesses as described funher in Note 3.
per share.
Principles of Consolidation Prior to October 1996, the cost of gas sold was recosered through The consohdated linancial statements include the accounts of gas adjustment clauses subject to appros al by the Maryland l BGE arxl all subsidiaries in which BGE owns directly or indr Commission. Under these clauses, the difference between actual i
rectly a majority of the voting stock. Intemornpany balances arn!
fuel costs and fuel revenues is deferred on the balance sheet and i
transactions are eliminated in consolidation. Under this policy, the recovered from or refunded to customers in future periods.
J accounts of Constellation iloidmgs, Inc. (Cill) and Subsidiaries Effective October 1996, the Maryland Commission approved a (collectively, the Constellation Companies), BGE Ilome Products nuhfication of these clauses to pnn ide a Market Based Rates l & Services, Inc. and Subsidiary (collectively, llP&S),11GE (MBR) incentive mechanism. Under the MBR mechanism, Energy Projects & Sen ices, Inc. and Subsidiaries (collectively, differences between a market index and IIGEi actual cost of gas EP&S), and Constellation Energy Source. Inc. t fonnerly named are shared equally between BGE's custt mers and shareholders.
l BNG, Inc.) are consolidated in the financial statements, and Saf e liarbor Water Power Corporation is repined under the equitv M M """ F "#"'
)
! method. Corp > rate joint ventures, partnerships, and aHiliatej Beginning in 1996, BGE, engages in comnmuy hedging actisities m miniinize the nsk cf market nuctuatitns associated with the comptnies (which include power generation projectsj in which a i 20% to 509 voting interest is held are accounted for under the pnce of gas under the MilR mechanism.De objective of hedging equity method, unless control is evident, in which case the entity is to rnanage llGE's pnce risk under the MBR mechanism. Under I
is consolidated. Investments in w hich less than a 204 voting intennd puMehnes, speculathe pidtknis are prohibited.
l interest is held are accounted for under the cost medust, unless llGE enters into basis swap agreements w hich help minimize i
signiticant influence is exercised mer the entity, in u hich case the commodity price risk by fixing the basis or differential that l investment is accounted for under the equity metho 1.
exists between a delisery location index and the commothly Regulation of Utility Operations fute nrices. Net amounts receivable or payable under the llGE's utihty operations are subject to regulation by the Marv.
m gw are deferred and recognized as a comp >nent of gas costs i
land Public Service Commission (Maryland ConunissionL Nie
&n sahied. At December 31.1996, there were unsettled
)
l I accounting policies and practices used in the detennination of mp agreements repmwnting a notional quantity of 12.3 milh,on l senice rates are also generally used for financial reporting pur-decathenns el natural gas purchases through March 1997.
j poses in accordance with generally accepted accounting principles Income Taxes for regulated industries. See Note 5.
De deferral tax liabihty represents the tax etTect of temprary ddTen nees between the firuncial-statemeru arxl tax bases of assets Utility Rerrnues BGE recognizes utihty resenues as service is rerxlered to etistomers.
W Mhh h h ned Wng pndy mW m ma Re pirtion of BGEi deferral tax liabihty appheable to utility operations l Fueland PurchawlEnergy Costs which has not been reflected in current senice rates represents
! The cost of fuel used in generating electricity, net of revenues from income taxes nuwemble thn> ugh future rates. That portion has been
! interchange sales, is recovered through a icn> based electric fuel recorded as a regulatory asset on the Consolid ned Balance Sheets.
rate subject to approval by the Maryland Commission. The differ.
Defenni income tax expense represents the net change in the ence between actual fuel costs and fuel revenues is deferred on the defennl tax liability aral regulatory asset during the year, exclusive Consolidated Balance Sheets to be recovered from or refunded to of amounts charged or cinhted to comnon sharehokiers' equity.
I customers in future periods. The electric fuel rate formula is based I upon the latest twenty-four-rtionth generatioriinix tuid the latest O*"I
- N" "O # d NEM
- b"Pb"*
Y i three-month average inel cost for each generating unit. The fuel tax credits. In certain prior years, tax expense included an aher-nathe mininuun tax ( AMT) that can be carried forward m-mie does not change unless the calculated rate is more flun 5G I above or below the rate then in effect.
dehnnely as tax cmdits to future years in which the regular tax f
liabihty exceeds the AMT liability. Current income tax for the During 1989 through 1991 BGE experienced extended outages years ended December 31,1996 and 1995 reflect full utilization at its Calvert Cliffs Nuclear Pow er Plant. The replacement of AMT anhts carried forward of $30 nullion and $40 million, energy costs associated w ith these outages are estimated to be respectively. he defenn! income taxes provided in earlier years on 5458 million.The extended outages have been the subject of the AMT liabibty were resened as the credits were utilized.
oncoing fuel rate proceedings before the Maryland Commission for'several years (see Note 12).
The investment tax credit (lTC) associated with BGE's regulated
~
unhty operations has been defened on the Consolilated Bahmce in December 1996. BGE entered into a settlement agreement Sheets (see Note 5) and is amortired to income ratably over the
- with the Maryland Peopie's Counsel and the Maryland Com-lises of the subject propeny. ITC and other tax credits associated l mission Staff proposing that customers will not fund a total of with nonregulated diversified businesses other than leveraged M,
j S t !H million of electrie replacement energy costs associated leases are flowed through to income.
l with these extended outages. BGE recorded a reserve for I
535 million of these costs in 1990 In 1996. BGE increased the BE utihty menue i.nnu pem sales k subj.ect to the Mary-reserve by SM3 million and wrote off 55.6 million of accrued I nd public service company franchise tagin lieu of a state inanne tat he imnchise tax is included m taxes other than
. carn ing charges related to the deferred fuel balances. These
~
income taxes in the Consohdated Statements of Income.
increases in the resene reduced in96 after-tax camings by l
l l
l Bal.timore Gas and Electric Company and Subsidiants
.. - - -. -. ~. _. - ~. - - - _ ~ _ - - -.
Inrentory Valuation 7 cents per share. As a result of the Maryland Commission's Fuel stocks and materials and supplies are generally stated at August 1995 Order requiring all new generation capacity needs average cost.
to be competitively bid and BGE's September 1995 announce-ment that it uill nerpe with Potomac Electric Power Company, impairment ofl>>ng-Lired Assets BGE determined that it will not build the second combustion Long-lived assets subject to the requirements of Statement of turbine for the first combined cycle unit. Therefore, during the Financial Accounting Standards No.121. Acc<mnringfir the third quarter of 1995. BGE wrote otT the remaining construction
/mpairment aflong-Lired A ucts andfir Lonelived Ancn to work in progress costs associated with the first combined cycle Be Disposed Of, an esaluated for impairment through a review unit. This w rite-otT reduced after-tax carnings during 1995 by of undiscounted expected future cash flows. If the sum of the
$9.7 million, or 7 cents per share.1he construction of the first undiscounted expected future cash flows is less than the carrying 140-megawatt combustion turbine at Perryman was completed, amount of the mset, an impaimient loss is recognized.
and the unit was placed in service, during Aw 1995.
RealEstate Projects BGE owns an uixiivided interest m tir K:ystone and Conemaugn Real estate projects consist of the Constellation Companies' electric generating plants located in westem Pennsylvania, as well investments in rental and operating propemes and propemes as in the transmission line w hich transports the plants' output to the under development. Rental and operatmg pmpemes are held for joint owners'senice territories. BGE's ownership interest in these investment. Properties under development are held for future plants is 20.99% and 10.569, respectively, and represents a net development and subsequent sale. Costs incurred in the acquisi' investment of $153 million and $150 milhon as of December 31, tion and active development of such propedies are capitahied.
1996 and 1995, respectively. Financing and accounting for these Rental and operating propenies and properties under develop-propenies are the same as for wholly owned utdity plant.
ment are stated at cost unless the amount invested exceeds the amounts expected to be recovered through operations and sales.
Nuclear fuel expenditures are amortized as a component of in these cases, the projects are w ritten down to the amount esti.
actual fuel costs based on the energy produced m er the hfe of mated to be recoverable, the fuel. Fees for the future disposal of spent nuclear fuel are paid quanerly to the Department of Energy and are accrued Inrestments and Other Assets based on the kilowatt-hours of electricity sold. Nuclear fuel Investments m debt and equity securities subj.ect to the requ. ire-expenses are subject to recovery through the electric fuel rate.
ments of Statement of Financial Accounting Standards No. I15, Accounting for Certain Investments in Debt and Equity Securities.
Nuclear decommissioning costs are accrued by and mcovered are reported at fair salue. Certain of Constellation Companies' through a sinking fund methodology. In a 1995 order, the marketable equity securities and financial partnerships are classi-Mary land Commission authorized BGE to record decommis.
fied as trading securities. Unreabied pains and kisses on these sioning expense based on a facility-specific cost estimate in order secunties are included in disersified businesses resenues. The to accumulate a decommissioning reserve of $52I million in 1993 investments comprising the nuclear decommissioning trust fund dollars by the end of Calvert Cliffs' service life in 2016, adjusted and certain marketable equity securities of Clll are classified as to tellect expected inflation, to decommission the radioactive available-for-sale. Unrealized pains and losses on these secunties, portion of the plant. The total decommissioning reserve of as well as Cl11% ponion of unrealized gains and losses on securi-
$163.8 million and $1E7 million at December 31,1996 and ties of equity-method investees, are reconied in shareholders' 1995, respectively, is included in accumulated depreciation in the equity. The Company utilizes specific identification to detennine Consohdated Balance Sheets.
the cost of these securities in computing realized gains or losses.
In acconiance with Nuclear Regulatory Comm.issmn (NRC)
Utility Plant, Deprecirnion and Amorti:ation, and regulations, BGE has established an external decommissioning Decommissioning trust to which a portion of accrued decommissioning costs have Otility plant is stated at original cost, w hich includes material, been contributed. The NRC requires utilities to provide financial labor, and, where applicable, construction overhead costs and an assurance that they will accumulate sufficient funds to pay for allowance for funds used dunny construction. A(khtions to utility the cost of nuclear decommissioning based upon either a generic plant and replacements of units of property are capitalized to utility NRC formula or a facility-specific decommissioning cost esti-plant accounts. Utility plant mtired or otherwise disposed of is mate. BGE is using the facility-specific cost estimate for funding charged to accumulated depreciation. Maintenance and repairs of these costs and providing the requisite financial assurance.
property and replacements of items of propeny detennined to be less than a unit of propeny are charged to mainterumce expense.
Mwancefod,unds Used During Construction and Capitali:ed Interest i
Depreciation is Fenerally computed using composite straight.
The allowance for funds used during construction ( AFC) is an line rates applied to the average imestment in classes of depre-accounting procedure which capitalizes the cost of funds used to ciable propeny. Vehicles are depreciated based on their esti-finance utility construction projects as part of utility plant on the mated useful hves. As a result of the Maryland Commission's Consolidated Bahmce Sheets, crediting the cost as a noncash November 1995 gas rate Order BGE revised its gas utihty plant item on the Consolidated Statements of Income. The cost of depreciation rates to reDeet the results of a detailed depreciation borrowed and equity funds is segregated between interest study.1he resised rates resulted in an increase in depreciation egense and other income, respectively. BGE recovers the capi-l accruals of approximately $2.4 million annually, talized AFC and a return thereon af ter the related utihty plant is i
placed in sersice and included in depreciable assets and rate base.
Depreciation expense for 1995 and 1994 includes the write-off of certain costs at BGE's Perryman site. Initially, BGE had planned Prior to November 20,1995, the Company accrued AFC at a u IW con n cycle Fenesng un6 at 6 Penyman &
preaas ram oNW. hse Novenk 20, W, a rum dr 40 with each unit consisting of two combustion turbines. Iloweser, of the Maryland Commission reduced the pre-tax gas-plant and due to significant changes in the environment in which utdities common-plant AFC rates to 9.049 and 9.36%, respectively.
I operate, BGE decided in 1994 not to construct the second AFC is compounded annually.
combined cycle generating unit and wrote off the construction work in progress costs associated with that unit.This write-off
.The Constellation Companies capitallie interest on qualifying I
reduced after-tax camings during 1994 by $11.0 million or real estate and power generanon development projects.
i f
b 8 3lIlm C f t' Gas ar d tit!c tric Compar,y aatt Subsidiaries
,i-
_.-m l
a i long-Term Debt amounts of revenues and expenses during the reporting pericd.
t Th discuunt or premium and expense ofissuance associated with These estimates involve judgments with respect to, among other long-term debt are deferred and amortized over the original lives of things, various future economic factors which are difTicult to the respctive debt issues. Gains and k>sses on the reacquisition of predict and are beyond the control of the Company. Therefore, deic are amortim! over the rrmainmg origitud lives of the issuances.
actual amounts could differ from these estimates.
Cash Flows Anvunting Standards issued For the purpose of reporting cash flows, highly liquid invest-The Financial Accounting Standards Ikiard has issued Statement ments purchased with a maturity of three months or less se of Financial Accounting Standards No.125, regarding accounting
- considered to be cash equivalents.
for transfers and sen icing of financial assets and extinguishments of liabilities, etrective January 1,1997. The American Institute of Use ofAnnunting E. timata Certified Public Accountants has issued Statement of Position s
The preparation of financial statements in conformity with gener-No. 96-1, regarding accounting for environmental remediation ally accepted accounting principles n: quires management to make liabibies cuective January 1,1997. Adoption of these statements estimates and assumptions that allect the reported amounts of is not expected to have a material impact on the Company's 4 assets and liabilities and disclosure of contingent assets and financial statements.
liabilities at the date of the financial statements and the reported Note 2 Segment Information Construction Identifiable 4
}
Nonaffiliated Affiliated Total Income from Depreciation /
Expendnures Assets at j
Reserwes Revenues Revenues Operations Amortization Oncluding AFC) December 31 l
(In thousunds) y Electric
$2,20N,744
$ 283
$2,209,027
$497,986
$279,345
$262,542
$6,226,291 Gas 517,292 517.292 68,848 37,790 97,943 N10,084 Diversified businesses 427,211 6,7H2 433,993 102,631 13,056 1,400,553 i
Other identifiable assets 114,042 Intercompany eliminations (7,065)
(7,065)
Total
$3,153.247
$3.153,247
$669.465
$330.191
$360.485
$8,550,970 1995 Electric
$2.229,774
$1,337
$2.231,111
$574.299
$276.285
$288.509
$6,195,722 Gas 400,502 400,5N 48,104 29,637 77,528 748,462 Diversified businesses 304,521 6,609 311,130 73,289 11,495 1,266,040 Other identifiable assets 106.430 Intercompany eliminauons (7.946)
(7,W6)
Total
$2.934.799
$2.934.799
$695.692
$317.417
$366.037 58.316.663 1994 Electric
$2,126,581
$ 840
$2,127,421
$539,739
$252,273
$412,885
$5,981,634
)
Gas 421,249 421,249 27,801 32,478 76,091 726,759 Diversified businesses 235,155 8.245 243,400 67,719 11,199 1,200.551 Other identifiable assets 128,558 Intercompany eliminations (9.085)
(9,085)
Total
$2.782.985 5-
$2.782.985
$635.259
$295.950
$488.976
$8.037.502 Note 3 SubsidiaryInformation Diversified businesses consist of the operations of the Constel-include: power quality senices, customer electrical system lation Companies, llP&S, EP&S, and Constellation Energy imposements, lighting and mechanical engineering and installa-Source, Inc. (formerly named 11NG, Inc.).
tion services, campus and multi-building energy systems, energy consulting and financial contracts, district energy systems The Constellation Compam.es melude Constellation 11oldm.gs, emugh Comfon Link (a partnership with the Poole and Kent Inc., a wholly owned subsidiary which holds all of the stock of Company), and, beginning in late 1996, private electric and as F
three other subsidiaries, Constellation Power, Inc. (fonner!y distabution systems named Constellation Energy, Inc.), Constellatan Invev nents, a
Inc., and Constellation Real Estate Group, Inc. Tir.,e companies Constellation Energy Source, Inc. (formerly naned BNG, Inc.) is a are engaged in development, ownership, and operation of power wholly owned subsidiary which engages in natum) gas brokering.
Feneration projects; financial investments: and development, BGE,s m. vestment in Safe liarbor Water Power Corporation, a ownership, and management of real estate and senior-living pmducer of hydroelectric power, represents two-thirds of Safe facilities, respectively.
I liarbor's total capital stock, including one-half of the voting IIP &S is a wholly owned sub Gdiary which engsges predominantly stock, and a two-thirds interest in its retained earnings.
41 l in the sales and service of dectric and gas appliances, home I l The foHowing is condensed financial information for the Con-I improvements, and sdes and senice of heating and air condi-stell tion Compames. The condensed financial infonnation does tioning systems, pimarily in Centrst Maryland.
not reflect the climirntion of intercompany balances or trans-1 EP&S is a wholly owned subsidiary which provides a broad actions which are eliminated in the Company's consolidated range d customized energy senices. These energy services financial statements.
i -
t l
- Botimore Gas and Electric Company and Sutmdiaries
.- ~
i The 1W6 operating results n nect a $14.6 million after-tax gain on proposed coal-fired puwer pniect that will ruit he built, and a $6.2.
the sale by a Constellation piutrrrship of a power purchase agree-million after-tax writooff of a pation of an imestnrnt in a wlar ment with Jersey Central Power & Light Company back to that power pniect in which the Constellation Companies have a utility.1his gain was offset by a $7.0:nillion after-tax write-otTof minority ownership interest and which is e pected to be n stmetured the investment in two geothermal wholesale power generating with the lender.
pniects, a $3.0 million after-tr. write-off of devekipment costs of a 1996 1995 I994 income Statements' tin slumsam/s. etrept twr. share anv.anin Revenues Real est:.te pniects
$ N0,793
$ 108,414
$ 106,915 Power generation systems 93,134 57.734 41,301 Financial investments 38,916 25,201 12.126 Total resenues 212.843 191,349 160,342 Ihpenses other than interest and income taxes 113.247 l 14.479 107.267 income from operations 99,5 %
76,870 53,075 Minority interest (355)
(2.348)
Interest expense (44,991)
(46.673)
(45,782)
Capitalized interest 14.M5 13,582 10.776 Income tax benefit (expense)
(26.578)
(14355)
(4,305)
Net income 5 42,317
$ 27.076 5 13.7M Contribution to the Company's earnings per share of common stock 5
.29 s
Jx D9 i
llalance Sheets Current assets
$ 115,689
$ 98,526
$ 92,814 Noncurrent assets 1,1N9,726 1.102.528 1.055.056 Total assets 51.305.415
$ 1,201.054 51.147,870 l
Current liabilities Y 134,025
$ 70.393
$ 70,670 Noncurrent liabilities 775,237 778,505 758.626 Shareholder's equity 396.153 352.156 318.574 Total liabilities and shareholder's equity
$1.305.415 51.201.054
$1.147.870 l
1 Note 4. Real Estate Projects and Financial Investments RealEstate Pmjects Available-For-Sale Investments Real estate pniects consist of the following investments held by The Constellation Companies' marketable equity securities stumm the Constellation Companies:
above and BGE's investments comprising the nuclear decommis-Ai /Arcm/wr 31, 1996 1995 sioning trust fund are classified as available-for sale.'Ihe fair values.
r/n r/umsam/o gross unrealized gains and kisses, and amortized cost bases for Properties under development
$286,200
$270,678 avtWablofele securities, exclusive of $1.9 million of unrealized Rental and operating properties net gains on securities of equity-method im estees, are as follows:
inct of accumulated depreciation) 237,725 207/>66 Amoniicd Unrealized Unrealized Fair Other real estate ventures 1,M40 1.(Klo Ar threm/wr 31. Iw6 Cost Basis Gains b>sses value Total real estate pniects
$525.765 s479.344 (In slumwato Marketable equity
$ 39,363
$6,91N
$ (50) $ 46.231 FinancialInvestments
'CCUritics Financial investments consist of the following investments held U.S. Fovernment by the Constellation Companies:
agency 1M,167 263 IN,430 State municipal At Ikrem/wr 31.
1996 1995 bonds 73,571 2.202 (1256 75.64N In r/unnamlo Total
$131.101
$9.3M3 it175: 5140.309 Insurance companies
$ 76,822
$ 77,792 Marketable equity securities 4(>231 41,475 Amonized Unrealized Unreah/ed Fair Financial limited partnerships 48,115 51,023 A1/krem/wr31. /WS Cost Basis Gains losses Value Lescraged leases 33.275 35,551 tinrinnoand0 lotal financial investments
$204.443 5205.841 Marketable equity securities
$ 38.520
$2,998
$ (43)
$ 41,475 U.S. government
'42 agency 14.177 141 State municipal 14,318 bonds 50.4 I I 2,056 (74) 52393 Total 5103.108 55.195 5(1178 5108.186 Baltimore Gas and Electnc Ccmpany ara Subsidiaries
, Gross and net realized gains and losses on the Constellation Contractual Maturities Companies' available-formde securities were as follows:
The contractual ruaturities of debt securities are as follows:
1996 1995 1994 Amount tin tlwmmubi 1In alwusands)
Gross realized gaim 54,280 55,470 5 1,108 Less than 1 year
$ 1,000 Gross realized knses (210)
(2,446)
(3,150) 1-5 years 0,065 Net realiicd gains tlosses) 3Tii70 53.024 92M2i 5-10 years 71,405 More than 10 years Total contractual maturities of debt securities
. 6JWK) 5x8.470 Note 5. flegulatory Assets (net) i As discussed in Note 1. IIGE's utility operations are subject to activities at contaminated Company <m ned sites (see Note 12). In
)
regulation by the Maryland Commission. Except for differences Nosember 1995, the Marytmd Commission issued a rate order in in the timing of the recognition of certain utility expenses and the Company's gas base rate proceeding w hich authorized the credits, the ratenutking process utilized by the Maryland Com-Company to amorti/e over a 10-year period 5216 million of these mission generally is based upon the same accounting principles costs, the amount which had been incurred through October 1995.
applied by nonregulated entities. Under the Maryland Com-mission's ratemaking process, these utility expenses and credits Ikferred energy conservation expendnures represent the net j
are deferred on the Consolidated llalance Sheets as regulatory un norti/ed balance of certain operations costs which are being assets and liabilities and are recognized in income as the related amonized over five years m accordance with orders of the M"O.and Comnussion. These expenditures consist of labor, I
amounts are included in service rates and recosered from or matenah, and indirect costs associated with the conservation refunded to customers in utility revenues. The following table sets forth DGE's regulatory assets and liabilities:
pmgrann appmved by the Maryland Commission.
At Ikcemier 31.
1996 1995 Ikfenrd cmt of decommissioning fedemt uranium enrichment facilides mpresents the unamortized portion of BGE's required un ilmuwnh; income taxes recoverable through contributions to a fund for decommissioning and decontaminating future rates
$264.525 5269,442 the ikpartment of Energy's t DOE) uranium enrichment facilities.
Ikferred pntemployment benefit costs M9,217 81,616 The Energy Policy Act of 1992 requires domestic utdities to make i
Ikferred nuclear expenditures 82,101 86.519 such contributions, u hich are generally payable over a 15-year Deferred environmental costs 47.657 38,371 1rnod with escaladon for innation and are based upon the amount i
fkferred energy conservation f uranium enriched by DOE for each utility.These costs are expenditures 46,696 73,297 tring amonized mer tbc contribution period as a cost of fuel.
Deferred cost of decommissioning Deferred terminadon benefit costs represent the net unamortized federal uranium enrichment facihties 46,015 51,104 balance of the cost of certain termination benefits (see Note 7)
Deferred temiination bencfit costs 41.137 60.(173 applicable to ilGE's regulated operations. 'these costs are being ikferred fuel costs 22.734 113,026 anurtized over a five-year period in accordance with rate actions ikferred investment tax credits (133,970) (I41,463) of the Maryland Commission.
Other 6,167 5,930 Total regulatory assets (net) 5512,279 5637.915 Deferred fuel costs represent the difference between actual fuel costs and the fuel rate revenues under BGE's fuel clauses (see Note 1). Deferred fuel costs are reduced as they are collected from income taxes recoverable through future rates represem princi-customers.
pally the tax effect of depreciation differences not normalized and the allowance for equity funds used dunny construction.
The underrecovered costs deferred under the fuel clauses were offset by unamortized deferred tax rate differentiah and deferred as follows:
j taxes on deferred ITC. These amounts are amortized as the At December 31.
1996 1995 mlated temporary differences reverw. See Note I for a further un rimuwuhi discussion of income taxes.
Electric deferred fuel costs Costs deferred
$113,172 5130,399 Deferred pistemployment benefit costs represent the excess of wed n placenwnt Resem fo sa such costs recognized in accordance with Statements of Financial
- "#'E} #"*
- II Accounting Standads No.106 and No.112 over the amounh e tne deknW fuel cosa N,N2p 95,399 reDected in utility rates. These costs will be amonized over a Gas deferred fuel coss
_ 27,56.
17,627 15-year petiod beginning in 1998 (see Note 6).
Total deferred fuel costs 5 22.734 il I 3.026 Deferred nuclear expenditun s represent the net unamorti/ed balance of certain operations and maintenance costs u hich are Deferred it, vestment tax credits (lTC) represents ITC associated being amortiied mer the remaining life of the Cahen Clith with BGE's regulated utility operations as discussed in Note 1.
Nuclear Power Plant in accordance with orders of the Maryland Deferred ITC are not deducted from rate base in accordance Commission. These expenditures consist of costs incurred from with federal income tax normalization requirements.
1979 through 1982 for inspecting and repairing seismic pipe ne foregoing nyulatory assets and liabilities are recorded on suppons, expenditures incurred f rom 1989 through 1994 associ-43 UUII's Consolidated Balance Sheets m accordance with Statement ated with nonrecurring phases of certain nuclear operations "I I*.""
"I A"'ounting Standards (SFAS) N,o. 71, if BGE were projects, and expenditures incurred during 1990 for investigating required to terminate application of SFAS No. 71 for all of its regu-leaks in the pressurizer heater sleeves.
lated operations, all such amounts deferred would be recogmzed in Deferred environmental costs represent the estimated costs the Consolidated Statements of Income at that time, resulting in a of investigating contamination and perfonning certain remediation charge to earnings, net of applicable income taxes.
Baltimore Gas and Electric Cornpany and Subsidianes
.- -~-
Note 6. Pension and Postemployment Benefits l
Pension Benefits service period of active employees. The Company's funding l
The Company sponsors seseral noncontributory defined benefit policy is to contribute at least the minimum amount required pension plans, the largest of which (the Pension Plan) em ers under Internal Res enue Senice regulations using the pmjected substantially all BGE employees and certain employees of unit credit cost method. Plan assets at December 31,1996 BGE's subsidianes he other plans, which are not material in consisted primarily of marketable equity and fixed income amount, provide supplemental benefits to certain non-employee securities, and group annuity contracts.
directors and key employees. Benefits under the plans are gener-ally based on age, years of service, and compensation levels.
De foH wing taNes set forth the combm.ed funded status of the plans and the composition of total net pension cost. Net pension Prior senice cost associated with retroactis e plan amendments is cost shown below does not include the cost of termination bene-amortized on a straight-line basis mer the average remaining fits described in Note 7.
At I>n ember 3I.
I996 l995 fin flunnaruhl Vested benefit obligation
$695,634 5688,084 Nomested benefit obligation
~713,608 703,752 17,974 15.668 Accumulated benefit obligation Pniected benefits related to increase in future compensation lesels 132,673 122.539 Projected benefit obligation 846,28I 826.291 Plan assets at fair value (792,541)
(744.645)
Pmjected benefit obligation less plan assets 53,740 81,646 Umecognized prior senice cost (21,N90)
(24,357)
Unrecognized net loss t i17,157)
( l I 8.361 )
Unamonized net asset from adopuon of FASB Statement No. 87 797 995 Accrued pemion (asseo liability 5184,510:
$ t 60.077 )
) Par Esulnll) nrm /wr 31.
1996 1995 19 %
Iin tiunuanh)
Components of net pension cost Service cost-benefits earned during the period
$16,0N9 SI1,407 515.015 Interest cost on pmjected benefit obligation 59,948 58,433 58,723 Actual return on plan assets (57,671)
(150,510) 7,932 Net amonization and deferral 2.115 94.674 i60.071)
Total net pension cost 20,481 14.004 21.599 Amount capitalized as construction c,st (2,4426 (l.422)
(2,578)
Amount charged to expense
$1N.039 512.582
$19.021 l
De Company also sponsors a defined contribution sas ings plan in April 1993, the Maryland Commission issued a rate order covering all eligible BGE employees and certain employees of authorizing BGE to recognize in operating expense one-half of BGE's subsidiaries. Under this plan, the Company makes contribu-the annual increase in PRB costs applicable to regulated opera-tions on behalf of panicipants. Company contributions to this plan tions as a result of the adoption of Statement No.106 and to totaled 59.4 million. 58.5 million, and 58.7 million in 19(XL 1995, defer the remainder of the annual increase in these costs for and 19W respectively.
inclusion in BGE's next base rate proceeding. In accordance Nstretirement Benefits with the Apnl 1993 Order, all amounts to be deferred prior to completion of BGE's next base rate proceedmg will be amor-l The Company sponsors defined benefit postretirement health tired mer a 15-year period beginning in 1998.
l care and life insurance plans u hich cover substantially all BGE l
employees and certain employees ofits subsidiaries. Benefits in Nmember 1995, the Maryland Commission issued a rate under the plans are generally based on aFe, years of service, and order in BGE's pas base rate proceeding providing for full pension benefit lesels. he postretirement benefit (PRB) plans are recognition in operating expense of PRB and other post-unfunded. Substantially all of the health care plans are contrib-employment benefits (discussed below ) costs attributable to gas I
utory, and participant contributions for emplo)ces who retire after operations, and affirming its previous decision on amortization l
June 30,1992 are based on age arwl years of service. Retiree of deferred PRB cmts, This phase-in approach meets the guide-i
' I contributions increase commensurate with the expected increase lines established by the Emerging issues Task Force of the i l in medical costs. ne postreurement life insurance plan is noncon-Financial Accounting Standards Board for deferring PRB costs tributory. De transition obligation resulting from the adoption of as a regulatory asset. Accrual-basis PRB costs applicable to Statement of Financial Accounting Standards No.106 effective nonregulated operations are charged to evense.
l44 January 1,1993 is being amortized mer a 20-year period.
l l
l >
l i i
l ll l l 1 eenne cas ta tiecirn tw;any and sutua ai es l l
The following table sets forth the components of the accumulated PRB obligation and a reconciliation of these amounts to the accrued
- PRB liability.
At December 31.
1996 1995 Life Life j
Heahh Care Insurance Health Care irsurance Iin thousandd Accumulated postretirement benefit obligation:
Retirees
$163,904
$45,485
$157,804
$44,769 Active employees 82,373 19,269 84.724 I8.599 Total accumulated postretirement benefit obligation 246,277 64,754 242,528 63,368 Unrecognized transition obligation (141,089)
(40,960)
(149,907)
(43,52I)
Unrecognized net loss (7,3681 (5.690)
(12.767)
(5,764)
Accrued postretirement benefit liability
$ 97.820
$18.104
$ 79.854
%I4.083 The following table sets forth the composition of net PRB cost.
Consistent with the Maryland Commission's November 1995 j
Such cost does not include the cost of termination benefits order, the amounts deferred will be amortized over a IS-year desciihed in Note 7.
period beginning in 1998.
)
i l' ar ended Decemivr 31.
1996 I995 Assumptions
)
e
<In thousandd The pension, postretirement, and other postemployment benefit i
Net postretirement benefit cost:
liabilities were detetmined using the following assumptions.
Service cost -benefits earned durinF At thember 31.
1996 1995 the priod
$ 5,559
$ 3,918 Assumptions:
Interest cost on accumulated post Discount rate retirement benefit obligation 21,918 21.203 Pension and postretirement benefits 7.5%
7.5%
Amonization of transition obligation llJ78 11,378 Other postemployment benefits 6.0 6.0 Net amortization and deferral 174 (86)
Average increase in Total net postretirement benefit cost 39,029 36,413 future compensation levels 4.0 4.0 Amount capitalized as construction cost (6,224)
(5,299)
Expected long-term rate of i
Amount 6ferred (7.455)
(8.025j return on assets 9.0 9.0 Amount charged to expense 525350
$23.0S9 i
The health care inflation rates for 1996 are assumed to be 9.5%
OtherPostempicyment Benefits for Medicare-eligible retirecs and 8.99 for retirees not covered The Company provides health and life insurance benetits to by Medicare. The heahh cara inflation rates for 1997 are assumed employees of BGE and certain employees of its subsidiaries w ho to be 7.59 for Medicare-eligible retirees and 10.0% for retirees are determined to be disabled under BGE's Disability Insurance not covered by Medicare. After 1997 both rates are assumed to Plan. The Company also provides pay continuation payments for decrease by 0.59 annually to an ultimate rate of 5.59 in the employees determined to be disabled before November 1995.
years 2001 and 2006, respectively. A one percentage point l
Such payments for employees determined to be disabled after increase in the health care infiation rate from the assumed rates that date are paid by an insurance company, and the cost of such would increase the accumulated postrctirement benefit oblig aion insurance is paid by employees.The liability for these benefits by approximately $41 million as of December 31,1996 od totaled $51 million and $52 million as of December 31,1996 and would increase the aggregate of the service cost and inwrest cost 1995, respectively. The portion of the liability attributable to components of postretirement benefit cost by approximately l
regulated activities as of December 31,1993 was deferred.
$4 million annually.
l
~
l l
Note 7. Terrnination Benefits l
BGE offered a Voluntary Special Early Retirement Program February 1,1994.The one ome cost of the 1993 VSERP (the 1992 VSERP) to eligible employees u ho retired during the consisted of enhanced runsion and postretirement benefits. In pried February 1,1992 through April 1,1992. In April 1993, addition to the 1993 VSERP, further employe. reductions have the Maryland Commission authorized BGE to amortire the been accomplishe.1 through the elimination m certain positions,
$6.6 million cost of terminat'on benefits associated with the and various programs hase been offered to employees impacted 1992 VSERP, which consisted principally of an enhanced pen-by the elimbationr. De $88.3 million portion of 1993 VSERP sion benefit, over a five-year perial for ratemaking purposes.
attributaNe to regulated activities wa.i deferred and is being
~
45 amortized over a five-year period for satemaking purposes.
BGE offered a second Voluntary Special Early Retirement Pro-bepnning in February 1994, consistent with presious rate gram (the 1993 VSERP) to eligible employees w ho retired as of actions of the Maryland Commission.
Btilimore Gas and Electoc Company and Sut:sidiales i
' Note 8, Short-Term Borrowings
~
Short-tenn borrowings include bank loans, cc.mmercial paper ne weighted average interest rates for short-tenn borrowings notes, and bank lines of credit. The Company pays commitment were as follows:
fees in support of lines of credit. Borrow ings under the lines are at the banks' prime rates, base interes' rates, or at various money karyruled Dann/w 3L 1996 1995 E
market rates.
[
Bank kians 4.93 %
4.749 Short-term borrowings were as sollows:
Commercial paper Notes 5,53 5.92 AtIwember 31.
1996 1995 Omstellation Companies l
the rh<mamh; Lines of Credit t
BGE's bank k>ans
$ 8,785
$ 3,845 BGE's commercial raper notes 324,400 275 300 Unused lines of credit supponing commercial paper notes at Constellation Corr.panies' lines of credit 160 December 31,1996 and 1995 were $203 million and $238 million, Total short-terra borrowings D33.185
$279,305 tespectively. %ese amounts are exclusive of $150 million of revolving credit agmements undrawn at year-end (see Note 9).
Nots 9, Long Term Debt First Refunding Mortgage Bonds of BGE Following is information regarding BGE's Medium-term Notes t
Substantially all of the principal properties and franchises owned outstanding at December 31,1996:
by BGE, as well as the capital stock of Constellation Holdings.
Inc., Safe liarbor Water Power Corporation, HP&S, EP&S, and Weighted-Average Series Interest Rate Maturity Dates Constellation Energy Source, Inc. (fonnerly named BNG, Inc.),
are subject to the lien of the mortgage under which BGE's B
8.43%
1998-2006 outstanding First Refunding Mortgage Bonds have been issued.
C 7.099 1997-2(X)3 i
D 6.60 %
1998-2006 On August I of each year, BGE is required to pay to the nxingage trustee an annual sinking fund payment equal to 1% of the largest long-Term Debt of Constellation Companies principal amount of Mortgage Bonds outstanding under the man-The Constellation Companies have a $75 million unsecured re-I gage during the preceding twebe months. Such funds are to be volving credit agreement which matures December 9,1999 and is used, as provided in the mortgage, for the purchase and retirement used to provide liquidity for general corporate purposes. A commit-by the trustee of Mongage Bonds of any senes other than the SM9 ment fee is paid on the daily average of the unhonuwed portion of instalhnent Series of 2002, the 8.40% Series of 1999, the $MW the commitment. At December 31,1996, the Constellation Q)m-l Series of 2(XX), the 8%% Series of 2(K)l, the 7%% Senes of 2002, panies had $65 million outstanding under this agreement, the 6MG Series of 2(K)3, the 6%% Series of 2(X)3, the $X7 Series of 2[KM, the 7%% Series of 2007, and the 6%% Series of 2(X)8.
The Constellation Companies' mongage and construction loans t
and other collateralized notes have varying tenns. The 8.00%
The pn.neipal amounts of the SM% Installment Series Mortgage mortgage note requires monthly principal and interest payments i
Bonds payable cach year are as follows:
through July 31,2001. The 8.tX)9 construction lean requires no rear monthly principal and interest payments during construction and th slamnN is due October 30,2003.The variable rate mangage notes require 1997 5 605 periodic payment of principal and interest with various maturities 1998 and 1999 690 from June 1997 through July 2009.The 7.509 mortgage note 2000 and 2(X)1 865 requires monthly principal and interest payments through 2002 6,725 October 9,2(X)5. The 7.357% mortgage note requires quanerly principal and interest payments through March 15,2009.The The Remarketed Flouring Rate Series Due September 1,2006 9.65% mortgage note requires monthly pnncipal and interest First Refunding Mortgage Bonds include a provision that allows payments through February 1,2028.
the bondholders the option to tender their bonds back to BGE on an annual basis. BGE is required to repurchase and retire at par The unsecured notes outstanding as of December 31,1996 any bonds tendered that are not remarketed or purchased by the mature in accordance with the following schedule:
re" arketing agent In addition, BGE has the option to call the
^"'"""I t,snds annually at pac on each remarketing date.
tla riuwamM Other Lemg-Term Debi:i%E 8.93%, dee Angust 28,1997
$ 52,(XX)
BGE maintains revolving credit agreements that expire at 6.65%, due September 9,1997 15,(X K) various times from 1997 through 1999. Under the terms of the 8.239, due October 15,1997 30.(XK) agreements, BGE may, at its option, obtain loans at various 7.05%, due April 22,1998 25,(XK) interest rates. A commitment fee is paid on the daily average of 7.06%, due September v,1998 20JXK) i the unborrowu! portion of the commitment. At December 31, 8.489, due October 15,1998 75JXK) i 1996, BGE had no borrowings under these revolving credit 7.30%, due April 22,1999 90/XK)
+
agreements and had available $150 million of unused capacity 8.7W, due October 15,1999 15JKK)
. j46 under these agreements.
7.559, due April 22,2(XX) 35JKK) 7.43%, due September 9,2(XX) 30JKK)
Under the terms of the bank kian which matures on March 29,
[
8.00%, duc I)erember 31,2(KK) 160 j
2001, the bank has a one-time option to cancel the loan on x
Tod m e e
$3M7 M December 29,1997. Until that date, the mterest rate on the kian is 5.22%. If the bank does not cancel the kian on December 29, 1997, the interest rate for the remammg term wdl reset to 6.11%.
Baltimore Gas and Electric Company and Subsidiaries l
_4,
Inng-Term Debt of Other Diversified kinesses Aggregate Maturities l 'leng-tenn debt of other diversified businesses includes a The combined aggregate maturities and sinking fund require-l 550 mi!! ion urs. ured resolving credit agreement of Comfort ments for all of the Company's long-term tunuwings for each
]
l
- 1. ink which mat.es September 26,2001. Imans may be obtained of the next five years are as follows:
l at various rates for tenns up to nine montin. A facility fee is paid
! on the total amount of the commitment. At December 31,19%,
Diverufied J
$12 million was outstandmg under this agreement.
) Par BGE Businesses 1
Iin thomanhI Weighted Averageinterest Ratesfor Variable Rate Debt sq9q
$ 89,848 5107,924 1 The weighted average interest rates for variable rate debt were 1998 93,578 165,370 l as follows:
1999 247,347 186,339 tear ended December 31, 1996 1995 2(XX) 253.658 97.803 BGE 2001 247,183 3!Ja/
Floating rate series mortgage bonds 5.87 %
6.309 As of December 31,1996. BGE had 5195 million of debt with Remarketed floating rate series provisions that allow lenders the option to request BGE to repay j
mortgage bonds 5.63 the debt at certain times prior to maturity. In the event such j
Pollution control k>an 3,49 3.79 options are exercised BGE intends to refinance such debt on a Port facilities loan 3.59 4.06 long-term basis through the issuance of medium tenn notes or Adjustable rate pollution control loan 3.90 3.75 using revolving credit agreements.
Economic development loan 3.57 4.01 Constellation Companies loans under credit agreements 6.08 6.74 Mortgage and construction loans i
and other collaterali/ed notes 8.33 8.99 Other Disersified liusinesses loans under credit agreements 6.13 Note 10. Redeemable Preference Stock The 7.809,1989 Series is subject to man ( atory redemption in The combined aggregate redemption requirements at l
full at par on July 1,1997. The following '.eries are subject to an December 31,19% for all series of redeemable preference l annual mandatory redemption of the p%nber of shares shown stock are as follows:
l below at par beginning in the yua onown below. At BGE's
)Far
' option, an additional number of shares, not to exceed the same N" '6"*""# #
i number as are mandatory, may be redeemed at par in any year, commencing in the same year in w hich the marxiatory redemp-1997 5 83.000 tion begins. The 8.259,1989 Series, the 8.6254,1990 Series, 1998 23JXK) l and the 7.859,1991 Series listed below are not redeemable 1999 23JXX) j t
except thmugh operation of a sinking fund.
2(X X) 10fXX) i lleginning 2(W)I 10JXX)
Series Shan s Year Thereafter 68.5(X)
! 7,509,1986 Series 15/XW) 1992 Total aggregate reder.ptir.: requirements
$217.5(N) 1 6.759,1987 Series 15jXK) 1993
\\V th regard to payment of dividends or assets available in the l 8.259,1989 Series 1(KifX K) 1995 event of hquidation, all issues of preference stock, w hether i
8.625%,1990 Series 130JKK) 1996 subject to mandatory redemption or not, rank equally; and all 7.859, 1991 Series 70JXX) 1997 preference stock ranks prior to common stock.
I i
I 47i l
l Bammore Gas and Electnc Company and subsidianes 1
I
Note 11. Leases he Company, as lessee, contracts for certain facilities and Certain of the Constellation Companies, as lessor, have entered equipment under lease agreements with various expiration dates into operating leases for office and retail space. These leases j
and renewal options. Consistent with the regulatory treatment, expire mer periods ranging from I to 19 years, with options to l
I lease payments for utility operations are charged to expense.
rene t The net bmk value of property under operating leases Lease expense, w hich is comprised primarily of operating was $177.3 million at December 31,1996. The future minimum leases, totaled 511.6 million,512.2 million, and $12.7 million rentals to be receis ed under operating leases in effect at for the years ended 1996,1995, and 1994, respectively.
December 31,1996 are as follows:
The future minimum lease payments at December 31,1996 for long-tenn noneancelable operating leases are as follows:
liar
}-;.ar (In slumsanh) fin sh<maandi) 1997 5 15,433 1997 5 4,H99 1998 14.073 1998 4.095 1999 13,l46 1999 2,072 2000 12.671 200()
1,893 2001 11,7N 2001 1,450 Bereafter 61 3 Thereafter 2,725 Total minimum rentals, 5128.762 Total minimum lease payments 517.134 Note 12. Commitments, Guafantees, and Contingencies Commitments Guarantees BGE has made substantial commitments in connection with its BGE has agreed to guarantee two-thirds of certain indebtedness construction program for 1997 and subsequent years. In addition, of Safe Harbor Water Power Corporation. De total amount of BGE has entered into three long-term contracts for the purchase indebtedness that can be guaranteed is 550 million, of w hich of electric generating capacity and energy. The contracts expire in 533 million represents BGE's potential share of the guarantee.
2001,2013, and 2023. Total payments under these contracts were As of Ikecmber 31,1996, outstanding indebtedness of Safe 564.1,568.4, and 569.4 million during 1996,1995, and 1994, liarbor Watei Power Corporation was 532 million, of uhich respectively. At December 31,19%, the estimated future
$21 million is guaranteed by BGE. BGE has also agreed to payments for capacity and energy that BGE is obligated to buy guarantee up to 520 odliion of obligations and indebtedness of under these contracts are as follows:
Constellation Energy Source, Inc. (formerly named DNG, Inc.)
3;,,
As of December 31,1996, there were no outstanding obligations under this guarantee. BGE assesses that the risk of material loss un r/unnamA) on the loans guaranteed c munmal.
g 9
1998 78.075 As of Ikcember 31,1996, the total outstanding loans and letters 39 9 9l,93g of credit of certain power generation and real estate pniects guar-200) 92,039 anteed by the Constellation Companies were $54 million. Also,
,001 62,978 the Constellation Companies have agreed to guarantee certain other borrowings of various power generation and real estate Thereafter 805,110 pn ects. The Company has assessed that the risk of material loss Total estimated future payments for on the loans guaranteed and perfomiance guarantees is minimal.
capacity and energy under long-term contracts
$1.191.809 Pending Merger With Potomac Electric Power Company BGE, Potomac Electric Power Company (PEPCO), and Certain of the Constellation Companies have committed to Constellation Energy Corporation (formetly named "Ril contribute additional capital and to make additional loans to Acquisition Corp.")(CEC), have entered into an Agreement and
)
certain affiliates, joint ventures, and partnerships in which they Plan of Merger, dated as of September 22,1995 (the Merger l
have an interest. As of December 31,1996, the total amount of Agreement L CEC was formed to accomplish the merger an,1 its investment requirements committed to by the Constellation outstanding capital stock is owned 50'7c by llGE and 50'7< by Companies is 556 million.
PEPCO. The Merger Agreement provides for a strategic busi-In December,1994, BGE and IIP &S entered into agreements with ness combination that will be accomplished by merging both I
a financial institution whereby BGE and HP&S can sell on an BGE and PEPCO into CEC (the Merger). The Merger, w hich ongoing basis up to an aggregate of 540 million and $50 million, was unanimously apprmed by the Boards of Directors of BGE respectively, of an undivided interest in a designated pool of and PEllCO and approved by the shareholders of both com-customer receivables. Under the terms of the agreements. BGE panics, u expected to close dunng 1997 atter all other conditions I
and HP&S have limited recourse on the receivables and have to the consummation of the Merger, mcluding obtaining applie-48 recorded a reserve for credit losses. At December 31,19%, BGE able regulatory approvals (described below), are met or waived.
and IIP &S had sold $35 million and $47 million of receivables, in connection with the Merger, BGE common shareholders wdl receive one share of CEC common stock Ior each BGE share respectisely, under these agreements.
4 j
and PEPCO common shareholders wdl receive 0.997 of a share of CEC common stock for each PEPCO share,
\\
1 Baltimore Gas and E ectra Lompany and Sut>simanes
Preliminary estimates by the managements of Pl!PCO and BGE that the h1aryland Commission adopt an ahernathe regulatory
- indicate that the synergies resulting from the combination of plan and also asks that rates be examined. Maryland Commission their utihty operations could generate nel cost savings of up to StatT testimony also utilizes the new test period.13ased on the
$1.3 billion over a period of 10 years following the Merger.
new test period hlaryland Commission StatT recommends an These estimates indicate that about two-thirds of the savings will immediate decrease of W 6 million (13GE's rates reduced by come from reduced labor costs, with the remaining sasings split 554.3 million and PIB (
- hy 59.3 million) at the time of the between nonfuel purchasing and corporate and administrative hierger. Maryland Cort..
mon StatT's surrebuttal testimony programs. These savings are net of costs to achies e, presently also recommends that Clf be required to make a rate filing estimated to be approximately 5150 million, and are expected to 15 months after the hierger becomes etTective.
be allocated among shareholders and customers. 'Ihis allocation "C'"/C"lumbia Public Service Cennminion - Hearings will depend upon the results of regulatory proceedings in the various jurisections in w hich BGE and PEPCO operate their began February 18,1997. Testimony was filed by the parties in utility businesses (see discussion of the issues raised in regula-September 1996. The D.C. Office of People's Counsel (the tory proceedings regarding the alkication and other matters). The adsocates for residenu,al customers) opposes the hierger based analyses employed in order to develop estimates of the potential on its mntention that liGE and PEPCO have not proved that the savings as a result of the hierger were necessarily based upon b1ager s m the public interest. Testimony of the D.C. People's various assumptions u hich invoh e judgments with respect to, p,ounsel also provides that should the Merger be appros ed, an among other things, future national and regional economic and immediate rate reduction of $44.2 milhon be imposed at the competitive conditions, inflation rates, regulatory treatment, time ofik hiegu, f dowed by a 5-> car moratonum on rate weather conditions, financial market conditions, interest rates, increases. Further, testimony of D.C. People's Counsel advo-future business decisions and other uncertainties, all of which cates divestiture of all nonutility affiliate companies, exclusion are difficult to predict and many of which are beyond the control "U3GE's Calvert Cliffs Nuclear Plant from production plant of 13GE and PEPCO. Accordingly, while llGE believes that such awigned to D.C., and a 5-year 523.37 milhon per year economic assumptions are easonable for purposes of the deselopment of deselopment program. GSA, a major D.C. customer, requests estimates of potential savings, there can be no assurance that that any approval should be coupled with an imposition of retail such assumption will approximate actual experience or that all cunpetsm accen for ratepayers such as GSA, a 25-year amor-tization of costs t ach,ieve the hierger, and elimination of such savings will be realized.
Cahert Cliffs from the generating mix. In addition to these Alajor regulatory proceedings, together with an indication of the matters, D.C. People's Counsel, an intervenor, Washington Gas etnent status of the proceeding, w hich must be concluded in Light Company, and the D.C. Corporation Counsel has e ques-order to proceed with the merger, are listed below. The hierger tioned the interpretation by llGE and PEPCO that a D C. statute Agreement prosides that a condition to closing is that no such known as the Anumerger Law is inapplicable to this transaction.
approvals shall impose temis and conditions that would hase, or Should such statute be deemed to be applicable, authorization of would be reasonably likely to has e, a material adverse effect on the hierger by Congress would be required. Allegations also the business. operations. properties, assets, condition (financial or were made that BGE and PEPCO should hase received othenvise), prospects, or results of operations of the new company.
Congressional approval for their owning 509 of the shell company, CEC, prior to consummation of the hierger.
C FederalE.nergy Re.eulatory Counmission t FERC) - Ileurings have been completed and we are waiting for a decision. The hear-The reasons for the hieger, the tenns and conditions contained in ings explored the merged company's generation market power, the hierger Agreement, the regulatory apprm als required prior to inchiding the appropnate geographic markets, and to consider closing the hierger, and other matters concerning the hierger, appropnale remedies if the merged company is found to possess PEPCO, and CEC are discussed in more detail in the Registration generation market puer. Testimony of ERC staff included the Statement on Form S-4 (Registration No. 33-M799).
suggestion that a sigmficant portion of generation (appnnimately E. imnmental Afanen m
2400-360() megawatts) be divested or traasmission capability be upgraded or both due to the perceived madet pow er of the The Clean Air Act of 1990(the Act) contains two titles designed merged company in both the wholesale and retail markets.
to reduce emissions of sulfur dioude and nitrogen oxide (NOs) from electric generating stations. Title IV contains provisions for 0 Maryhmd Mddic Sen ice Comminion (Maryland Comminion)-
compliance in tw o separate phases. Phase I of Title IV became llearings have been completed and we are waiting for a decision.
effectise January 1,1995, and Phase 11 of Title IV must be Since the Report on Form 10-Q for the third quarter 1996 was implemented by 2(XX). BGE met the requirements of Phase i by filed, rebuttal and surrebuttal testimony has been filed. Office of installing flue gas desulfurization systems and fuel switching People's Counsel (the advocates for residential customers) recom-and through unit retirements. BGE is currently examining what mended that the h1aryland Commission not approve the hierger actions will be required in order to comply with Phase II of the unul the Applicants demonstrate that h1aryland customers will not Act. Ilowever. BGE anticipates that compliance will be attained be harmed by potential restrictions on competition due to the by some combination of fuel switching, flue Fas desulfurization, market power of the new company. If, howeser, the Ataryland unit retirements, or allowance trading.
Commission decides to approve the hierger, Peopk's Counsel continues to recommend rate decreases. Due to the use of a At this time, plans for comply.ing with NOx control requirements i
different test period, the amounts are somewhat different than under Title I of the Act are less certain because all unplementation reported in the second quarter Report on Form 10-Q. Based on mgulationdase not yet bun nnahzed by the smernment. It is a test period proposed by People's Counsel in recent testimony, expected that by the year 1999 these regulauons will require addi-l they recommend a pre-merger rate reduction of approximately uonal NOx controls for ozone attainment at BGE s generatmg i
5108.,' million (584.7 million to BGE customers and $23.6 million plants and at other BGE facihties. The controls will result in add.i- -
to PEITO customers) with hierger savings being retlected in uonal expenditures that are difficult to predict prior to the issuance l
funier reduced rates of appmximately 565 million N5 million to of such regulat ons. Based on existing and proposed ozone nonat-
)
BGE customers and $20 million to PEPCO customers > contempo_
t inment mgulations, BGE currently estimates that the NOx raneously with the date of the hierger. A number of other recom-contmh at ige,s generating plants will cost approximately 590 mendations are also included in People's Counsel testimony. The milhon. BGE is currently unable to predict the cost of compliance hiaryland Energy Administration (h1EA) continues to recommend u-ith the additional requirements at other BGE facilines.
i Ba!!more Gas and EhcDit Ccmpany and Sutsimanes
i i
i BGE has been notined by the Environmental Protection Agency 5473.2 million per unit of insurance, provided by an industry and several state agencies that it is being considered a potentially mutual insurance company, for replacement power costs. This responsible pany (PRPJ with respect to the cleanup of cenain amount can be reduced by up to 594.6 milhon per unit if an emironmentally contaminated sites owned and operated by third outage to both units at Calven Chtis is caused by a singular ptrties. Cleanup costs for these sites cannot be estimated, except insured physical damage loss. If accidents at any insured plants that i GE's 15.799 share of the possible cleanup costs at one of cause a shonfall of funds at the industry mutuals, BGE and all l
these sites, Metal Bank of America, a metal reclaimer in Phila-p>lic> holders could be assessed, with BGE's share being up to delphia, could exceed amounts recognized by up to approxi-535.1 million.
i mately 57 million based on the highest estimate of costs in the 3
range of reasonably pwsible alternatives. Although the cleanup Recoverability of Electnc Fuel Costs I
costs for certain of the remaining sites could be significant BGE fly statute, actual electric fuel costs are recoverable so long as the believes that the resolution of these matters will not have a Maryland Commission finds that BGE demonstrates that. among material effect on its financial position or results of operations-other things, it has maintained the producth e capacity of,ts i
generating plants at a reasonable lesel.The Maryland Lom-3 1
Also, BGE is coordinating im estigation of ses eral former gas mission and Marylandi highest appellate court have interpreted manufacturing plant sites, including exploration of corrective this as pennitting a subjectise evaluation of each unplanned action options to remove coal tar. In late Ikcember 1996, the outage at BGE's generating plants to detennine w hether or not Maryland ikpartment of the Environment and 11GE signed a BGE had implemented all reasonable and cost-effectise mainte-i j
consent order that requires BGE to implement remedial action nance and operating control procedures appropnate for pre-plans addressing contamination at and related to the Spring venting the outage. EtTective January 1,1987, the Maryland j
Gardens site. The specific remedial actions for this site will be Commission authorized the establishment of a Generating Unit developed in the future. BGE has recognized estimated environ-Perfonnance Program (GUPP) to measure, annually, utility mental costs at all former gas manufacturing plant sites (based compliance with maintaining th productive capacity of gener-on remedial action options) w hich are considered probable ating plants at reasonable lesels by establishing a system +ide j
totaling $50 millioa in nominal dollars. These costs, net of generating performance target and individual perfonnance targets t
j accumulated amortization, have been deferred as a regulatory for each base load generating unit. In fuel rate hearings, actual j
asset (see Note 5). Accounting rules also require BGE to generating perfonnance after adjustment for planned outages will
]
disclose additional costs deemed by BGE to be less likely than be compared to the system-wide target and, if met, should signify j
probable costs. but still " reasonably pnsible" of being incurred that BGE has complied with the requirements of Maryland law.
1 at these sites. Because of the results of recent studies at these I. ilure to ineet the system-wide target will result in review of sites, it is reasonably pwsible that these additional costs could each unirs adjusted actual generating performance sersus its
]
exceed the amount recognized by approximately 548 million in perfonnance target in detennining compliance with the law and nominal dollars ($1I million in current dollars, plus the impact the basis for possibly impising a penahy on 13GE. Panies to fuel 4
i j
of inflation at 119 over a period of up to 60 years).
rate hearings may still question the prudence of BGE's actions or inactions with respect to any given generating plant outage, e
Nuc, lear Insurance uhich could result in the disallowance of replacement energy j
An accident or an extended outage at enher unit of the Cahen costs by the Maryland Commission.
Cliffs Nuclear Power Plant could have a substantial adverse effect on BGE. The primary contmgencies resulting from an Since the two units at BGE's Cahert Chffs Nuclear Power incident at the Cahert Cliffs plant would involve the physical Plant utilize BGE's lowest cost fuel, replacement energy costs i
damage to the plant, the recoverabihty of replacement power associated with outages at these units can be significant. BGE j
costs, and BGE's liability to third panies for property damage cannot estimate the amount of replacement energy costs that and boddy injury.13GE mamtains various insurance policies for could be challenged or disallow ed in future fuel rate proceed-l these contingencies.The costs that could result from a major ings, but such amounts could be material.
j accident or an extended outagc at either of the Calvert Chtis units i
could exceed the coverage limits.
In October 1988, ilGE filed its first fuel rate application for a i
change m ns electric fuel rate under GUPP. The resultant case In addition, in the es ent of an incident at any commercial nuclear before the Maryland Commission covers BGE's operating per-j pm er plant in the country, BGE could be assessed for a portion formance in calendar year 1987, and BGE's filing demonstrated of any third party claims associated with the incident. Under the that it met the sy stem-wide and individual nuclear plant perfor-provisions of the Price Anderson Act, the limit for third party mance targets for 1987. In November 1989, testimony was filed claims from a nuclear incident is 58.92 billion. If third party on behalf of the Maryland People's Counsel tPeople's Counsel) claims relating to such an incident exceed 5200 million (the alleging that sesen outages at the Cahert Clitis plant in 1987 amount of primary insurance), BGE's share of the total hability were due to management imprudence and that the replaecment for third pany claims could be up to $159 million per incident, energy costs associated with those outages should be disallowed that would be payable at a rate of 520 million per year.
by the Commission. Total replacement energy costs associated with the 1987 outages were approximately $33 million. On BGE.and other operators of. commercial nuclear power plants m January 23,1995, the llearing Examiner issued his decision in the Umted States are required to purchase insurance to cover the 1987 fuel rate proceeding and found that the Company had claims of certain nuclear workers. Other non-governmental met the GUPP standard w hich establishes a presumption that commercial nuclear facihties may also purchase such insurance.
IlGE had operated the plant at a reasonably productive capacity Cmcrape of.up to 5400 milhon is provided for claims against level. Ilowever, the Order found that the presumption of reason-BGE or others msured by these policies for radiation injuries. If.
ableness would be overcome by a showing of mismanagement certain claims were made under these pohews, BGE and all and that such a showing was m'ade with respect to the environ-polic) holders could be assessed, with BGE s share being up to mental qualifications outage time.The Hearing Examiner had 56.02 million in any one year.
mitigated the disallowance of replacement energy costs due to the For physical damage to Cahen ChtTs, BGE has 52.75 billion of fact the GUPP standard was met.The Hearing Examiner's Order property insurance from industry mutual insurance companies.
was appealed to the Maryland Commission by both IlGE and 1
If an outage at Cahen Cli!I,is caused by an insured physical People's Counsel. The Maryland Commission upheld the damage hiss and lasts more than 21 weeks. BGE has up to llearing Examiner's findings with respect to the emironmental Baltimcre Gas and Electru. Cornpany and Sut>sidiaries
qu[dification related outage time, but disagreed with certain for possible disallowance of replacement energy costs recorded g
methedologies applied by the llearing Examiner he impact of in 1990. Derefore, in December 1996, BGE increased the the h1aryland Commission's decision on the Company's 19%
provision for the disallowance of such costs by 583 million.
earnings was approximately 54.5 million, the amount previously Additionally, in 19%, BGE wrote off 55.6 million of accrued i
estimated by the Company. People's Counsel has filed a mouon carrying charges related to the deferred fuel balances. The for rehearing.
remainder of the replacement energy costs associated uith the
" "N in May 1989 BGE filed its fuel rate case in which 1988 Cr-P through the fuel rate.
formance was examm.ed. BGE, met the system-wide and nuclear plant perfonnance targets in 1988. People's Counsel alleged that Cohfornia Power Purchase Agreements BGE imprudently managed several outages at Cahert Cliffs, and De Constellation Compames have ownership interests in BGE estimates that the total replacement energy costs associated 16 pniects that sell electricity in California under " Interim with these 1988 outages were appmximately 52 million. On Standard Offer No. 4" power purchase agreements. Under these November 14,1991, a llearing Examiner at the Maryland agreements, the pniects supply electricity to utilities at a fixed Conunission issued a proposed Order, which became final on rate for capacity and energy the first 10 years of the agree-December 17,1991 and concluded that no disallowance was ments, and a fixed rate for capacity plus a variable rate for warranted. The llearing Examiner found that ilGE maintained energy based on the utilities
- avoided cost for the remaining the productive capacity of the Plant at a reasonable level, noting tenn of the agreements. Avoided cost generally is the cost of a that it produced a near record amount of power and exceeded utility's lowest-cost next-available source of eneration to F
the GUPP standard. Based on this record. the Order concluded senice the demands on its system.
there was sufficient cause to excuse any avoidable failures to maintain productise capacity at higher lesels.
From 1996 thmugh 2000, the 10-year periods for fixed energy rates expire for these pnjects and they w di begm supplying During 1989,1990, and 1991, llGE experienced extended electricity at variable rates. At current avoided cost leseh, the outages at its Calvert Cliffs Nuclear Power Plant. In the Spring of Constellation Companies would experience reduced earnings 1989, a leak was discovered around the Unit 2 pressurizer heater or incur kisses associated with these pniects u hen they begin sleeves during a refueling outage. BGE shut down Unit I as a supplying electricity at variable rates. Eight pniects begin precautionary measure on May 6,1989, to inspect for similar supplying electricity at variable rates in 1997 and 1998. The leaks and none were found. Iloweser, Unit I was out of service projects that make the highest revenues will begin supplying for the remainder of 1989 and 285 days of 1990 to undergo electricity at sariable rates in 1999 and 200(t As a result, we do l maintenance and modification work to enhance the reliability of not expect the Constellation Companies to experience signifi various safety systems, to repair equipment, and to perform cantly lower earnings or losses on these pnjects before 2(XXL required periodic sun eillance tests. Unit 2, w hich returned to Constellation is pursuing alternatises for these power generation senice May 4,1991, rrmained out of service for the remainder projects including repowering the projects to reduce operating of 1989,1990, and the first part of 1991 to repair the pressurizer, costs, changing fuels to reduce operating costs, renegotiating perform maintenance and modification work, and complete the the power purchase agreements to improve the tenus, restruc-refueling. The replacement energy costs associated with these turing financings to improve the financing terms, and selling its extended outages for both units at Calvert ClilTs, concluding with ou nership interests in the pniects. The Company cannot esti-the return to senice of Unit 2, are estimated to be 5458 million.
mate the financial impact of the switch from fixed to variable rates on the Constellation Companies or on llGE, hui the impact In a December 1990 Order issued by the Maryland Commission could be material.
in a BGE base rate proceeding, the Maryland Commission found l that certain operations and maintenance expenses incurred at Constellation RealEstate Calven Chffs during the test year should not be reemcred from Management will consider market demand, interest rates, the i ratepay ers. The Maryland Commission found that this work, availability of financing, and the strength of the economy in
' which was performed during the 1989-1990 Unit I outage and general when making decisions about real estate investments.
l fell within the test year, was avoidable and caused by BGE We beliese until the economy shows sustained growth and there j
actions which were deficient.The Maryland Commission noted is more demand for new development, real estate values will not i
in the Onler that its review and findings on these issues pertain improve much. If we were to sell our real estate projects in the l to the reasonableness of BGE's test year operations and mainte-current market, we would have losses. although the amount of 1
i nance expenses for purposes of setting base rates and not to the the losses is hard to predict. Management's current real estate i responsibility for replacement energy costs associated with the strategy is to hold each real estate pmject until we can realize a outages at Cahert Cliffs. The Maryland Conunission stated reasonable value for it. Management evaluates strategies for all that its decision in the base rate case wdl have no res judicata its businesses, including real estate, on an ongoing basis. Com-(binding) effect in the fuel rate proceeding examining the 1989-peting demands for our financial resources, changes in the utility 1991 outages.The work characterized as avoidable si nificantly industry, and the proposed merger with Potomac Electric Power F
increased the duration of the Unit 1 outage. Despite the Mary-Company, are factors we will consider when we evaluate all land Commission's statement regarding no binding effect, ilGE diversified business strategies so we use capital and other j
l recognizes that the views expressed by the Maryland Com-resources effectively. Depending on market conditions in the j
mission made the full recovery of all of the replacement energy future, we could also have losses on any future sales.
costs associated with the Unit i outage doubtful. Therefore, in I)ecember 1990, BGE recorded a provision of $35 million Apphcable accounting rules would require a writedown of a real l
. sesunent to market value m either of two cases. The against the possible disallowance of such costs.
C"Y *f.
first is i we change our intent about a project from an intent to i
l in December 1996, BGE entered into a settlement agreement hold to an intent to sell and the market value of that project is 51,
l 3 with People's Counsel and the Maryland Commission Stati below book value. The second is if the expected cash flow from proposing a resolution to these fuel rate proceedings. BGE agreed the project is less than the imestment in the project.
l i that ratepayers will not fund a total of $118 million of electrie rephicement energy costs associated with the extended outages.
This represents $83 million in addition to the $35 million reserve l
Baltimore Gas and Electric Company anc Sut)sidianes
- _+
4 ba s.A>,a---:
-m-
'm, Note 13. Fair Value of Financial Instruments ne following table presents the carrying amounts and fair values of financial instruments included in the Consolidated Balance Sheets.
As December 31, 19 %
1995 l
Carrying Fair Carrying Fair j
Amount Value Amount Value iln alwundQ Cash and cash equivalents 66,708
$ 66,708
$ 23,443
$ 23,443 Net accounts receivable 419,479 419,479 400,005 400,005 i
l Other current assets 74,9 4 74,964 54,070 54,070 i
investments and other assets for which it is:
j practicable to estimate fair value 184,487 185,679 149,645 150,170 Not practicable to estimate fair value 62,162 73,042 Short-term borrowings 333,185 333,185 279,305 279,305 Current ponions oflong-term debt and preferrnce stock 280,772 280,772 146,969 146,969 Accounts payable 172,889 172,889 177,092 177,092 Other current liabilities 194,065 194,065 193,992 193,992 l
long-term debt 2,758,769 2,767,721 2,598,254 2,694,858 Redeemable preference stock 134,500 141,621 242,000 254,809 Financial instruments included in other current assets include The investments in financial partnerships totaled $48 million and trading securities and miscellaneous loans receivable of the
$50 million at December 31,1996 and 1995, respectively, repm-1 Constellation Companies. Finneial instruments included in senting ownership interests up to 109. De aggregate assets of I
other current liabilities represent total current liabilities from the these partnerships totaled $6.1 billion at December 31,1995 The Consolidated Balance Sheets excluding short-term borrowings, investments in solar powered energy production facility partner-current portions of long-term debt and preference stock, ships totaled $11 million and $22 million at December 31,1996 accounts payable, and accrued vacation costs, ne carrying and 1995, respectively, representing ownership interests up to i
amount of current assets and current liabilities approximates fair 127c, The aggregate assets of these partnerships totaled $35 value because of the short maturity of these instruments.
million at December 31,1995.
investments and other assets include investments in common The fair value of fixed-rate long-term debt and redeemable l
and preferred securities, which are classified as financial invest-preference stock is estimated using quoted market prices whem ments in the Consolidated Balance Sheets, and the nuclear available or by discounting remaining cash flows at the current decommissioning trust fund. The fair value ofinvestments and market rate. De carrying amount of variable-rate long-term debt other assets is based on quoted market prices where available. It approximates fair value.
was not practicable to estimate the fair vahie of the Constellation Companies' investments in several financial partnecships which BGE and the Constellation Compam.es have loan guarantees on invest in nonpublic debt and equitv securities, investments in outstandmg indebtedness totaling $21 million and $47 million, 1
several partnerships which own so'lar powered energy produc-respectively, at December 31,1996 and $22 million and tion facilities, and in an investment 'm a company involved in the
$35 million, respectively, at December 31,1995 for which it development of international power pmjects because the timing is not pr eticable to determine fair value. h is not anticipated and magnitude of cash flows from these investments are difficult that thew loan guarantees wdl need to be funded.
to predict. Rese investments are canied at their original cost in the Consolidated Balance Sheets.
l I
52 I
i.
i Baltim0le Ga5 Bud flettric Company and Subsidlafles 1
1
)
Note 14. Quarterly Financial Data (Unaudited)
! The following data are unaudited but, in the opinion of Management, include all adjustments necessary for a fair presentation. BGE's i utility business is seasonal in nature with the peak sales periods generally occurring during the summer and winter months. Accordingly,
- comparisons among quarters of a year may not be indicative of oserall trends and changes in operations.
Quarter Ended Year Ended March 31 June 30 September 30 December 31 December 31 Iin thousands. exceptper share anwuntsi 1996 Revenues
$861,330 5731,707
$N25,960
$734,250 53,153,247
)
Income from operations 201,315 14N,637 275,667 43,846 669,465 Net income 100,7N1 64,553 146,482 (9921 310,N24 l
Earnings applicable to common stock 91.1IN 52.44N 137,862 (9,140) 272,288
-)
Earnings per share of common stock 0.62 0.36
.93 LO6) 1.H5 i
l 1995 Revenues
$717,806 5M2,500 5848,781 5725,712 52,934,799 i
income from operations 148,222 120,920
'299,744 126,806 695,692
)
i Net income 70,854 50,889 163,335 52,929 338,007 i
l Earnings applicable to common stock 60.902 40,937 153,104 42,486 297,429 j
Earnings per share of common stock 0.41 0.28 1.G4 0.29 2.02 1
i i
1996 Resultsfor the secemd quarter nJlect:
0 the $45 million after-Isu write af ofdisallourdirplacement energy costa (see Note iL h
O the $146 withon after-tax gain est the sale by a Cemstellation partrwrship of a poner purchase agreement Isee Note 3L l
D the $7.0 millkm and $10 million after rat wrote-offs by the Constellatitut Cumspanies of the insrstment in two geothermal wholesale prmer generating plants and the desrlopment tuts of a pnymsed coal-fired umerpntiect. testwctively (see Note 3h f
Resuhsfor the thmiquarter reflect the $6.2 million after-rat urite-t#by the Constellation Cemyumies of a portwn of a solarI"mtr P'vject insrstnwn!Isee Note 31 RessJts for thefemrrh quarter vrflect the $57.6 milham after ten write <fofdisallourd orplacement encryy costs (see Note iL 1995 Resultsfor the thiniquarter trJTect the 59.7 milhon after-rat write-ofofcertain Perryman costs (see Note It I
53 Baltimore Gas and Elettnc Company and Subsidiaties I
1
Directorsand O f fice r s Baltimore Gas and Electric Company Directors Christian H. Poindexter,58 Nancy Lampton,54 Carserlo Doyle,54 Chainnan of the Board and Chairman and Vice President, Electric Chief Executive Officer, BGE Chief Executive Officer, Interconnection & Transmission
^ * * ' " "
- "" ^
- "I H. Furlong Baldwin,65 Jon M. Files,61
"*E""Y Y
Chainnan of the Board and Vice President, Chief Executive Officer, George V. McGowan,69 Management Services Mercantile Bankshares Former Chairman of the Board Frank O. Heintz,52 Corporation and Chief Executive Officer, BGE Vice President, Gas Beverly B. Byron, M George L Russell, Jr., Esq.,67 Sharon S. Hostetter,52 Former Congresswoman, Partner, Piper & Marbury y;,
U.S. House of Representatives Michael D. Sullivan,57 Marketing & Sales J. Owen Cole,67 -
Chairman of the Board, Ronald W. l>>wman,52 Chairman of the Board, Golf America Stores,Inc.
Vice President. Fossil Energy Blue Cross and Blue Shield Officers of Maryland, Inc.
G. Dowell Schwartz, Jr.,60 Christian H. Poindexter,58 Vice President, General Senices Dan A.Colussy,65 Chairman of the Board and Chairman of the Board and arles Whey, M Chief Executive Officer Chief Executive Officer, Vice President, UNC, incorporated Edward A.Crooke,58 Finance & Accounting; President and Chief Fmancial Officer and
"[ ^
Chief Operating Oflicer Secretary Chief Operating Officer, BGE George C. Creel,62 Joseph A.Tiernan,58 Executive Vice President and Vice President, Corporate Affairs James R. Curtiss, Esq.,43 Acting Chief Operating Officer Partner, Winston & Strawn Stephen E Wood,44 Robert E. Denton,53 Vice President Jerome W. Gecide,67 S ior Vin President, Generation Retired Chainnan of the Board, Richard M. Bange, Jr.,52 PHH Corporation Thomas E Brady,47 Controller and Vice President, Customer Senice Assistant Secretary Freeman A. HrabowskiIII,46
& Distribution President, University of Thomas E. Ruszin, Jr.,42 Maryland. Baltimore County Charles H. Cruse,52 Treasurer and Assistant Secretary Vice President, Nuclear Energy John R. Collins,39 Assistant Treasurer f
i i S4 I
1 I
l Baltimore Gas and Electric Company and Subsidiaries l I~
i
~
Directors and O f fice rs Constellation Holdings, Inc.
i Directors Officers i
Edward A.Crooke,58 Jerome W. Geckle,67 Edward A.Crooke,58 Steven D. Kesler,45 Chainnan of the Board, Retired Chainnan of the Chairman of the Board, President, Constellation lloldings:
Board, PHH Corporation Constellation holdings Constellation President and Chief Edward W. Kay,69 Bruce M. Ambler,57 "I "E Retired Co-Chairman and President and Chief John E Walter,62 Bruce M. Ambler,57 Chief Operating OfUcer.
Executive Officer, President, President and Chief Emst & Young Constellation Holdings Constellation Power Executive OfEcer, George V. McGowan,69 Randall M. Griffin,52 Robert E. Windham,54 Constellation Holdings F
'M f
President, President, H. Furlong Baldwin,65 the Board and Chief Constellation Real Church Street Station Chainnan of the Board Executive Officer, BGE Estate Group and Chief Executive Christian H. Poindexter,58 James W. Jeffcoat,43 Ofheer, Mercantile Chairman of the Board President, Bankshares Corporation and Chief Executive Constellation Health Roger W. Gale,50 Officer, BGE Services President, Washingten Mayo A.Shattuck 111,42 Intemational Energy President and Chief
""E Operating Officer, Alex. Brown, Inc.
i BGE Energy Projects BGE Home Products Constellation Energy
& Services, Inc.
& Services, Inc.
Source, Inc.
Officers Officers Officers Edwr:d A.Crooke,58 Edward A.Crooke,58 Edward A.Crooke,58 Chr nnan of the Board Chainnan of the Board Chairman of the Board Stephen E Wood,44 William H. Munn,49 President and Chief President and Chief Executive Officer Executive Officer Changes in Officers and Directors j
Effective January 1,1996, George C. Creel, former Effective January 1,1997, Herbert D. Coss, Jr., retired Senior Vice President. Generation, was elected from the company with more than 40 years of service.
Executive Vice President. Mr. Creel also assumed the Frank O. Heintz replaced him as Vice President, Gas.
responsibilities of Chief Operating Officer until the completion of the merger. President and Chief E0'ective January 31,1997, Martin L Grass resigned
(
Operating Oincer Edward A. Crooke was assigned from BGE's Board of Directors due to time constraints i,
the responsibilities of co-chair of Constellation associated with his responsibilities as Chainnan and 55 Energy Corporation's Transition Management Team, Chief Executive Officer of Rite Aid Corporation.
which guided all merger-related activities.
Baltimore Gas and Electric Company and sutmdlarles
E i
Five-Year Statistical Summary 1996 1995 1994 1993 19V2 i
Common Stock Data Quarterly Eamings Per Share First Quarter......
$.62
$.41
$.49
$.38
$.37 Second Quarter..
.36
.28
.39
.31
.20 Third Quarter..
93 1.04
.79 1.01
.84 Fourth Qur.rter..
(.06)
.29
.26
.14
.22 Total.
$1.85
$2.02
$1.93
$1.85
$1.63 Dividends Dividends Declared Per Share..
$1.59
$1.55
$1.51
$1.47
$ 1.43 Dividends Paid Per Share..
1.58 1.54 1.50 1.46 1.42 Dividend Payout Ratio Reported..
85.9 %
76.7 %
78.2%
79.5 %
87.7 %
Excluding disallowed replacement energy costs.
70.0 %
76.7 %
78.29 79.5 %
87.7 %
Market Prices High.
$2W
$ 29
$25M
$27M
$24X Low.
25 22 20M 22X 19X Close.
2tu 28M 22X 25X 23X Capital Structure Consolidated Long-Term Debt.
45.0 %
42.8ck 46.19 47.4 %
46.19 Short-Term Debt..
5.0 4.4 1.0 0.2 Preferred and Preference Stock.
6.5 8.5 8.9 9.2 9.8 Common Shareholders' Equity..
43.5 44.3 44.0 43.4 43.9 Utility Only Long-Term Debt.
42.5 %
40.49 43.6%
44.5 %
42.9 %
Short-Term Debt..
6.1 5.2 1.2 0.3 Preferred and Preference Stock..
7.8 10.0 10.5 10.9 11.6 Common Shareholders' Equity..
43.6 44.4 44.7 44.6 45.2 The sum of the quarterly earnings per share amounts may not equal the totalfor the.reur due to changes in the average number of shares outtsanJing thnmghout the year The quarterly carnings per sh.tre amounts include < ertain one. time adjustments as shown in Note le ta the Consolidated Financial 5tatements.
'56 i
l 1
l l
Baltimate Gas and Electuc Company and Sutsiciaires 1
sf Shareholder inf ormation 1
Common Stock Dividends and Price flanges 1996 1995 l
Disidend Price Dividend Price Declared liigh Low Declared liigh Low First Quarter
$.39
$ 29%
$ 26%
$.38
$ 25
$ 22 Second Quarter
.40 28 %
25 %
.39 26 %
23 %
Third Quarter
.40 28 %
25
.39 26%
24 %
Fourth Quarter
.40 28%
25h
.39 29 25h Total
$1.59
$ 1.55 i
Dividend Policy Transfer Agent and Registrar The common stock is entitled to dividends w hen and as Harris Trust and Savings Bank 1
declared by the Board of Directors.There are no limita-Chicago, Illinois tions in any indenture or other agreements on payment of dividends. lloiders of preferred stock (first) and holders Form 10 K j
of preference stock (next), however, are entitled to Up<m written request, the company will furnish, receive, when and as declared from the surplus or net without charge, a copy of its Fonn 10-K annual profits, cumulative yearly dividends at the fixed report, including financial statements, after it is filed preferential rate specified for each series and no more, with the Securities and Exchange Commission in i
payable quarterly. They are also entitled to receive, w hen March 1997. Requests should be addressed to due, the applicable preference stock redemption payments Charles W. Shis ery, Chief Financial Officer and j
before any dividend on the common stock shall be paid or Secretary,Vice President-Finance & Accounting, 4
set apart. Dividends have been paid on the common stock P. O. Ilox 1475. Italtimore, Maryland 21203-1475.
continuously since 1910. Future dividends depend upon j
future earnings, the financial condition of the company, Auditors and other factors. Quanerly dividends were declared on the common stock during 1996 and 1995 in the amounts Coopers & Lybrand L.L.P.
1 shown above.
Executive Offices Gas and Electric Building Common Stock Dividend Dates Charles Center 4
3 Record dates are normally on the loth of March, June.
Baltimore, Maryland 21201 September, and December. Quarterly dividends are Mail:
P.O. Box 1475 customarily mailed to each shareholder on or about the Baltimore, Maryland 21203-1475 Ist of April, July, October, and January.
Shareholders' inquiries and Assistance i
Dividend Reinvestment and Stock Purchase Plan Shareholders desiring assistance with lost or stolen stock The company's Dividend Reinvestment and Stock certificates or dividend checks, name changes, address l
Purchase Plan provides an opportunity for holders of the changes, stock transfers, or other matters should call the company's common stock to acquire adJitional shares of shareholder services representatives on our toll. free such stock in a convenient and economical manner.
telephone numbers.
Participants in the plan may reinvest cash dividends on all or a portion of their shares of common stock and/or The following toll-free telephone numbers are available make optional cash payments.
during our business hours,8:(X) a.m. to 4:45 p.m.:
Baltimore Metropolitan Area (410)783-5920 Within Maryland 1 800-492-2861 Stock TradinD Outside of Maryland 1 800-258-0499 The company's common stock, which is traded under the ticker symbol BGE, is listed on the New York, Chicago, Letters should be addressed to:
and Pacific stock exchanges, and has unlisted trading Baltimore Gas and Electric Company 57 l privileges on the Boston, Cincinnati, and Philadelphia Shareholder Services t
exchanges. As of December 31,1996, there wcre P.O. Box 1642 77,550 common shareholders of record.
Baltimore, Maryland 21203-1642
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