BALTIMORE GAS & ELECTRIC CO - 10-Q Quarterly Report

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2004

Commission File Number	Exact name of registrant as specified in its charter	IRS Employer Identification No.
1-12869	CONSTELLATION ENERGY GROUP, INC.	52-1964611
1-1910	BALTIMORE GAS AND ELECTRIC COMPANY	52-0280210

MARYLAND
(State of Incorporation of both registrants)

750 E. PRATT STREET, BALTIMORE, MARYLAND 21202
(Address of principal executive offices) (Zip Code)

410-783-2800

(Registrants' telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether Constellation Energy Group, Inc. is an accelerated filer Yes ý No o

Indicate by check mark whether Baltimore Gas and Electric Company is an accelerated filer Yes o No ý

COMMON STOCK, WITHOUT PAR VALUE 168,490,454 SHARES OUTSTANDING OF
CONSTELLATION ENERGY GROUP, INC. ON APRIL 30, 2004.

Baltimore Gas and Electric Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form in the reduced disclosure format.

TABLE OF CONTENTS


Part I—Financial Information
	Item 1—Financial Statements
		Constellation Energy Group, Inc. and Subsidiaries
		Consolidated Statements of Income
		Consolidated Statements of Comprehensive Income
		Consolidated Balance Sheets
		Consolidated Statements of Cash Flows
		Baltimore Gas and Electric Company and Subsidiaries
		Consolidated Statements of Income
		Consolidated Balance Sheets
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations
		Introduction and Overview
		Strategy
		Business Environment
		Critical Accounting Policies
		Events of 2004
		Results of Operations
		Financial Condition
		Capital Resources
		Market Risk
		Other Matters
	Item 3—Quantitative and Qualitative Disclosures About Market Risk
	Item 4—Controls and Procedures
Part II—Other Information
	Item 1—Legal Proceedings
	Item 5—Other Information
	Item 6—Exhibits and Reports on Form 8-K
	Signature

PART 1—FINANCIAL INFORMATION

Item 1—Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

*Three Months Ended March 31,*		2004			2003

		(In millions, except per share amounts)
Revenues
	Nonregulated revenues	$	2,234.3		$	1,545.5
	Regulated electric revenues		484.4			486.3
	Regulated gas revenues		317.9			298.2

	Total revenues		3,036.6			2,330.0
Expenses
	Operating expenses		2,600.7			1,978.0
	Depreciation and amortization		123.0			111.1
	Accretion of asset retirement obligations		11.2			10.7
	Taxes other than income taxes		67.5			68.3

	Total expenses		2,802.4			2,168.1
Net Gain on Sales of Investments and Other Assets			1.5			13.7

Income from Operations			235.7			175.6
Other Income			4.8			8.9
Fixed Charges
	Interest expense		84.8			82.3
	Interest capitalized and allowance for borrowed funds used during construction		(2.6	)		(4.4	)
	BGE preference stock dividends		3.3			3.3

	Total fixed charges		85.5			81.2

Income from Continuing Operations Before Income Taxes			155.0			103.3
Income Taxes			42.5			36.3

Income from Continuing Operations and Before Cumulative Effects of Changes in Accounting Principles			112.5			67.0
Loss from Discontinued Operations, Net of Income Taxes of $23.8			(46.3	)		—
Cumulative Effects of Changes in Accounting Principles, Net of Income Taxes of $119.5			—			(198.4	)

Net Income (Loss)		$	66.2		$	(131.4	)

Earnings (Loss) Applicable to Common Stock		$	66.2		$	(131.4	)

Average Shares of Common Stock Outstanding—Basic			168.1			164.9
Average Shares of Common Stock Outstanding—Diluted			169.2			164.9
Earnings Per Common Share and Earnings Per Common Share—Assuming Dilution from Continuing Operations and Before Cumulative Effects of Changes in Accounting Principles		$	0.66		$	0.40
Loss from Discontinued Operations			(0.27	)		—
Cumulative Effects of Changes in Accounting Principles			—			(1.20	)

Earnings (Loss) Per Common Share and Earnings (Loss) Per Common Share—Assuming Dilution		$	0.39		$	(0.80	)

Dividends Declared Per Common Share		$	0.285		$	0.260

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

*Three Months Ended March 31,*			2004			2003

			(In millions)
Net Income (Loss)			$	66.2		$	(131.4	)
	Other comprehensive income (OCI)
		Reclassification of net gain on sales of securities from OCI to net income, net of taxes		(0.3	)		(2.6	)
		Reclassification of net gain on hedging instruments from OCI to net income, net of taxes		(24.8	)		(6.0	)
		Net unrealized gain (loss) on hedging instruments, net of taxes		96.3			(6.0	)
		Net unrealized gain (loss) on securities, net of taxes		26.9			(11.7	)

Comprehensive Income (Loss)			$	164.3		$	(157.7	)

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

CONSOLIDATED BALANCE SHEETS

Constellation Energy Group, Inc. and Subsidiaries

			*March 31,* 2004*			December 31, 2003

			(In millions)
Assets
	Current Assets
		Cash and cash equivalents	$	840.8		$	721.3
		Accounts receivable (net of allowance for uncollectibles of $53.5 and $51.7, respectively)		1,441.1			1,563.0
		Mark-to-market energy assets		569.5			488.3
		Risk management assets		577.7			249.5
		Materials and supplies		202.9			211.7
		Fuel stocks		108.9			178.2
		Assets held for sale—discontinued operations		87.6			—
		Acquired contracts, net of amortization		50.9			67.0
		Other		177.8			154.4

		Total current assets		4,057.2			3,633.4

	Investments and Other Assets
		Nuclear decommissioning trust funds		792.5			736.1
		Investments in qualifying facilities and power projects		328.1			332.6
		Mark-to-market energy assets		343.5			261.9
		Risk management assets		251.6			158.4
		Goodwill		144.1			144.0
		Acquired contracts, net of amortization		98.8			105.8
		Other		238.1			238.0

		Total investments and other assets		2,196.7			1,976.8

	Property, Plant and Equipment
		Regulated property, plant and equipment		5,285.8			5,266.7
		Nonregulated generation property, plant and equipment		7,614.9			7,769.1
		Other nonregulated property, plant and equipment		404.2			340.9
		Nuclear fuel (net of amortization)		229.6			202.9
		Accumulated depreciation		(4,001.4	)		(3,978.1	)

		Net property, plant and equipment		9,533.1			9,601.5

	Deferred Charges
		Regulatory assets (net)		211.1			229.5
		Other		138.2			149.6

		Total deferred charges		349.3			379.1

	Total Assets		$	16,136.3		$	15,590.8

* Unaudited

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

CONSOLIDATED BALANCE SHEETS

Constellation Energy Group, Inc. and Subsidiaries

			*March 31,* 2004*			December 31, 2003

			(In millions)
Liabilities and Equity
	Current Liabilities
		Short-term borrowings	$	7.5		$	9.6
		Current portion of long-term debt		362.9			343.2
		Accounts payable		1,051.1			1,167.7
		Customer deposits and collateral		235.9			181.7
		Mark-to-market energy liabilities		544.3			474.6
		Risk management liabilities		193.9			134.6
		Liabilities associated with assets held for sale		47.5			—
		Other		442.7			523.6

		Total current liabilities		2,885.8			2,835.0

	Deferred Credits and Other Liabilities
		Deferred income taxes		1,466.4			1,384.4
		Mark-to-market energy liabilities		355.1			258.0
		Risk management liabilities		404.0			170.1
		Asset retirement obligations		605.1			595.9
		Postretirement and postemployment benefits		364.2			361.8
		Net pension liability		185.6			225.7
		Deferred investment tax credits		76.6			78.4
		Other		197.5			198.4

		Total deferred credits and other liabilities		3,654.5			3,272.7

	Long-term Debt
		Long-term debt of Constellation Energy		3,350.0			3,350.0
		Long-term debt of nonregulated businesses		384.9			389.2
		First refunding mortgage bonds of BGE		476.1			476.1
		Other long-term debt of BGE		919.6			919.6
		6.20% deferrable interest subordinated debentures due October 15, 2043 to BGE wholly owned BGE Capital Trust II relating to trust preferred securities		257.7			257.7
		Unamortized discount and premium		(12.8	)		(10.2	)
		Current portion of long-term debt		(362.9	)		(343.2	)

		Total long-term debt		5,012.6			5,039.2

	Minority Interests			115.7			113.4
	BGE Preference Stock Not Subject to Mandatory Redemption			190.0			190.0
	Common Shareholders' Equity
		Common stock		2,200.6			2,179.8
		Retained earnings		2,100.2			2,081.9
		Accumulated other comprehensive loss		(23.1	)		(121.2	)

		Total common shareholders' equity		4,277.7			4,140.5

	Commitments, Guarantees, and Contingencies (see Notes)
	Total Liabilities and Equity		$	16,136.3		$	15,590.8

* Unaudited

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

Three Months Ended March 31,				2004			2003

				(In millions)
Cash Flows From Operating Activities
	Net income (loss)			$	66.2		$	(131.4	)
	Adjustments to reconcile to net cash provided by operating activities
		Loss from discontinued operations			46.3			—
		Cumulative effects of changes in accounting principles			—			198.4
		Depreciation and amortization			156.6			139.4
		Accretion of asset retirement obligations			11.2			10.7
		Deferred income taxes			27.8			30.5
		Investment tax credit adjustments			(1.8	)		(1.8	)
		Deferred fuel costs			4.0			(24.9	)
		Pension and postemployment benefits			(36.9	)		(98.1	)
		Net gain on sales of investments and other assets			(1.5	)		(13.7	)
		Equity in earnings of affiliates less than dividends received			3.3			8.7
		Changes in
			Accounts receivable		119.2			(559.4	)
			Mark-to-market energy assets and liabilities		4.0			37.1
			Risk management assets and liabilities		2.2			(61.6	)
			Materials, supplies and fuel stocks		71.9			44.8
			Other current assets		(25.9	)		(40.9	)
			Accounts payable		(121.6	)		486.0
			Other current liabilities		7.4			190.2
			Other		(0.8	)		28.8

	Net cash provided by operating activities				331.6			242.8

Cash Flows From Investing Activities
	Purchases of property, plant and equipment				(171.3	)		(145.2	)
	Contributions to nuclear decommissioning trust funds				(8.8	)		(4.4	)
	Sales of investments and other assets				6.7			89.8
	Other investments				(7.4	)		(21.9	)

	Net cash used in investing activities				(180.8	)		(81.7	)

Cash Flows From Financing Activities
	Net (maturity) issuance of short-term borrowings				(2.1	)		1.9
	Proceeds from issuance of common stock				15.2			10.1
	Repayment of long-term debt				(2.4	)		(134.9	)
	Common stock dividends paid				(43.5	)		(39.6	)
	Other				1.5			(1.4	)

	Net cash used in financing activities				(31.3	)		(163.9	)

Net Increase (Decrease) in Cash and Cash Equivalents					119.5			(2.8	)
Cash and Cash Equivalents at Beginning of Period					721.3			615.0

Cash and Cash Equivalents at End of Period				$	840.8		$	612.2

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Baltimore Gas and Electric Company and Subsidiaries

Three Months Ended March 31,			2004			2003

			(In millions)
Revenues
	Electric revenues		$	484.4		$	486.3
	Gas revenues			319.5			303.5

	Total revenues			803.9			789.8

Expenses
	Operating expenses
		Electricity purchased for resale		240.4			243.6
		Gas purchased for resale		216.0			203.1
		Operations and maintenance		92.6			77.4
	Depreciation and amortization			59.9			55.9
	Taxes other than income taxes			45.2			45.2

	Total expenses			654.1			625.2

Income from Operations				149.8			164.6
Other Income				1.0			0.3
Fixed Charges
	Interest expense			25.4			30.0
	Allowance for borrowed funds used during construction			(0.3	)		(0.5	)

	Total fixed charges			25.1			29.5

Income Before Income Taxes				125.7			135.4
Income Taxes				49.7			53.6

Net Income				76.0			81.8
Preference Stock Dividends				3.3			3.3

Earnings Applicable to Common Stock			$	72.7		$	78.5

See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current period's presentation.

CONSOLIDATED BALANCE SHEETS

Baltimore Gas and Electric Company and Subsidiaries

			*March 31,* 2004*		December 31, 2003

			(In millions)
Assets
	Current Assets
		Cash and cash equivalents	$	7.9	$	11.0
		Accounts receivable (net of allowance for uncollectibles of $11.7 and $10.7, respectively)		359.1		354.8
		Investment in cash pool, affiliated company		358.8		230.2
		Accounts receivable, affiliated companies		1.6		4.5
		Fuel stocks		14.9		62.8
		Materials and supplies		32.8		29.9
		Prepaid taxes other than income taxes		21.5		42.8
		Other		9.3		9.9

		Total current assets