constellation energy Q1 2006 Earnings Presentation

Constellation EnergyQ1 2006 Earnings Presentation

April 28, 2006

2

Forward-looking Statements DisclaimerCertain statements made in this presentation are forward-looking statements and may contain words such as “believes,”“anticipates,” “expects,” “intends,” “plans,” and other similar words. We also disclose non-historical information that represents management’s expectations, which are based on numerous assumptions. These statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to be materially different from projected results. These risks include, but are not limited to: the timing and extent of changes in commodity prices for energy including coal, natural gas, oil, electricity, nuclear fuel, and emissions allowances; the timing and extent of deregulation of, and competition in, the energy markets, and the rules and regulations adopted on a transitional basis in those markets; the conditions of the capital markets, interest rates, availability of credit, liquidity and general economic conditions, as well as Constellation Energy’s and BGE’s ability to maintain their current credit ratings; the ability to attract and retain customers in our competitive supply activities and to adequately forecast their energy usage; the effectiveness of Constellation Energy’s and BGE’s risk management policies and procedures and the ability and willingness of our counterparties to satisfy their financial and other commitments; the liquidity and competitiveness of wholesale markets for energy commodities; uncertainties associated with estimating natural gas reserves, developing properties and extracting gas; operational factors affecting the operations of our generating facilities (including nuclear facilities) and BGE’s transmission and distribution facilities, including catastrophic weather-related damages, unscheduled outages or repairs, unanticipated changes in fuel costs or availability, unavailability of coal or gas transportation or electric transmission services, workforce issues, terrorism, liabilities associated with catastrophic events, and other events beyond our control; the inability of BGE to recover all its costs associated with providing electric residential customers service during or after the period when electric rates are frozen per regulation; the effect of weather and general economic and business conditions on energy supply, demand, and prices; regulatory or legislative developments that affect deregulation, transmission or distribution rates, demand for energy, or that would increase costs, including costs related to nuclear power plants, safety, or environmental compliance; the actual outcome of uncertainties associated with assumptions and estimates using judgment when applying critical accounting policies and preparing financial statements, including factors that are estimated in applying mark-to-market accounting, such as the ability to obtain market prices and in the absence of verifiable market prices, the appropriateness of models and model impacts (including, but not limited to, extreme contractual load obligations, unit availability, forward commodity prices, interest rates, correlation and volatility factors); changes in accounting principles or practices; losses on the sale or write-down of assets due to impairment events or changes in management intent with regard to either holding or selling certain assets; cost and other effects of legal and administrative proceedings that may not be covered by insurance, including environmental liabilities; and the inability to complete the proposed merger with FPL Group, Inc., to successfully integrate the businesses of Constellation Energy and FPL Group after the merger or to achieve anticipated synergies. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Please see our periodic reports filed with the SEC for more information on these factors. These forward-looking statements represent estimates and assumptions only as of the date of this presentation, and no duty is undertaken to update them to reflect new information, events or circumstances.

3

Use of Non-GAAP Financial MeasuresConstellation Energy presents adjusted earnings per share (adjusted EPS) in addition to its reported earnings per share in accordance with generally accepted accounting principles (reported GAAP EPS). Adjusted EPS is a non-GAAP financial measure that differs from reported GAAP EPS because it excludes the cumulative effects of changes in accounting principles, discontinued operations, special items (which we define as significant items that are not related to our ongoing, underlying business or which distort comparability of results) included in operations, and the impact of certain economic, non-qualifying hedges. This quarter we also provided adjusted EPS excluding synfuel earnings due to the potential for oil-price volatility to result in a difficult-to-forecast phase-out of tax credits. Adjusted EPS presented in future quarters will exclude synfuel earnings. Constellation Energy has excluded from adjusted earnings two categories of non-qualifying hedges: hedges against the Commodities Group New England fuel adjustment clauses and hedges on gas transportation and storage contracts. The mark-to-market impact of these hedges was significant to reported results, but economically neutral to the company in that offsetting gains on underlying accrual positions will be recognized in the future. We present adjusted EPS and adjusted EPS excluding synfuel earnings because we believe that it is appropriate for investors to consider results excluding these items in addition to our results in accordance with GAAP. We believe such measures provide a picture of our results that is comparable among periods since it excludes the impact of items such as workforce reduction costs or gains and losses on the sale of a business, which may recur occasionally, but tend to be irregular as to timing, thereby distorting comparisons between periods. However, investors should note that these non-GAAP measures involve judgments by management (in particular, judgments as to what is classified as a special item or an economic, non-qualifying hedge to be excluded from adjusted earnings). These non-GAAP measures are also used to evaluate management's performance and for compensation purposes. Constellation Energy also provides its earnings guidance in terms of adjusted EPS. Constellation Energy is unable to reconcile its guidance to GAAP earnings per share because we do not predict the future impact of special items, economic, non-qualifying hedges or synfuel earnings due to the difficulty of doing so. The impact of special items, economic, non-qualifying hedges, or synfuel earnings could be material to our operating results computed in accordance with GAAP. We note that such information is not in accordance with GAAP and should not be viewed as an alternative to GAAP information. A reconciliation of pro-forma information to GAAP information is included either on the slide where the information appears or on one of the slides in the Non-GAAP Measures section provided at the end of the presentation. Please see the Summary of Non-GAAP Measures included to find the appropriate GAAP reconciliation and its related slide(s). These slides are only intended to be reviewed in conjunction with the oral presentation to which they relate.

4

Non-Solicitation This communication is not a solicitation of a proxy from any security holder of FPL Group or Constellation Energy. Constellation Energy intends to file with the Securities and Exchange Commission a registration statement that will include a joint proxy statement/prospectus of Constellation Energy and FPL Group and other relevant documents to be mailed to security holders in connection with the proposed transaction. WE URGE INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FPL GROUP, CONSTELLATION ENERGY, AND THE PROPOSED TRANSACTION. A definitive proxy statement will be sent to security holders of FPL Group and Constellation Energy seeking approval of the proposed transaction. Investors and security holders will be able to obtain these materials (when they are available) and other documents filed with the SEC free of charge at the SEC’s website, www.sec.gov. In addition, a copy of the joint proxy statement/prospectus (when it becomes available) may be obtained free of charge from Constellation Energy, Shareholder Services, 750 E. Pratt Street, Baltimore, MD 21202, or from FPL Group, Shareholder Services, P.O. Box 14000, 700 Universe Blvd., Juno Beach, Florida 33408-0420.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

FPL Group, Constellation Energy, and their respective directors and executive officers of FPL Group and Constellation Energy and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding FPL Group’s directors and executive officers is available in its proxy statement filed with the SEC by FPL Group on April 5, 2005, and information regarding Constellation Energy’s directors and executive officers is available in its proxy statement filed with the SEC by Constellation Energy on April 13, 2005. Information regarding J. Brian Ferguson, a director of FPL Group elected since the date of the filing of the 2005 definitive proxy statement, can be found in FPL Group’s filing on Form 10-Q dated August 4, 2005. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

5

Q1 2006 Earnings Per Share Summary

$0.46 - $0.61Adjusted Q1 2006 Earnings Guidance (Excluding Synfuel) (4)

(0.07)(0.02)Synfuel Earnings (2)

$0.64$0.68Adjusted Earnings (Excluding Synfuels) (3)

(1) Excludes special items and certain economic, non-qualifying hedges(2) Represents synfuel earnings of $0.09 per share and expected synfuel phase-out risk of ($0.07) per share in Q1’06 and synfuel earnings of $0.07

per share in Q1’05 (3) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings(4) Excludes estimated synfuel earnings of $0.10 per share and estimated synfuel phase-out risk of ($0.03) per share

(0.01)0.01Special Items

See Appendix

0.710.70Adjusted Earnings (1)

0.040.06Loss on Economic Non-Qualifying Hedges

$0.68 $0.63GAAP Earnings

Q1 2005Q1 2006($ per share)

6

Q1 2006 Operating Highlights

• Strong Commodities Group performance

– Higher backlog going into the quarter

– Strong portfolio management and trading results

– Substantial progress toward achieving 2006 new business goals and adding certainty to future earnings objectives

• Completed planned nuclear refueling outages

– Record refueling outage at Nine Mile Point Unit 2

– Calvert Cliffs Unit 1 reactor vessel head replacement will result in improved future reliability and outage performance

• Delivered $10 million of incremental productivity gains

• NewEnergy performing in line with expectation for the year

7

Maryland Legislative Session

• 2006 – Election Year for all Maryland officeholders

• End of BGE Price Freeze Service, plus historically high energy commodity prices, plus merger – created political intensity

• New Maryland PSC controversy deepened partisan political dynamics late in the General Assembly session

8

Rate Stabilization Plan• Governor-supported rate stabilization plan filed with Maryland PSC

• Phases in rate increases over an 18-month period to reach market prices on January 1, 2008

• Deferred balances recovered over two-year period beginning June 1, 2007– Assuming 50% participation, on June 1, 2007 peak regulatory asset of $259 million and peak

funding requirement of $189 million

• BGE to recover interest at BGE’s actual borrowing cost

• Constellation offered to provide economic benefits of $60 million per year for 10 years beginning January 1, 2007 contingent on merger closing

– Redirect Nuclear Decommissioning Revenue to reduce residential customer rates (~$19 million)

– Cease collecting residential POLR return ($20 million)

– Share portion of merger synergies (~$21 million)

* Offset by $60 million per year upon merger closing.

Market+25.0%+5.0%*+19.4%Customer Rate Increase

Jan. 1, 2008

June 1, 2007

Jan. 1, 2007

July 1, 2006

9

Merger Update

• As with any utility merger, some synergy sharing with customers is expected– Regulated savings expected to be modest compared to other

mergers of utilities with contiguous service territories– Rate stabilization plan filed last week with the Maryland PSC

provided economic benefits of $60 million per year, including synergy sharing, which are contingent upon merger closing

• Procedural schedule for Maryland PSC published April 27

• Uncertainty surrounding closing of merger remains– If risks to closing the merger or economics become unacceptable,

Constellation and FPL could agree to terminate the merger

10

Earnings Outlook

-

$5.25 - 5.75

-

$5.25 - 5.75

2008

GuidanceActual

$0.16$0.14$0.34Memo: Current Projection of Synfuel EPS

(1) Excludes special items and certain economic, non-qualifying hedges (2) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings

See Appendix

17% - 21%$4.40 - 4.65$3.35 - 3.65$3.28Adjusted Earnings Excluding Synfuels (2)

$0.34$0.31$0.34Synfuels Earnings (Included in 1/31/06 Guidance)

13%- 17%$4.75 - 5.00$3.65 - 3.95$3.62Adjusted Earnings (1)

CAGR200720062005($ per share)

Financial Overview

E. Follin Smith

12

Q1 2006 Adjusted EPS

0.040.06Loss on Economic Non-Qualifying Hedges

($0.04)($0.06)Total Non-Qualifying Hedges

-(0.06)Gas

$(0.04)$ -Power

Non-Qualifying Hedges:

(1) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings

(0.01)0.01Special Items

See Appendix

$0.64$0.68Adjusted Earnings Per Share (1)

(0.07)(0.02)Synfuel Earnings

$0.68$0.63GAAP Earnings

Q1 2005Q1 2006($ per share)

13

Q1 2006 Guidance

(1) Excludes special items and certain economic, non-qualifying hedges(2) Represents Synfuel earnings of $0.09 per share and expected synfuel phase-out risk of ($0.07) per share(3) Represents estimated synfuel earnings of $0.10 per share and estimated synfuel phase-out risk of ($0.03) per share(4) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings

$0.07 – 0.22$0.46 – 0.61$0.68Adjusted Earnings (Excluding Synfuels) (4)

See Appendix

(0.05)0.07 (3)0.02 (2)Synfuel Earnings

$0.02 – 0.17$0.53 – 0.68$0.70 Adjusted Earnings (Including Synfuels) (1)

ChangeGuidanceActual($ per share)

14

Q1 2006 Segment Earnings Per Share (1)

$0.46 - $0.61

(1) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings(2) Excludes $0.10 per share of expected synfuel earnings and ($0.03) per share of assumed synfuel phase-out risk

NM0.02(0.01)0.01Other Non-regulated

See Appendix

Adjusted Q1 2006 Earnings Guidance (2)

6%$0.04$0.64$0.68Adjusted Earnings Per Share (1)

16%0.040.250.29Merchant

(5%)$(0.02)$0.40 $0.38BGE

%EPSQ1 2005Q1 2006

Change($ per share)

15

$0.38 - $0.43$0.38Adjusted Earnings

GuidanceActual

Q1 2006Adjusted Earnings vs. Guidance($ per share)

BGE

$(0.02)

Change

$0.40$0.38Adjusted Earnings

Q1 2005Q1 2006

Adjusted Earnings vs. Prior Year ($ per share)

See Appendix

16

$0.05 - 0.20$0.29Adjusted Earnings (1)

GuidanceActual

Q1 2006Adjusted Earnings vs. Adjusted Guidance($ per share)

Merchant

-3¢ Planned Outages+3¢ Productivity

See Appendix

(1) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings

- 4¢ Other

-4¢ Competitive Transition Charge

-20¢ Mid-Atlantic Fleet

+9¢ Wholesale Comp. Supply New Business

+23¢ Wholesale Comp. Supply Backlog

Variance Primarily Due to:

$0.04$0.25$0.29Adjusted Earnings (1)

ChangeQ1 2005Q1 2006Adjusted Earnings vs. Prior Year($ per share)

17

Merchant Gross Margin (1)

126375NewEnergy

13183 214Wholesale Competitive Supply

41317Qualifying Facilities/Other

(1) Excludes special items, certain economic, non-qualifying hedges and synfuel results

(6)177171Plants with PPAs

See Appendix

12%$65$524$589Total Merchant Gross Margin

($76)$188$112Mid-Atlantic Fleet

%$Q1 2005Q1 2006

Change($ in millions)

18

Merchant – Below Gross Margin

$0.04$0.25$0.29Adjusted EPS

178.6180.5Shares Outstanding

$45

(1) Excludes special items, certain economic, non-qualifying hedges and synfuel results

N.M.(7)(26)(33)Income Tax

20%14 7185Pre-tax Income

17%8(46)(38)Net Interest Expense

(34%)(10)(29)(39)Other Expenses

(10%)(6)(60)(66)D & A

(14%)(43)(318)(361)O & M

See Appendix

16%$7$52Net Income

5%6117123EBIT

(14%)(59)(407)(466)Total Costs Below Gross Margin

12%$65 $524$589Gross Margin

%$Q1 2005 (1)Q1 2006 (1)

Change($ in millions, except per share)

19

Wholesale Competitive Supply (1)

New Business

5361114Total New Business Realized (2)

(1) Excludes special items, certain economic, non-qualifying hedges and synfuel results(2) Includes power, gas (non-project), and coal gross margin and gas project margin (projected revenue less operating, depreciation, depletion and

interest expenses incurred at the project level)

781997Portfolio Management & Trading

See Appendix

146%$120$82$202Total Contribution Margin (2)

(25)4217Originated & Realized (2)

$67$21 $88Total Already Originated Business (2)

%$Q1 2005Q1 2006

Change($ in millions)

20

Wholesale Competitive Supply: Origination

(1) Includes power, gas (non-project), and coal gross margin and gas project margin (projected revenue less operating, depreciation, depletion and interest expenses incurred at the project level)

15%48%% of Total Origination Target Achieved

22%50%% of Current Year Target Achieved

Total Wholesale Competitive Supply Origination Value to be Realized (1)

$504$824Total Origination Target (including future years)

$268$452Current Year Target

18171Future Years

$78$398Total Originated

$60$227Current Year

To Be Realized In:

Q1 2005Q1 2006($ in millions)

21

Wholesale Competitive Supply Backlog

(1) Includes power, gas (non-project), and coal gross margin and gas project margin (projected revenue less operating, depreciation, depletion and interest expenses incurred at the project level)

(2) Reflects backlog value as of 12/15/05

Backlog (1)

(as of 3/31/06)

300241

194

227

83

33

$0

$100

$200

$300

$400

$500

$600

2006 2007 2008

($ i

n m

illio

ns)

Contracted in2006

Contracted Priorto 12/31/05

527

324

227

(2)

22

NewEnergy: Q1 2006 Highlights

+19%$75 millionTotal Gross Margin (1)

+12%91.2Gas Volume Delivered (Bcf)

+12%340Market Volume Served (Bcf)

Gas

68%Q1 Retention Rate

+17%15.3 millionVolume Delivered (Megawatt Hours)

+1 point24%Market Share

+6%15,100Market Volume Served (Peak Megawatts)

Electric

Changevs. Q1 2005Q1 2006

See Appendix

(1) Excludes certain economic, non-qualifying hedges

23

NewEnergy: Retail MWh Backlog

Contracted Retail MWh (as of 3/31/06)

64

15

44

2490

20

40

60

80

100

2005 2006 2007 2008

(MW

hs

in m

illio

ns)

Delivered Backlog

80% of 2006 plan MWhs delivered or contracted

24

Limiting Variability – Portfolio Management

Percent Hedged as of 3/31/06

0.060.05Fuel down $0.10/MMBtu, Power unch.

$(0.05)$(0.03)Power down $1/MWh, Fuel unchanged

(1) Numbers may not sum due to roundingNote: Percent hedged includes Mid-Atlantic Fleet, Plants with PPA’s, Power Wholesale Competitive Supply and NewEnergy.

78%86%Fuel

$0.01

Sensitivity to Price Changes as of 3/31/06 ($ per share)

$0.01Power down $1/MWh, Fuel down $0.10/MMBtu (1)

89%Power 81%

20082007

MTM portfolio VaR levels remain low at an average $11.7 million for the quarter

25

Synfuel

46%46%Tax Credit Phase-out Percentage

$0.16$0.14$0.34Net Synfuel EPS (Post Phase-out)

($0.33)($0.32)$0.00Synfuel EPS Impact

$9$8$ -Production Expenses, Net of Tax

Impact of Phase-out (as of 3/31/06)

$0.49$0.46$0.34Synfuel EPS (Pre-Phase-out)

Pre-Phase-out:

($59)

(68)

$88

147

36

($95)

2007 Estimate

($57)

(65)

$83

144

38

($99)

2006 Estimate

$ -Net Income

-Tax Credits

$62Net Income (Pre-Phase-out)

115Tax Credits

32Tax Benefit of Pre-tax Loss

($85)Pre-tax Loss of Production

2005 Actual($ in millions, except per share amounts)

26

(297)(1)(82)(214)Capital Expenditures & Investments

16085993Depreciation & Amortization

(60)Dividends

21Equity Issuances – Benefit Plans

141-13Asset Dispositions & Contract Restructuring

(726)20133(879)Working Capital & Other

(32)Pension Adjustment (pre-tax)

($795)Net Cash Flow before Debt Issuances/(Payments)

(756)$29$179($932)Free Cash Flow

(137)7(23)(121)Net CapEx

$125$1$69$55Net Income Before Special Items

TotalOther

Non-RegUtilityMerchant($ in millions)

Q1 2006 Consolidated Cash Flow

See Appendix

27

Balance Sheet

See Appendix

(1) Includes preferred stock and minority interest(2) Includes FAS 87 Minimum Pension Liability reduction to equity of $77 million in 2005(3) Related to cash flow hedges of commodity transactions(4) Excludes AOCI Balance related to cash flow hedges of commodity transactions and 3rd Party Cash Collateral

$0.2$0.43rd Party Cash Collateral

$1.0$0.3AOCI Balance (3)

46.6%43.7%Adjusted Net Debt to Adjusted Total Capital (4)

4.73.9Net Debt

$5.2$4.7Total Debt

50.4%42.8%Net Debt to Total Capital

Actual

0.10.150% Trust Preferred

Capital

4.55.1 (2)Equity (1)

(0.4)(0.8)Less: Cash

$9.4$9.2Total Capital

Debt

3/31/0612/31/05($ in billions)

28

Credit Metrics

43.7%

$2.1

42.8%

12/31/05

50.6%

$1.9

49.9%

12/31/03

See Appendix

(1) Net debt adjusted to exclude 3rd party collateral. Total capital adjusted to exclude OCI balance related to cash flow hedges of commodity transactions and 3rd party collateral

42% - 46%54.8%Adjusted Net Debt to Adjusted Total Capital (1)

Projected

$0.6Excess Liquidity ($ billions)

45% - 49%

12/31/06

54.6%Net Debt to Total Capital

12/31/01

Actual

• Metrics much stronger than when current credit ratings were established• 4 years of dependable performance from highly hedged deregulated business model• Significantly larger company with more powerful liquidity profile

29

Q2 2006 Earnings Per Share Guidance

$0.59$0.30 - $0.45Adjusted Earnings Per Share [1]

$0.09

0.01

0.13

$0.45

Actual Q2 2005

See Appendix

(0.01) - 0.01Other

[1] Excludes special items, certain economic, non-qualifying hedges and synfuel earnings

$0.06Synfuels

0.08 - 0.13BGE

$0.20 - $0.35Merchant

Guidance Q2 2006($ per share)

Additional Modeling Information

31

Adjusted Earnings Outlook (1)

2.46 2.42

2.82 2.82

3.12

2.83

3.62

3.28

3.65-3.95

3.35-3.65

4.75-5.00

4.40-4.65

5.25-5.75

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

2002 2003 2004 2005 2006E 2007E 2008E

Adjusted EPS Adjusted EPS (excluding synfuel)(1) Adjusted for the effect of special items and certain economic, non-qualifying hedges

See Appendix

14 – 16%19 – 24%27 - 31%2 – 11%16%0%17%Growth (Adj. EPS Excl. Synfuel)

13 – 15%11 – 15%27 – 30%1 – 9%16%11%15%Growth (Adj. EPS)

6-yr CAGR’07E-’08E’06E-’07E’05-’06E’04-’05’03-’04’02-’03

32

1.5 1.81.80.5Production (tons in millions)

46%

$0.01

($0.03)

($5)

(6)

$1

$0.04

$7

13

3

($9)

Q1 2006 Actual



46%46%Expected Tax Credit Phase-out Percentage

$3$3$ -Production Exp., Net of Tax

Impact of Expected Phase-out (as of 3/31/06)


Pre-Phase-out:

($21)

(24)

$32

53

11

($32)

2007 Estimate

($20)

(24)

$32

52

11

($32)

2006 Estimate

$ -Net Income

-Tax Credits


45Tax Credits




Pace Synfuel (1)

(1) Numbers may not sum due to rounding

33

South Carolina Synfuel (1)

2.4 3.03.00.8Production (tons in millions)

46%

$0.01

($0.05)

($9)

(10)

$1

$0.06

$10

21

7

($18)

Q1 2006 Actual



46%46%Expected Tax Credit Phase-out Percentage

$5$5$ -Production Exp., Net of Tax

Impact of Expected Phase-out (as of 3/31/06)


Pre-Phase-out:

($38)

(43)

$56

94

25

($63)

2007 Estimate

($37)

(41)

$51

92

26

($68)

2006 Estimate

$ -Net Income

-Tax Credits


70Tax Credits




(1) Numbers may not sum due to rounding

Non-GAAP Reconciliations

35

Summary of Non-GAAP Measures

Slide(s) Where Used Slide Containing Non-GAAP Measure in Presentation Most Comparable GAAP Measure Reconciliation

Adjusted EPS Reported GAAP EPSQ106 Actual 5, 12, 13, 14, 15, 16, 18 36Q105 Actual 5, 12, 14, 15, 16, 18 36EPS Guidance 5, 13, 14, 15, 16, 29, 31 362005 YTD Actual 10, 31 372004 YTD Actual 31 372003 YTD Actual 31 372002 YTD Actual 31 37Q205 Actual 29 38

Q106 Merchant Gross Margin 17, 18, 19, 22 Income from Operations / Net Income 39Q105 Merchant Gross Margin 17, 18, 19, 22 40Q106 Merchant Below Gross Margin 18 39Q105 Merchant Below Gross Margin 18 40

Net Cash Flow before Debt Issuances/(Payments) 26 Operating, Investing and Financing Cash Flow 41Free Cash Flow 26 41

Debt to Total Capital 27, 28 Debt Divided by Total Capitalization 42Projected Debt to Total Capital 27, 28 42

36

Adjusted EPS Q106 and Q105We exclude special items and certain economic, non-qualifying fuel adjustment clause and gas transportation hedges because we believe that it is appropriate for investors to consider results excluding these items, in addition to our results in accordance with GAAP. We have also provided adjusted earnings excluding synfuel results due to the potential volatility and phase-out of the tax credits. We believe such measures provide a picture of our results that is comparable among periods since it excludes the impact of items, which may recur occasionally, but tend to be irregular as to timing and magnitude, thereby distorting comparisons between periods. However, investors should note that these non-GAAP measures involve judgment by management (in particular, judgments as to what is or is not classified as a special item). We also use these measures to evaluate performance and for compensation purposes.

RECONCILIATION:Merchant Regulated Regulated OtherEnergy Electric Gas BGE Nonreg. Total

A B C D = (B+C) E F =(A+D+E)

1Q06 ACTUAL RESULTS:

Reported GAAP EPS 0.24$ 0.19$ 0.19$ 0.38$ 0.01$ 0.63$ GAAP MEASURE

Special Items and Non-qualifying Hedges Included in Operations:

Non-qualifying Hedges (0.06) - - - - (0.06)

Merger-related Costs (0.01) - - - - (0.01)

Total Special Items and Non-qualifying Hedges (0.07) - - - - (0.07)

Adjusted EPS 0.31 0.19 0.19 0.38 0.01 0.70 NON-GAAP MEASURE

Synthetic fuel facility results 0.02 - - - - 0.02

Adjusted EPS excluding Synfuel results 0.29$ 0.19$ 0.19$ 0.38$ 0.01$ 0.68$ NON-GAAP MEASURE


Reported GAAP EPS 0.28$ 0.24$ 0.16$ 0.40$ -$ 0.68$

Income from Discontinued Operations - - - - 0.01 0.01 GAAP MEASURES

0.28 0.24 0.16 0.40 (0.01) 0.67

Special Items and Non-qualifying Hedges Included in Operations:


Adjusted EPS 0.32 0.24 0.16 0.40 (0.01) 0.71 NON-GAAP MEASURE


Adjusted EPS excluding Synfuel results 0.25$ 0.24$ 0.16$ 0.40$ (0.01)$ 0.64$ NON-GAAP MEASURE

EARNINGS GUIDANCE Constellation Energy is unable to reconcile its earnings guidance excluding special items, Non-qualifying hedges, and Synfuel results to GAAP earnings per share because we do not predict the future impact of special items such as the cumulative effect of changes in accounting principles, the disposition of assets, economic, nonqualifying hedges or synfuel results.

EPS Before Discontinued Operations

37

Adjusted EPS YTD 2005, 2004, 2003, 2002We exclude special items and certain economic, non-qualifying fuel adjustment clause and gas transportation hedges because we believe that it is appropriate for investors to consider results excluding these items, in addition to our results in accordance with GAAP. We have also provided adjusted earnings excluding synfuel results due to the potential volatility and phase-out of the tax credits. We believe such measures provide a picture of our results that is comparable among periods since it excludes the impact of items, which may recur occasionally, but tend to be irregular as to timing and magnitude, thereby distorting comparisons between periods. However, investors should note that these non-GAAP measures involve judgment by management (in particular, judgments as to what is or is not classified as a special item). We also use these measures to evaluate performance and for compensation purposes.

RECONCILIATION:

Total Total

2005 ACTUAL RESULTS: 2003 ACTUAL RESULTS:

Reported GAAP EPS 3.47$ Reported GAAP EPS 1.66$

Income from Discontinued Operations 0.13 GAAP MEASURES Income from Discontinued Operations 0.11 GAAP MEASURES

Cumulative Effects of Changes in Accounting Principles (0.04) Cumulative Effects of Changes in Accounting Principles (1.19)

3.38 2.74

Special Items and Non-qualifying Hedges Included in Operations: Special Items and Non-qualifying Hedges Included in Operations:

Non-qualifying Hedges (0.14) Non-qualifying Hedges (0.17)

Merger related transaction costs (0.09) Net Gain on Sales of Investments and Other Assets 0.10

Workforce Reduction Costs (0.01) Workforce Reduction Costs (0.01)

Total Special Items and Non-qualifying Hedges (0.24) Total Special Items and Non-qualifying Hedges (0.08)

Adjusted EPS 3.62 NON-GAAP MEASURE Adjusted EPS 2.82$ NON-GAAP MEASURE

Synthetic fuel facility results (0.34) Synthetic fuel facility results - Adjusted EPS excluding Synfuel results 3.28$ NON-GAAP MEASURE Adjusted EPS excluding Synfuel results 2.82$ NON-GAAP MEASURE

2004 ACTUAL RESULTS: 2002 ACTUAL RESULTS:Reported GAAP EPS 3.12$ Reported GAAP EPS 3.20$ (Loss) Income from Discontinued Operations (0.16) GAAP MEASURES Income from Discontinued Operations 0.06 GAAP MEASURESEPS Before Discontinued Operations 3.28 3.14 Special Items Included in Operations: Special Items Included in Operations:

Recognition of Prior Year Synthetic Fuel Tax Credits 0.21 Net Gain on Sales of Investments and Other Assets 1.02 Workforce Reduction Costs (0.03) Impairment Losses and Other Costs (0.11) Impairment Losses and Other Costs (0.01) Workforce Reduction Costs (0.23) Net Loss on Sales of Investments and Other Assets (0.01) Total Special Items 0.68 Total Special Items 0.16 Adjusted EPS 2.46$ NON-GAAP MEASURE

Adjusted EPS 3.12$ NON-GAAP MEASURE Synthetic fuel facility results (0.04)

Synthetic fuel facility results (0.29) Adjusted EPS excluding Synfuel results 2.42$ NON-GAAP MEASUREAdjusted EPS excluding Synfuel results 2.83$ NON-GAAP MEASURE

EPS Before Discontinued Operations and Cumulative Effects of Changes in Accounting Principles

EPS Before Discontinued Operations and Cumulative Effects of Changes in Accounting Principles

EPS Before Discontinued Operations and Cumulative

38

Adjusted EPS 2Q05We exclude special items and certain economic, non-qualifying fuel adjustment clause and gas transportation hedges because we believe that it is appropriate for investors to consider results excluding these items, in addition to our results in accordance with GAAP. We have also provided adjusted earnings excluding synfuel results due to the potential volatility and phase-out of the tax credits. We believe such measures provide a picture of our results that is comparable among periods since it excludes the impact of items, which may recur occasionally, but tend to be irregular as to timing and magnitude, thereby distorting comparisons between periods. However, investors should note that these non-GAAP measures involve judgment by management (in particular, judgments as to what is or is not classified as a special item). We also use these measures to evaluate performance and for compensation purposes.

RECONCILIATION:Merchant Regulated Regulated OtherEnergy Electric Gas BGE Nonreg. Total

A B C D = (B+C) E F =(A+D+E)


Reported GAAP EPS 0.53$ 0.14$ (0.01)$ 0.13$ 0.02$ 0.68$

Income from Discontinued Operations 0.01 - - - 0.01 0.02 GAAP MEASURES

0.52 0.14 (0.01) 0.13 0.01 0.66

Special Items, Non-qualifying Hedges, and Synfuel Results Included in Operations:



Total Special Items, Non-qualifying Hedges, and Synfuel Results 0.07 - - - - 0.07

Adjusted EPS 0.45$ 0.14$ (0.01)$ 0.13$ 0.01$ 0.59$ NON-GAAP MEASURE

EPS Before Discontinued Operations

39

Q106 Merchant Gross Margin and Below Gross MarginWe utilize the non-GAAP financial measure of Gross Margin to highlight the relationship between the costs of and prices for energy in our Merchant Energy business categories (i.e., Mid-Atlantic Fleet, Plants with PPAs, Wholesale Competitive Supply, NewEnergy, and QFs/Other). We believe this non-GAAP measure helps investors to better understand the changes in the level of our Merchant Energy operating results for these categories from period to period.

RECONCILIATION:GAAP Adjustments Merchant

GAAP Fuel & Purchased In Arriving Gross MarginMerchant Revenue & Expense Categories Revenues Energy Expenses Difference At Gross Margin Notes (Non-GAAP)

($ millions)Mid-Atlantic Fleet 465.4$ 366.1$ 99.3$ 13$ a, b, c 112$ Plants with PPAs 190.7 16.8 173.9 (2) a 171 Wholesale Competitive Supply 1,420.5 1,215.3 205.2 8 a , d, e 214 **NewEnergy 2,024.2 1,950.9 73.3 2 d 75 QFs / Other 20.8 - 20.8 (4) e, f 17

Total Merchant 4,121.6$ 3,549.1$ 572.5$ 17$ 589$

Adjustments Merchant Below Arriving At Merchant Gross Margin

Total Merchant: GAAP Below Gross Margin (Non-GAAP)Revenues less fuel and purchased energy expenses 572.5$ 589$ Operations and maintenance expenses (375.6) 14 g, h, i (361) Merger related transaction costs (1.3) 1 j - Workforce reduction costs (2.2) 2 j - Depreciation, depletion, and amortization (68.2) 3 h, i (66) Taxes other than income taxes (30.8) 31 k - Accretion of asset retirement obligations (16.5) 17 k -

Income From Operations 77.9 162 Other income / (expense) 12.7 (53) b, k, l (39)

EBIT N/A 123 Fixed charges (47.3) 9 k (38)

Income Before Income Taxes 43.3 85 Income tax expense 0.3 (32) i, m (33)

Net Income 43.6$ 52$

Details of Adjustments Made in Arriving at Merchant Gross Margin:a Adjustment to remove ($14 million) loss from Mid-Atlantic Fleet and $2 million gain from Plants with PPA's of estimated gross margin created through active portfolio

management more appropriately categorized as a competitive supply activity.b Adjustment to remove $5 million of decommissioning revenues from non-GAAP gross margin measure and included in Other Income. The offsetting decommissioning expense

was recorded in accretion of asset retirement obligations.c Adjustment to remove ($4 million) of other indirect costs have been removed from non-GAAP gross margin as they are more appropriately categorized as operating expenses.d Adjustment to remove ($14 million) loss in Wholesale Competitive Supply and ($2 million) loss in NewEnergy related to economic, non-qualifying hedges of fuel adjustment clauses and gas transport contractse Adjustment to remove synfuel losses from Wholesale Competitive Supply gross margin of ($6 million) and Other gross margin of ($7 million)f Adjustment to reflect $11 million of direct costs in Other for purposes of non-GAAP gross margin measure.

Details of Adjustments Made in Arriving at Merchant Below Gross Margin:g Adjustment detailed in "c" and "f" above are offset by adjustments made to O&M costs. h Adjustment to reclassify certain allocated costs totaling $3 million from O&M to Depreciation and Amortizationi Adjustment to remove Synfuel results, which are not included in determining Merchant Below Gross Margin - $3 million in O&M, $6 million in D&A, ($25 million) from income tax expensej Adjustment to remove Special Items and related taxes, which are not included in determining Merchant Below Gross Margin.k Adjustment to reflect management's view of these items as Other Income / Expense.l Adjustment to move Interest Income of $9 million recorded in Other Income / Expense to Fixed Charges (to show a fixed charge amount net of interest income).m Adjustment to remove tax benefit ($7 million) related to losses on economic, non-qualifying hedges of fuel adjustment clauses and gas transport contracts and special items

** Excludes $12 million of operating expenses, depreciation, depletion and amortization, and interest expense associated with our Upstream Gas properties

PROJECTED GROSS MARGIN AND RESULTS BELOW GROSS MARGIN:Constellation Energy is unable to reconcile its projected gross margin or results below gross margin to GAAP because we do not predict the future impact of reconciling items or special items such as the cumulative effect of changes in accounting principles and the disposition of assets.

Quarter Ended March 31, 2006

40

Q105 Merchant Gross Margin and Below Gross MarginWe utilize the non-GAAP financial measure of Gross Margin to highlight the relationship between the costs of and prices for energy in our Merchant Energy business categories (i.e., Mid-Atlantic Fleet, Plants with PPAs, Wholesale Competitive Supply, NewEnergy, and QFs/Other). We believe this non-GAAP measure helps investors to better understand the changes in the level of our Merchant Energy operating results for these categories from period to period.

RECONCILIATION:GAAP Adjustments Merchant

GAAP Fuel & Purchased In Arriving Gross MarginMerchant Revenue & Expense Categories Revenues Energy Expenses Difference At Gross Margin Notes (Non-GAAP)

($ millions)Mid-Atlantic Fleet 494.8$ 313.4$ 181.4$ 7$ a, b, c 188$ Plants with PPAs 192.5 15.3 177.2 - 177 Wholesale Competitive Supply 868.5 796.7 71.8 10 a , d, e 83 NewEnergy 1,320.5 1,257.5 63.0 - 63 QFs / Other 16.8 - 16.8 (3) e, f 13

Total Merchant 2,893.1$ 2,382.9$ 510.2$ 14$ 524$

Adjustments Merchant Below Arriving At Merchant Gross Margin

Total Merchant: GAAP Below Gross Margin (Non-GAAP)Revenues less fuel and purchased energy expenses 510.2$ 524$ Operations and maintenance expenses (329.9) 12 g, h, i (318) Depreciation, depletion, and amortization (62.9) 3 h, i (60) Taxes other than income taxes (24.5) 25 j - Accretion of asset retirement obligations (15.1) 15 j -

Income From Operations 77.8 146 Other income / (expense) 8.4 (38) b, j, k (29)

EBIT N/A 117 Fixed charges (48.6) 3 k (46)

Income Before Income Taxes 37.6 71 Income tax benefit / (expense) 10.9 (37) i, l (26)

Income from Continuing Operations 48.5 45 Income from discontinued operations 0.4 - m -

Net Income 48.9$ 45$

Details of Adjustments Made in Arriving at Merchant Gross Margin:a Adjustment to remove losses of ($8 million) from Mid-Atlantic Fleet of estimated gross margin created through active portfolio management more appropriately

categorized as a competitive supply activity.b Adjustment to remove $5 million of decommissioning revenues from non-GAAP gross margin measure and included in Other Income. The offsetting

decommissioning expense was recorded in accretion of asset retirement obligations.c Adjustment to remove ($4 million) of other indirect costs have been removed from non-GAAP gross margin as they are more appropriately categorized as operating expenses.d Adjustment to remove ($14 million) loss related to economic, non-qualifying hedges of fuel adjustment clauses and gas transport contractse Adjustment to remove synfuel losses from Wholesale Competitive Supply gross margin of ($4 million) and Other gross margin of ($8 million)f Adjustment to reflect $11 million of direct costs in Other for purposes of non-GAAP gross margin measure.

Details of Adjustments Made in Arriving at Merchant Below Gross Margin:g Adjustment detailed in "c" and "f" above are offset by adjustments made to O&M costs. h Adjustment to reclassify certain allocated costs totaling $3 million from O&M to Depreciation and Amortizationi Adjustment to remove Synfuel results, which are not included in determining Merchant Below Gross Margin - $2 million in O&M, $6 million in D&A, ($32 million) from income tax expensej Adjustment to reflect management's view of these items as Other Income / Expense.k Adjustment to move Interest Income of $3 million recorded in Other Income / Expense to Fixed Charges (to show a fixed charge amount net of interest income).l Adjustment to remove tax benefit ($5 million) related to losses on economic, non-qualifying hedges of fuel adjustment clauses and gas transport contractsm Adjustment to remove income from discontinued operations which is treated as a special item

PROJECTED GROSS MARGIN AND RESULTS BELOW GROSS MARGIN:Constellation Energy is unable to reconcile its projected gross margin or results below gross margin to GAAP because we do not predict the future impact of reconciling items or special items such as the cumulative effect of changes in accounting principles and the disposition of assets.

Quarter Ended March 31, 2005

41

Cash FlowsThe following is a reconciliation of the non-GAAP financial measures of Cash Flow for Debt Reduction and Free Cash Flow for the quarter ended March 31, 2006. We utilize this non-GAAP measures because we believe they are helpful in understanding our ability to reduce debt by existing cash.

RECONCILIATION:

YTD MARCH ACTUAL RESULTS:Net cash used in operating activities (GAAP measure) (492) Adjustment for derivative contracts presented as financing activities under SFAS 149 20 Adjusted Net Cash Used in Operating Activities (472)$ NON-GAAP MEASURE

Net cash used in investing activities (GAAP measure) (286)

Net Cash Used in Financing Activities (Excl. Debt-Related Sources & Uses) *Common stock dividends paid (60) Proceeds from issuance of common stock 21 Other financing activities, excluding SFAS 149 activities included in operating 2 Adjusted Net Cash Used in Financing Activities (37)

Net Cash Flow before Debt Issuances/(Payments) (795) NON-GAAP MEASURE

Less: Proceeds from issuance of common stock (21) Add: Common stock dividends paid 60

Free Cash Flow (756)$ NON-GAAP MEASURE

* Total GAAP Cash Provided by Financing Activities (incl. debt-related sources & uses) was $389 million YTD March 06.

PROJECTED CASH FLOWS:Constellation Energy is unable to provide a reconciliation of these measures for Projected 2006 because it does not prepare a forecasted statement of cash flows on a GAAP basis.

2006($ millions)

42

Debt to Total CapitalDebt to Total CapitalDebt to Total Capital is a non-GAAP ratio that excludes unamortized discounts and premiums, reduces debt by our cash balance, and includes minority interests in equity. In addition, we reflect a 50 percent equity credit for our trust preferred securities, similar to the evaluation performed by major credit rating agencies. Management believes this non-GAAP measures provide investors useful information on our leverage because it is consistent with the evaluation performed by rating agencies, takes into account minority equity interests in our consolidated affiliates and cash available to reduce debt, and facilitates comparability between periods.

RECONCILIATION:

Total long-term debt (gross of current portion) 4,589.5$ 4,589.5$ 4,610.9$ 4,610.9$ 5,134.9$ 5,134.9$ 3,874.4$ 3,874.4$

Fair value decrease in fixed to floating rate swap included in long-term debt 6.5 0.9 - -

6.20% deferrable interest subordinated debentures due

October 15, 2043 to BGE wholly owned BGE Capital Trust II

relating to trust originated preferred securities 257.7 257.7 257.7 257.7 257.7 257.7 250.0 250.0 50% Equity credit to trust preferred securities - (125.0) - (125.0) - (125.0) - (125.0) Adjustment to include High Desert Lease on Balance Sheet at December 31, 2001 - - - - - - - 221.0 Short-term borrowings 425.0 425.0 0.7 0.7 9.6 9.6 975.0 975.0 Unamortized discount and premium (7.6) - (8.0) - (10.2) - (5.2) - Subtotal 5,264.6 5,153.7 4,861.3 4,745.2 5,392.0 5,277.2 5,094.2 5,195.4 LESS: Cash - 424.8 - 813.0 - 721.3 - 72.4 Total Net Debt 5,264.6 4,728.9 50.4% 4,861.3 3,932.2 42.8% 5,392.0 4,555.9 49.9% 5,094.2 5,123.0 54.6%

BGE Preference Stock Not Subject To Mandatory Redemption 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 Minority Interests - 22.2 - 22.4 - 113.4 - 101.8 Common shareholders' equity 4,324.0 4,324.0 4,915.5 4,915.5 4,140.5 4,140.5 3,843.6 3,843.6

Subtotal 4,514.0 4,536.2 5,105.5 5,127.9 4,330.5 4,443.9 4,033.6 4,135.4 50% Equity credit to trust preferred securities - 125.0 - 125.0 - 125.0 - 125.0

Total Equity 4,514.0 4,661.2 49.6% 5,105.5 5,252.9 57.2% 4,330.5 4,568.9 50.1% 4,033.6 4,260.4 45.4%

Total Capitalization 9,778.6$ 9,390.1$ 100.0% 9,966.8$ 9,185.1$ 100.0% 9,722.5$ 9,124.8$ 100.0% 9,127.8$ 9,383.4$ 100.0%

Exclude commodity hedge AOCI Balance from common shareholders' equity 996.6 323.0 (9.6) (30.0) Counterparty cash collateral held reflected as a reduction of cash balance (216) (388) (120) - Net Debt to Total Capital Excluding commodity hedge AOCI Balance 46.6% 43.7% 50.6% 54.8%

PROJECTED LEVERAGE RATIOS:Constellation Energy is unable to provide a reconciliation of this measure for Projected 2006 because it does not prepare a forecasted balance sheet on a GAAP basis.

March 31, 2006

GAAP Balances Non-GAAP Ratio

December 31, 2001

GAAP Balances Non-GAAP Ratio

December 31, 2003

($ millions)

December 31, 2005

GAAP Balances Non-GAAP Ratio GAAP Balances Non-GAAP Ratio

constellation energy Q1 2006 Earnings Presentation

Economy & Finance

Transcript of constellation energy Q1 2006 Earnings Presentation