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 September 30, 2006
Commission |
|
Exact name of registrant as specified in its charter |
|
IRS Employer |
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) |
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(Zip Code) |
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410-783-2800 |
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|
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(Registrants telephone number, including area code) |
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NOT APPLICABLE |
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(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 x No o
Indicate by check mark whether Constellation Energy Group, Inc. is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer x Accelerated filer o Non-accelerated filer o
Indicate by check mark whether Baltimore Gas and Electric Company is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer x
Indicate by check mark whether Constellation Energy Group, Inc. is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
Indicate by check mark whether Baltimore Gas and Electric Company is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
Common Stock, without par value 180,007,617 shares outstanding of
Constellation Energy Group, Inc. on October 31, 2006.
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.
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Page |
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Constellation Energy Group, Inc. and Subsidiaries |
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3 |
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3 |
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4 |
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6 |
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Baltimore Gas and Electric Company and Subsidiaries |
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7 |
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8 |
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10 |
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11 |
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Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations |
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25 |
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25 |
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28 |
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30 |
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45 |
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48 |
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Item 3Quantitative and Qualitative Disclosures About Market Risk |
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52 |
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52 |
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53 |
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53 |
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53 |
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Item 2Unregistered Sales of Equity Securities and Use of Proceeds |
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53 |
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54 |
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55 |
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56 |
2
Constellation Energy Group, Inc. and Subsidiaries
|
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Three Months Ended |
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Nine Months Ended |
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||||||||
|
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2006 |
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2005 |
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2006 |
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2005 |
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||||
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(In millions, except per share amounts) |
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||||||||||
Revenues |
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||||
Nonregulated revenues |
|
$ |
4,672.1 |
|
$ |
4,183.4 |
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$ |
12,428.7 |
|
$ |
9,771.0 |
|
Regulated electric revenues |
|
649.9 |
|
626.8 |
|
1,652.6 |
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1,583.4 |
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||||
Regulated gas revenues |
|
111.7 |
|
112.2 |
|
671.8 |
|
618.5 |
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||||
Total revenues |
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5,433.7 |
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4,922.4 |
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14,753.1 |
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11,972.9 |
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Expenses |
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|
||||
Fuel and purchased energy expenses |
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4,096.5 |
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3,953.2 |
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11,416.4 |
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9,218.0 |
|
||||
Operating expenses |
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519.5 |
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415.4 |
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1,622.5 |
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1,339.3 |
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||||
Workforce reduction costs |
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21.7 |
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3.9 |
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23.9 |
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3.9 |
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||||
Merger-related costs |
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3.4 |
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12.4 |
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||||
Depreciation, depletion, and amortization |
|
140.7 |
|
143.3 |
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413.8 |
|
407.4 |
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||||
Accretion of asset retirement obligations |
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17.1 |
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15.8 |
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50.3 |
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46.2 |
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||||
Taxes other than income taxes |
|
74.9 |
|
73.8 |
|
222.7 |
|
209.4 |
|
||||
Total expenses |
|
4,873.8 |
|
4,605.4 |
|
13,762.0 |
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11,224.2 |
|
||||
Income from Operations |
|
559.9 |
|
317.0 |
|
991.1 |
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748.7 |
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||||
Other Income |
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8.7 |
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16.1 |
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36.5 |
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43.0 |
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Fixed Charges |
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Interest expense |
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83.1 |
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75.7 |
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239.3 |
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230.2 |
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||||
Interest capitalized and allowance for borrowed funds used during construction |
|
(3.5 |
) |
(2.1 |
) |
(10.1 |
) |
(7.6 |
) |
||||
BGE preference stock dividends |
|
3.3 |
|
3.3 |
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9.9 |
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9.9 |
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||||
Total fixed charges |
|
82.9 |
|
76.9 |
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239.1 |
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232.5 |
|
||||
Income from Continuing Operations Before Income Taxes |
|
485.7 |
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256.2 |
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788.5 |
|
559.2 |
|
||||
Income Tax Expense |
|
161.3 |
|
72.1 |
|
257.9 |
|
138.7 |
|
||||
Income from Continuing Operations |
|
324.4 |
|
184.1 |
|
530.6 |
|
420.5 |
|
||||
Income from discontinued operations, net of income
taxes of |
|
|
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1.4 |
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0.9 |
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7.4 |
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Net Income |
|
$ |
324.4 |
|
$ |
185.5 |
|
$ |
531.5 |
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$ |
427.9 |
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Earnings Applicable to Common Stock |
|
$ |
324.4 |
|
$ |
185.5 |
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$ |
531.5 |
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$ |
427.9 |
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Average Shares of Common Stock OutstandingBasic |
|
179.7 |
|
178.1 |
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179.1 |
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177.5 |
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||||
Average Shares of Common Stock OutstandingDiluted |
|
181.6 |
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180.5 |
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180.9 |
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179.6 |
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Earnings Per Common Share from Continuing OperationsBasic |
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$ |
1.81 |
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$ |
1.03 |
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$ |
2.96 |
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$ |
2.37 |
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Income from discontinued operations |
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|
0.01 |
|
0.01 |
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0.04 |
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Earnings Per Common ShareBasic |
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$ |
1.81 |
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$ |
1.04 |
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$ |
2.97 |
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$ |
2.41 |
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Earnings Per Common Share from Continuing OperationsDiluted |
|
$ |
1.79 |
|
$ |
1.02 |
|
$ |
2.93 |
|
$ |
2.34 |
|
Income from discontinued operations |
|
|
|
0.01 |
|
0.01 |
|
0.04 |
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||||
Earnings Per Common ShareDiluted |
|
$ |
1.79 |
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$ |
1.03 |
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$ |
2.94 |
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$ |
2.38 |
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Dividends Declared Per Common Share |
|
$ |
0.3775 |
|
$ |
0.335 |
|
$ |
1.1325 |
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$ |
1.005 |
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Constellation Energy Group, Inc. and Subsidiaries
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Three Months Ended |
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Nine Months Ended |
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2006 |
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2005 |
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2006 |
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2005 |
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(In millions) |
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Net Income |
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$ |
324.4 |
|
$ |
185.5 |
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$ |
531.5 |
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$ |
427.9 |
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Other comprehensive income (OCI) |
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Reclassification of net
loss (gain) on sales of securities from OCI to |
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1.6 |
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(0.3 |
) |
1.5 |
|
||||
Reclassification of net
loss (gain) on hedging instruments from OCI to |
|
193.0 |
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(318.7 |
) |
407.1 |
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(416.9 |
) |
||||
Net unrealized (loss) gain on hedging instruments, net of taxes |
|
(369.7 |
) |
820.8 |
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(1,418.7 |
) |
906.9 |
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Net unrealized gain on securities, net of taxes |
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16.7 |
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6.7 |
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20.0 |
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15.3 |
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||||
Net unrealized (loss) gain on foreign currency, net of taxes |
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(0.3 |
) |
0.7 |
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0.8 |
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1.1 |
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||||
Comprehensive Income (Loss) |
|
$ |
164.1 |
|
$ |
696.6 |
|
$ |
(459.6 |
) |
$ |
935.8 |
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See Notes to Consolidated Financial Statements.
3
Constellation Energy Group, Inc. and Subsidiaries
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September 30, |
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December 31, |
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||||||
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2006* |
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2005 |
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(In millions) |
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||||||||
Assets |
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Current Assets |
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|
|
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Cash and cash equivalents |
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$ |
320.7 |
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$ |
813.0 |
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Accounts receivable (net of allowance for
uncollectibles of |
|
|
2,959.5 |
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|
|
2,727.9 |
|
|
||
Fuel stocks |
|
|
605.7 |
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|
|
489.5 |
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Materials and supplies |
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|
204.2 |
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|
|
197.0 |
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Mark-to-market energy assets |
|
|
889.3 |
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|
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1,339.2 |
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|
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Risk management assets |
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|
231.2 |
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|
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1,244.3 |
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|
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Unamortized energy contract assets |
|
|
40.9 |
|
|
|
55.6 |
|
|
||
Deferred income taxes |
|
|
472.0 |
|
|
|
|
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Other |
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|
531.3 |
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555.3 |
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Total current assets |
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6,254.8 |
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|
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7,421.8 |
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Investments and Other Assets |
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Nuclear decommissioning trust funds |
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|
1,170.4 |
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|
1,110.7 |
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Investments in qualifying facilities and power projects |
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|
312.5 |
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|
|
306.2 |
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|
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Regulatory assets (net) |
|
|
283.4 |
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|
|
154.3 |
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|
||
Goodwill |
|
|
157.1 |
|
|
|
147.1 |
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|
||
Mark-to-market energy assets |
|
|
814.1 |
|
|
|
1,089.3 |
|
|
||
Risk management assets |
|
|
360.3 |
|
|
|
626.0 |
|
|
||
Unamortized energy contract assets |
|
|
120.5 |
|
|
|
141.2 |
|
|
||
Other |
|
|
340.7 |
|
|
|
410.6 |
|
|
||
Total investments and other assets |
|
|
3,559.0 |
|
|
|
3,985.4 |
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|
||
Property, Plant and Equipment |
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|
|
|
|
|
|
||
Nonregulated property, plant and equipment |
|
|
8,928.3 |
|
|
|
8,580.8 |
|
|
||
Regulated property, plant and equipment |
|
|
5,673.5 |
|
|
|
5,520.5 |
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|
||
Nuclear fuel (net of amortization) |
|
|
362.8 |
|
|
|
302.0 |
|
|
||
Accumulated depreciation |
|
|
(4,579.1 |
) |
|
|
(4,336.6 |
) |
|
||
Net property, plant and equipment |
|
|
10,385.5 |
|
|
|
10,066.7 |
|
|
||
Total Assets |
|
|
$ |
20,199.3 |
|
|
|
$ |
21,473.9 |
|
|
* Unaudited
See Notes to Consolidated Financial Statements.
4
Constellation Energy Group, Inc. and Subsidiaries
|
|
September 30, |
|
December 31, |
|
||||||
|
|
2006* |
|
2005 |
|
||||||
|
|
(In millions) |
|
||||||||
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
|
|
|
|
||
Short-term borrowings |
|
|
$ |
185.0 |
|
|
|
$ |
0.7 |
|
|
Current portion of long-term debt |
|
|
1,186.1 |
|
|
|
491.3 |
|
|
||
Accounts payable and accrued liabilities |
|
|
1,719.9 |
|
|
|
1,667.9 |
|
|
||
Customer deposits and collateral |
|
|
419.8 |
|
|
|
458.9 |
|
|
||
Mark-to-market energy liabilities |
|
|
822.9 |
|
|
|
1,348.7 |
|
|
||
Risk management liabilities |
|
|
1,120.7 |
|
|
|
483.5 |
|
|
||
Unamortized energy contract liabilities |
|
|
412.7 |
|
|
|
489.5 |
|
|
||
Deferred income taxes |
|
|
|
|
|
|
151.4 |
|
|
||
Accrued expenses and other |
|
|
738.4 |
|
|
|
780.4 |
|
|
||
Total current liabilities |
|
|
6,605.5 |
|
|
|
5,872.3 |
|
|
||
Deferred Credits and Other Liabilities |
|
|
|
|
|
|
|
|
|
||
Deferred income taxes |
|
|
1,268.7 |
|
|
|
1,180.8 |
|
|
||
Asset retirement obligations |
|
|
956.2 |
|
|
|
908.0 |
|
|
||
Mark-to-market energy liabilities |
|
|
467.8 |
|
|
|
912.3 |
|
|
||
Risk management liabilities |
|
|
840.6 |
|
|
|
1,035.5 |
|
|
||
Unamortized energy contract liabilities |
|
|
1,022.3 |
|
|
|
1,118.7 |
|
|
||
Net pension liability |
|
|
421.8 |
|
|
|
401.4 |
|
|
||
Postretirement and postemployment benefits |
|
|
395.3 |
|
|
|
382.6 |
|
|
||
Deferred investment tax credits |
|
|
58.9 |
|
|
|
64.1 |
|
|
||
Other |
|
|
104.8 |
|
|
|
101.0 |
|
|
||
Total deferred credits and other liabilities |
|
|
5,536.4 |
|
|
|
6,104.4 |
|
|
||
Long-term Debt |
|
|
|
|
|
|
|
|
|
||
Long-term debt of Constellation Energy |
|
|
3,051.5 |
|
|
|
3,049.1 |
|
|
||
Long-term debt of nonregulated businesses |
|
|
329.0 |
|
|
|
357.5 |
|
|
||
First refunding mortgage bonds of BGE |
|
|
244.5 |
|
|
|
342.8 |
|
|
||
Other long-term debt of BGE |
|
|
824.5 |
|
|
|
861.5 |
|
|
||
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 |
|
|
(5.2 |
) |
|
|
(8.0 |
) |
|
||
Current portion of long-term debt |
|
|
(1,186.1 |
) |
|
|
(491.3 |
) |
|
||
Total long-term debt |
|
|
3,515.9 |
|
|
|
4,369.3 |
|
|
||
Minority Interests |
|
|
21.9 |
|
|
|
22.4 |
|
|
||
BGE Preference Stock Not Subject to Mandatory Redemption |
|
|
190.0 |
|
|
|
190.0 |
|
|
||
Common Shareholders Equity |
|
|
|
|
|
|
|
|
|
||
Common stock |
|
|
2,698.8 |
|
|
|
2,620.8 |
|
|
||
Retained earnings |
|
|
3,137.4 |
|
|
|
2,810.2 |
|
|
||
Accumulated other comprehensive loss |
|
|
(1,506.6 |
) |
|
|
(515.5 |
) |
|
||
Total common shareholders equity |
|
|
4,329.6 |
|
|
|
4,915.5 |
|
|
||
Commitments, Guarantees, and Contingencies (see Notes) |
|
|
|
|
|
|
|
|
|
||
Total Liabilities and Equity |
|
|
$ |
20,199.3 |
|
|
|
$ |
21,473.9 |
|
|
* Unaudited
See Notes to Consolidated Financial Statements.
5
Constellation Energy Group, Inc. and Subsidiaries
Nine Months Ended September 30, |
|
2006 |
|
2005 |
|
||
|
|
(In millions) |
|
||||
Cash Flows From Operating Activities |
|
|
|
|
|
||
Net income |
|
$ |
531.5 |
|
$ |
427.9 |
|
Adjustments to reconcile to net cash provided by operating activities |
|
|
|
|
|
||
(Gain) loss on sales of discontinued operations |
|
(0.9 |
) |
2.4 |
|
||
Depreciation, depletion, and amortization |
|
417.1 |
|
494.9 |
|
||
Accretion of asset retirement obligations |
|
50.3 |
|
46.2 |
|
||
Deferred income taxes |
|
73.8 |
|
7.5 |
|
||
Investment tax credit adjustments |
|
(5.2 |
) |
(5.4 |
) |
||
Deferred fuel costs |
|
(164.7 |
) |
12.1 |
|
||
Pension and postemployment benefits |
|
35.5 |
|
4.0 |
|
||
Workforce reduction costs |
|
23.9 |
|
3.9 |
|
||
Merger-related costs |
|
12.4 |
|
|
|
||
Equity in earnings of affiliates less than dividends received |
|
12.9 |
|
28.3 |
|
||
Proceeds from derivative power sales contracts classified as financing activities under SFAS No. 149 |
|
(38.9 |
) |
(47.4 |
) |
||
Changes in |
|
|
|
|
|
||
Accounts receivable |
|
(367.7 |
) |
(719.8 |
) |
||
Mark-to-market energy assets and liabilities |
|
(241.5 |
) |
(98.6 |
) |
||
Risk management assets and liabilities |
|
(2.0 |
) |
(51.5 |
) |
||
Materials, supplies, and fuel stocks |
|
(267.9 |
) |
(126.0 |
) |
||
Other current assets |
|
53.9 |
|
(186.1 |
) |
||
Accounts payable and accrued liabilities |
|
30.9 |
|
646.2 |
|
||
Other current liabilities |
|
32.9 |
|
665.9 |
|
||
Other |
|
(23.2 |
) |
(5.2 |
) |
||
Net cash provided by operating activities |
|
163.1 |
|
1,099.3 |
|
||
Cash Flows From Investing Activities |
|
|
|
|
|
||
Investments in property, plant and equipment |
|
(668.0 |
) |
(476.9 |
) |
||
Acquisitions, net of cash acquired |
|
(133.5 |
) |
(238.1 |
) |
||
Investments in nuclear decommissioning trust fund securities |
|
(275.0 |
) |
(258.7 |
) |
||
Proceeds from nuclear decommissioning trust fund securities |
|
266.2 |
|
245.5 |
|
||
Sales of investments and other assets |
|
43.5 |
|
1.9 |
|
||
Contract and portfolio acquisitions |
|
(2.3 |
) |
(23.7 |
) |
||
Proceeds from sale of discontinued operations |
|
|
|
217.6 |
|
||
Issuances of loans receivable |
|
(65.4 |
) |
(82.8 |
) |
||
Other investments |
|
33.8 |
|
(28.5 |
) |
||
Net cash used in investing activities |
|
(800.7 |
) |
(643.7 |
) |
||
Cash Flows From Financing Activities |
|
|
|
|
|
||
Net issuance of short-term borrowings |
|
184.3 |
|
10.0 |
|
||
Proceeds from issuance of |
|
|
|
|
|
||
Common stock |
|
56.2 |
|
66.5 |
|
||
Long-term debt |
|
122.0 |
|
|
|
||
Repayment of long-term debt |
|
(285.8 |
) |
(338.4 |
) |
||
Common stock dividends paid |
|
(195.7 |
) |
(169.1 |
) |
||
Proceeds from contract and portfolio acquisitions contracts |
|
221.3 |
|
403.3 |
|
||
Proceeds from derivative power
sales contracts classified as financing activities under |
|
38.9 |
|
47.4 |
|
||
Other |
|
4.1 |
|
(41.8 |
) |
||
Net cash provided by (used in) financing activities |
|
145.3 |
|
(22.1 |
) |
||
Net (Decrease) Increase in Cash and Cash Equivalents |
|
(492.3 |
) |
433.5 |
|
||
Cash and Cash Equivalents at Beginning of Period |
|
813.0 |
|
706.3 |
|
||
Cash and Cash Equivalents at End of Period |
|
$ |
320.7 |
|
$ |
1,139.8 |
* |
*Includes $4.8 million related to Assets held for sale at September 30, 2005
See Notes to Consolidated Financial Statements.
Certain prior-period amounts have been reclassified to conform with the current periods presentation.
6
Baltimore Gas and Electric Company and Subsidiaries
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||
|
|
(In millions) |
|
||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
||||
Electric revenues |
|
$ |
649.9 |
|
$ |
626.8 |
|
$ |
1,652.6 |
|
$ |
1,583.4 |
|
Gas revenues |
|
114.6 |
|
115.9 |
|
678.4 |
|
626.9 |
|
||||
Total revenues |
|
764.5 |
|
742.7 |
|
2,331.0 |
|
2,210.3 |
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
||||
Electricity purchased for resale |
|
391.1 |
|
362.5 |
|
933.8 |
|
849.0 |
|
||||
Gas purchased for resale |
|
66.4 |
|
72.1 |
|
448.6 |
|
422.5 |
|
||||
Operations and maintenance |
|
123.9 |
|
112.7 |
|
364.2 |
|
332.5 |
|
||||
Merger-related costs |
|
0.8 |
|
|
|
3.3 |
|
|
|
||||
Depreciation and amortization |
|
57.2 |
|
58.6 |
|
172.1 |
|
176.6 |
|
||||
Taxes other than income taxes |
|
42.1 |
|
41.9 |
|
126.4 |
|
126.7 |
|
||||
Total expenses |
|
681.5 |
|
647.8 |
|
2,048.4 |
|
1,907.3 |
|
||||
Income from Operations |
|
83.0 |
|
94.9 |
|
282.6 |
|
303.0 |
|
||||
Other Income |
|
3.9 |
|
1.2 |
|
4.9 |
|
4.7 |
|
||||
Fixed Charges |
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
24.8 |
|
23.9 |
|
73.3 |
|
71.4 |
|
||||
Allowance for borrowed funds used during construction |
|
(0.5 |
) |
(0.6 |
) |
(1.4 |
) |
(1.6 |
) |
||||
Total fixed charges |
|
24.3 |
|
23.3 |
|
71.9 |
|
69.8 |
|
||||
Income Before Income Taxes |
|
62.6 |
|
72.8 |
|
215.6 |
|
237.9 |
|
||||
Income Taxes |
|
23.7 |
|
27.1 |
|
83.3 |
|
91.0 |
|
||||
Net Income |
|
38.9 |
|
45.7 |
|
132.3 |
|
146.9 |
|
||||
Preference Stock Dividends |
|
3.3 |
|
3.3 |
|
9.9 |
|
9.9 |
|
||||
Earnings Applicable to Common Stock |
|
$ |
35.6 |
|
$ |
42.4 |
|
$ |
122.4 |
|
$ |
137.0 |
|
See Notes to Consolidated Financial Statements.
7
Baltimore Gas and Electric Company and Subsidiaries
|
|
September 30, |
|
December 31, |
|
||||||
|
|
2006* |
|
2005 |
|
||||||
|
|
(In millions) |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
||
Current Assets |
|
|
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
$ |
14.9 |
|
|
|
$ |
15.1 |
|
|
Accounts receivable (net of allowance for
uncollectibles of |
|
|
310.7 |
|
|
|
480.5 |
|
|
||
Accounts receivable, affiliated companies |
|
|
30.9 |
|
|
|
1.8 |
|
|
||
Fuel stocks |
|
|
115.0 |
|
|
|
102.7 |
|
|
||
Materials and supplies |
|
|
42.2 |
|
|
|
40.1 |
|
|
||
Prepaid taxes other than income taxes |
|
|
28.0 |
|
|
|
45.7 |
|
|
||
Other |
|
|
36.1 |
|
|
|
6.5 |
|
|
||
Total current assets |
|
|
577.8 |
|
|
|
692.4 |
|
|
||
Investments and Other Assets |
|
|
|
|
|
|
|
|
|
||
Regulatory assets (net) |
|
|
283.4 |
|
|
|
154.3 |
|
|
||
Receivable, affiliated company |
|
|
160.0 |
|
|
|
154.7 |
|
|
||
Other |
|
|
121.5 |
|
|
|
144.0 |
|
|
||
Total investments and other assets |
|
|
564.9 |
|
|
|
453.0 |
|
|
||
Utility Plant |
|
|
|
|
|
|
|
|
|
||
Plant in service |
|
|
|
|
|
|
|
|
|
||
Electric |
|
|
4,000.8 |
|
|
|
3,891.1 |
|
|
||
Gas |
|
|
1,136.0 |
|
|
|
1,116.7 |
|
|
||
Common |
|
|
434.0 |
|
|
|
416.0 |
|
|
||
Total plant in service |
|
|
5,570.8 |
|
|
|
5,423.8 |
|
|
||
Accumulated depreciation |
|
|
(1,972.5 |
) |
|
|
(1,923.8 |
) |
|
||
Net plant in service |
|
|
3,598.3 |
|
|
|
3,500.0 |
|
|
||
Construction work in progress |
|
|
99.8 |
|
|
|
93.9 |
|
|
||
Plant held for future use |
|
|
2.9 |
|
|
|
2.8 |
|
|
||
Net utility plant |
|
|
3,701.0 |
|
|
|
3,596.7 |
|
|
||
Total Assets |
|
|
$ |
4,843.7 |
|
|
|
$ |
4,742.1 |
|
|
* Unaudited
See Notes to Consolidated Financial Statements.
8
Baltimore Gas and Electric Company and Subsidiaries
|
|
September 30, |
|
December 31, |
|
||||||
|
|
2006* |
|
2005 |
|
||||||
|
|
(In millions) |
|
||||||||
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
|
|
|
|
||
Current portion of long-term debt |
|
|
$ |
565.9 |
|
|
|
$ |
469.6 |
|
|
Accounts payable and accrued liabilities |
|
|
164.8 |
|
|
|
169.7 |
|
|
||
Accounts payable and accrued liabilities, affiliated companies |
|
|
134.1 |
|
|
|
152.8 |
|
|
||
Borrowing from cash pool, affiliated company |
|
|
147.3 |
|
|
|
3.2 |
|
|
||
Customer deposits |
|
|
70.4 |
|
|
|
65.1 |
|
|
||
Accrued taxes |
|
|
19.2 |
|
|
|
35.5 |
|
|
||
Accrued expenses and other |
|
|
86.0 |
|
|
|
79.6 |
|
|
||
Total current liabilities |
|
|
1,187.7 |
|
|
|
975.5 |
|
|
||
Deferred Credits and Other Liabilities |
|
|
|
|
|
|
|
|
|
||
Deferred income taxes |
|
|
669.0 |
|
|
|
608.9 |
|
|
||
Postretirement and postemployment benefits |
|
|
278.1 |
|
|
|
277.7 |
|
|
||
Deferred investment tax credits |
|
|
13.9 |
|
|
|
15.1 |
|
|
||
Other |
|
|
17.7 |
|
|
|
19.0 |
|
|
||
Total deferred credits and other liabilities |
|
|
978.7 |
|
|
|
920.7 |
|
|
||
Long-term Debt |
|
|
|
|
|
|
|
|
|
||
First refunding mortgage bonds of BGE |
|
|
244.5 |
|
|
|
342.8 |
|
|
||
Other long-term debt of BGE |
|
|
824.5 |
|
|
|
861.5 |
|
|
||
6.20% deferrable interest subordinated debentures due October 15, 2043 to wholly owned BGE Capital Trust II relating to trust preferred securities |
|
|
257.7 |
|
|
|
257.7 |
|
|
||
Long-term debt of nonregulated business |
|
|
25.0 |
|
|
|
25.0 |
|
|
||
Unamortized discount and premium |
|
|
(1.8 |
) |
|
|
(2.3 |
) |
|
||
Current portion of long-term debt |
|
|
(565.9 |
) |
|
|
(469.6 |
) |
|
||
Total long-term debt |
|
|
784.0 |
|
|
|
1,015.1 |
|
|
||
Minority Interest |
|
|
18.2 |
|
|
|
18.3 |
|
|
||
Preference Stock Not Subject to Mandatory Redemption |
|
|
190.0 |
|
|
|
190.0 |
|
|
||
Common Shareholders Equity |
|
|
|
|
|
|
|
|
|
||
Common stock |
|
|
912.2 |
|
|
|
912.2 |
|
|
||
Retained earnings |
|
|
772.2 |
|
|
|
709.6 |
|
|
||
Accumulated other comprehensive income |
|
|
0.7 |
|
|
|
0.7 |
|
|
||
Total common shareholders equity |
|
|
1,685.1 |
|
|
|
1,622.5 |
|
|
||
Commitments, Guarantees, and Contingencies (see Notes) |
|
|
|
|
|
|
|
|
|
||
Total Liabilities and Equity |
|
|
$ |
4,843.7 |
|
|
|
$ |
4,742.1 |
|
|
* Unaudited
See Notes to Consolidated Financial Statements.
9
Baltimore Gas and Electric Company and Subsidiaries
Nine Months Ended September 30, |
|
2006 |
|
2005 |
|
||
|
|
(In millions) |
|
||||
Cash Flows From Operating Activities |
|
|
|
|
|
||
Net income |
|
$ |
132.3 |
|
$ |
146.9 |
|
Adjustments to reconcile to net cash provided by operating activities |
|
|
|
|
|
||
Depreciation and amortization |
|
180.1 |
|
187.5 |
|
||
Deferred income taxes |
|
59.0 |
|
(6.4 |
) |
||
Investment tax credit adjustments |
|
(1.2 |
) |
(1.3 |
) |
||
Deferred fuel costs |
|
(164.7 |
) |
12.1 |
|
||
Pension and postemployment benefits |
|
(2.5 |
) |
(5.2 |
) |
||
Merger-related costs |
|
3.3 |
|
|
|
||
Allowance for equity funds used during construction |
|
(2.6 |
) |
(2.8 |
) |
||
Changes in |
|
|
|
|
|
||
Accounts receivable |
|
169.8 |
|
22.1 |
|
||
Receivables, affiliated companies |
|
(29.1 |
) |
(33.0 |
) |
||
Materials, supplies, and fuel stocks |
|
(14.4 |
) |
(22.9 |
) |
||
Other current assets |
|
(11.7 |
) |
(20.9 |
) |
||
Accounts payable and accrued liabilities |
|
(8.3 |
) |
(3.0 |
) |
||
Accounts payable and accrued liabilities, affiliated companies |
|
(18.7 |
) |
(20.1 |
) |
||
Other current liabilities |
|
(3.7 |
) |
9.5 |
|
||
Other |
|
(12.0 |
) |
(23.1 |
) |
||
Net cash provided by operating activities |
|
275.6 |
|
239.4 |
|
||
Cash Flows From Investing Activities |
|
|
|
|
|
||
Utility construction expenditures
(excluding equity portion of allowance for |
|
(225.2 |
) |
(199.2 |
) |
||
Change in cash pool at parent |
|
144.1 |
|
10.8 |
|
||
Other |
|
10.3 |
|
(14.5 |
) |
||
Net cash used in investing activities |
|
(70.8 |
) |
(202.9 |
) |
||
Cash Flows From Financing Activities |
|
|
|
|
|
||
Distribution to parent |
|
(59.8 |
) |
|
|
||
Repayment of long-term debt |
|
(135.3 |
) |
(23.5 |
) |
||
Preference stock dividends paid |
|
(9.9 |
) |
(9.9 |
) |
||
Net cash used in financing activities |
|
(205.0 |
) |
(33.4 |
) |
||
Net (Decrease) Increase in Cash and Cash Equivalents |
|
(0.2 |
) |
3.1 |
|
||
Cash and Cash Equivalents at Beginning of Period |
|
15.1 |
|
8.2 |
|
||
Cash and Cash Equivalents at End of Period |
|
$ |
14.9 |
|
$ |
11.3 |
|
See Notes to Consolidated Financial Statements.
10
Various factors can have a significant impact on our results for interim periods. This means that the results for this quarter are not necessarily indicative of future quarters or full year results given the seasonality of our business.
Our interim financial statements on the previous pages reflect all adjustments that management believes are necessary for the fair statement of the results of operations for the interim periods presented. These adjustments are of a normal recurring nature.
This Quarterly Report on Form 10-Q is a combined report of Constellation Energy Group, Inc. (Constellation Energy) and Baltimore Gas and Electric Company (BGE). References in this report to we and our are to Constellation Energy and its subsidiaries, collectively. References in this report to the regulated business(es) are to BGE.
Termination of
Merger Agreement with
FPL Group, Inc.
On October 24, 2006, Constellation Energy and FPL Group, Inc. (FPL Group) agreed to terminate the Agreement and Plan of Merger the parties had entered into on December 18, 2005.
In October 2006, we announced an agreement to sell the following natural gas-fired plants owned by our merchant energy business for $1.635 billion:
Facility |
|
Capacity |
|
Unit Type |
|
Location |
High Desert |
|
830 |
|
Combined Cycle |
|
California |
Rio Nogales |
|
800 |
|
Combined Cycle |
|
Texas |
Holland |
|
665 |
|
Combined Cycle |
|
Illinois |
University Park |
|
300 |
|
Peaking |
|
Illinois |
Big Sandy |
|
300 |
|
Peaking |
|
West Virginia |
Wolf Hills |
|
250 |
|
Peaking |
|
Virginia |
We expect the transaction to close by the end of 2006 or the first quarter of 2007. We estimate that we will recognize a pre-tax gain of approximately $250 million and we expect to receive approximately $1.5 billion in cash after tax payments on the gain. We expect to apply the proceeds from the sale to reduce debt and invest in our business or repurchase equity.
In October 2006, we designated these plants as held for sale and we reclassified the assets associated with these gas-fired plants to Assets held for sale and the liabilities to Liabilities associated with assets held for sale in our Consolidated Balance Sheets, we ceased recording depreciation expense, and discontinued hedge accounting for these facilities. The assets and liabilities associated with these gas-fired plants will be removed from our Consolidated Balance Sheets at closing.
We have a significant interest in the following variable interest entities (VIE) for which we are not the primary beneficiary:
VIE |
|
Nature of |
|
Date of |
|
Equity investment and guarantees |
|
Prior to 2003 |
|
Power contract monetization entities |
|
Power sale agreements, loans, and guarantees |
|
March 2005 |
Oil and gas fields |
|
Equity investment |
|
May 2006 |
Retail power supply |
|
Power sale agreement |
|
September 2006 |
We discuss the nature of our involvement with the power contract monetization VIEs in detail in Note 4 to our 2005 Annual Report on Form 10-K.
The following is summary information available as of September 30, 2006 about the VIEs in which we have a significant interest, but are not the primary beneficiary:
|
|
Power |
|
All |
|
Total |
|
|||||
|
|
(In millions) |
|
|||||||||
Total assets |
|
|
$ |
833.6 |
|
|
$ |
396.3 |
|
$ |
1,229.9 |
|
Total liabilities |
|
|
652.3 |
|
|
167.6 |
|
819.9 |
|
|||
Our ownership interest |
|
|
|
|
|
54.5 |
|
54.5 |
|
|||
Other ownership interests |
|
|
181.3 |
|
|
174.2 |
|
355.5 |
|
|||
Our maximum exposure to loss |
|
|
68.9 |
|
|
102.7 |
|
171.6 |
|
|||
11
The maximum exposure to loss represents the loss that we would incur in the unlikely event that our interests in all of these entities were to become worthless and we were required to fund the full amount of all guarantees associated with these entities. Our maximum exposure to loss as of September 30, 2006 consists of the following:
¨ outstanding receivables, loans, and letters of credit totaling $104.5 million,
¨ the carrying amount of our investment totaling $54.4 million, and
¨ debt and performance guarantees totaling $12.7 million.
We assess the risk of a loss equal to our maximum exposure to be remote.
We incurred costs during the quarter ended September 30, 2006 related to the proposed merger with FPL Group. The merger was terminated on October 24, 2006. These costs totaled $3.4 million pre-tax for the quarter ended September 30, 2006 and $12.4 million pre-tax for the nine months ended September 30, 2006. Through September 30, 2006, we have recognized a cumulative total of $29.4 million pre-tax of merger costs. Currently, we estimate our total pre-tax merger-related costs will be approximately $35 million.
In March 2006, we approved a restructuring of the workforce at our Ginna nuclear facility. In connection with this restructuring, 32 employees were terminated. During the quarter ended March 31, 2006, we recognized costs of $2.2 million pre-tax related to recording a liability for severance and other benefits under our existing benefit programs.
The following table summarizes the status of the involuntary severance liability for Ginna at September 30, 2006:
|
|
(In millions) |
|
|||
Initial severance liability balance |
|
|
$ |
2.2 |
|
|
Amounts recorded as pension and postretirement liabilities |
|
|
(0.3 |
) |
|
|
Net cash severance liability |
|
|
1.9 |
|
|
|
Cash severance payments |
|
|
(1.0 |
) |
|
|
Other |
|
|
|
|
|
|
Severance liability balance for Ginna at September 30, 2006 |
|
|
$ |
0.9 |
|
|
In July 2006, we announced a planned restructuring of the workforce at our Nine Mile Point nuclear facility. We recognized costs during the quarter ended September 30, 2006 of $15.1 million pre-tax related to the elimination of 126 positions associated with this restructuring. We also initiated a restructuring of the workforce at our Calvert Cliffs nuclear facility during the third quarter of 2006 and we recognized costs of $3.1 million pre-tax related to the elimination of 32 positions associated with this restructuring.
In addition, as a result of the Nine Mile Point restructuring, we incurred a pre-tax settlement charge of $3.5 million in accordance with Statement of Financial Accounting Standards (SFAS) No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. We discuss the settlement charges that we recorded during 2006 in the Pension and Postretirement Benefits section on page 16.
In the fourth quarter of 2005, we completed the sale of Constellation Power International Investments, Ltd. We recognized an after-tax gain of $0.9 million for the nine months ended September 30, 2006 due to the resolution of an outstanding contingency related to the sale. We discuss the details of the outstanding contingency in Note 2 of our 2005 Annual Report on Form 10-K.
Basic earnings per common share (EPS) is computed by dividing earnings applicable to common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
Our dilutive common stock equivalent shares consist of stock options and other stock-based compensation awards. The following table presents stock options that were not dilutive and were excluded from the computation of diluted EPS in each period, as well as the dilutive common stock equivalent shares:
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||||||||||
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
||||||||
|
|
(In millions) |
|
||||||||||||||
Non-dilutive |
|
|
2.0 |
|
|
|
|
|
|
|
2.0 |
|
|
|
|
|
|
Dilutive common stock equivalent shares |
|
|
1.9 |
|
|
|
2.4 |
|
|
|
1.8 |
|
|
|
2.1 |
|
|
Under our long-term incentive plans, we granted stock options, performance-based units, performance and service-based restricted stock, and equity to officers, key employees, and members of the Board of Directors.
We adopted the provisions of SFAS No. 123 Revised (SFAS No. 123R), Share-Based Payment, on October 1, 2005, as described in more detail in Note 1 of our 2005 Annual Report on Form 10-K. Under SFAS No. 123R, we
12
recognize compensation cost ratably or in tranches (depending if the award has cliff or graded vesting) over the period during which an employee is required to provide service in exchange for the award, which is typically a one to five-year period. We use a forfeiture assumption to estimate the number of awards that are expected to vest during the service period, and we ultimately true-up the estimated expense to the actual expense associated with vested awards. We estimate the fair value of stock option awards on the date of grant using the Black-Scholes option-pricing model, and we re-measure the fair value of liability awards each reporting period.
The following table illustrates the pro-forma effect on net income and earnings per share for all outstanding stock options and stock awards during the quarter and nine months ended September 30, 2005, when the fair value provisions of SFAS No. 123R were not in effect. We do not capitalize any portion of our stock-based compensation.
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||||
|
|
(In millions, except per share amounts) |
|
||||||||
Net income, as reported |
|
|
$ |
185.5 |
|
|
|
$ |
427.9 |
|
|
Add: Stock-based compensation expense determined under intrinsic value method and included in reported net income, net of related tax effects |
|
|
7.8 |
|
|
|
17.8 |
|
|
||
Deduct: Stock-based compensation expense determined under fair value based method for all awards, net of related tax effects |
|
|
(10.1 |
) |
|
|
(24.5 |
) |
|
||
Pro-forma net income |
|
|
$ |
183.2 |
|
|
|
$ |
421.2 |
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
||
Basicas reported |
|
|
$ |
1.04 |
|
|
|
$ |
2.41 |
|
|
Basicpro forma |
|
|
$ |
1.03 |
|
|
|
$ |
2.37 |
|
|
Dilutedas reported |
|
|
$ |
1.03 |
|
|
|
$ |
2.38 |
|
|
Dilutedpro forma |
|
|
$ |
1.01 |
|
|
|
$ |
2.34 |
|
|
Accretion of Asset Retirement Obligations
SFAS No. 143, Accounting for Asset Retirement Obligations, provides the accounting requirements for recognizing an estimated liability for legal obligations associated with the retirement of tangible long-lived assets. Financial Accounting Standards Board (FASB) Interpretation (FIN) 47, Accounting for Conditional Asset Retirement Obligationsan interpretation of FASB Statement No. 143, clarifies that obligations that are conditional upon a future event are subject to the provisions of SFAS No. 143.
We measure asset retirement obligations at fair value when incurred and capitalize a corresponding amount as part of the book value of the related long-lived assets. The increase in the capitalized cost is included in determining depreciation expense over the estimated useful life of these assets. Since the fair value of the asset retirement obligations is determined using a present value approach, accretion of the liability due to the passage of time is recognized each period to Accretion of asset retirement obligations in our Consolidated Statements of Income until the settlement of the liability. We record a gain or loss when the liability is settled after retirement.
The change in our Asset retirement obligations liability during 2006 was as follows:
|
|
(In millions) |
|
|||
Liability at January 1, 2006 |
|
|
$ |
908.0 |
|
|
Accretion expense |
|
|
50.3 |
|
|
|
Liabilities incurred |
|
|
0.4 |
|
|
|
Liabilities settled |
|
|
(0.1 |
) |
|
|
Revisions to expected future cash flows |
|
|
(2.4 |
) |
|
|
Other |
|
|
|
|
|
|
Liability at September 30, 2006 |
|
|
$ |
956.2 |
|
|
Gas Properties
In the first quarter of 2006, we acquired working interests in gas and oil producing properties for approximately $100 million in cash. We purchased leases, producing wells, and related equipment. We have included the results of operations in our merchant energy business segment since the date of acquisition.
Cogenex
In April 2005, we acquired Cogenex Corporation from Alliant Energy Corporation. We include Cogenex with our other nonregulated businesses and have included their results in our consolidated financial statements since the date of acquisition. Cogenex is a North American energy services firm providing consulting and technology solutions to industrial, institutional, and governmental customers. We acquired 100% ownership of Cogenex for $34.9 million. We acquired cash of $14.4 million as part of the purchase.
13
Our final purchase price allocation for the net assets acquired is as follows:
At April 1, 2005 |
|
|
|
|||
|
|
(In millions) |
|
|||
Cash |
|
|
$ |
14.4 |
|
|
Other Current Assets |
|
|
12.4 |
|
|
|
Total Current Assets |
|
|
26.8 |
|
|
|
Net Property, Plant and Equipment |
|
|
|
|
|
|
Other Assets |
|
|
34.9 |
|
|
|
Total Assets Acquired |
|
|
61.7 |
|
|
|
Current Liabilities |
|
|
(8.0 |
) |
|
|
Deferred Credits and Other Liabilities |
|
|
(18.8 |
) |
|
|
Net Assets Acquired |
|
|
$ |
34.9 |
|
|
We believe that the pro-forma impact of the Cogenex acquisition would not have been material to our results of operations in 2005.
Information by Operating Segment
Our reportable operating segments areMerchant Energy, Regulated Electric, and Regulated Gas:
¨ Our merchant energy business is nonregulated and includes:
full requirements load-serving sales of energy, capacity, and ancillary services to utilities and commercial, industrial, and governmental customers,
structured transactions and risk management services for various customers (including hedging of output from generating facilities and fuel costs),
deployment of risk capital through portfolio management and trading activities,
gas retail energy products and services to commercial, industrial, and governmental customers,
fossil, nuclear, and interests in hydroelectric generating facilities and qualifying facilities, fuel processing facilities, and power projects in the United States,
products and services to upstream (exploration and production) and downstream (transportation and storage) wholesale natural gas customers,
coal sourcing services for the variable or fixed supply needs of North American and international power generators, and
generation operations and maintenance services.¨ Our regulated electric business purchases, transmits, distributes, and sells electricity in Central Maryland.
¨ Our regulated gas business purchases, transports, and sells natural gas in Central Maryland.
Our remaining nonregulated businesses:
¨ design, construct, and operate heating, cooling, and cogeneration facilities for commercial, industrial, and municipal customers throughout North America, and
¨ provide home improvements, service electric and gas appliances, service heating, air conditioning, plumbing, electrical, and indoor air quality systems, and provide natural gas marketing to residential customers in Central Maryland.
In addition, we own several investments that we do not consider to be core operations. These include financial investments and real estate projects.
Our Merchant Energy, Regulated Electric, and Regulated Gas reportable segments are strategic businesses based principally upon regulations, products, and services that require different technology and marketing strategies. We evaluate the performance of these segments based on net income. We account for intersegment revenues using market prices. A summary of information by operating segment is shown on the next page.
14
|
|
Reportable Segments |
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
Merchant |
|
Regulated |
|
Regulated |
|
Other |
|
Eliminations |
|
Consolidated |
|
||||||||||||||||
|
|
(In millions) |
|
||||||||||||||||||||||||||
For the three months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unaffiliated revenues |
|
$ |
4,626.6 |
|
|
$ |
649.9 |
|
|
|
$ |
111.7 |
|
|
|
$ |
45.5 |
|
|
|
$ |
|
|
|
|
$ |
5,433.7 |
|
|
Intersegment revenues |
|
422.4 |
|
|
|
|
|
|
2.9 |
|
|
|
|
|
|
|
(425.3 |
) |
|
|
|
|
|
||||||
Total revenues |
|
5,049.0 |
|
|
649.9 |
|
|
|
114.6 |
|
|
|
45.5 |
|
|
|
(425.3 |
) |
|
|
5,433.7 |
|
|
||||||
Net income (loss) |
|
284.8 |
|
|
42.8 |
|
|
|
(7.3 |
) |
|
|
4.1 |
|
|
|
|
& |