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Constellation Energy Reports Strong Second Quarter 2008 Results

Posted on: Thursday, 31 July 2008, 06:00 CDT

BALTIMORE, July 31 /PRNewswire-FirstCall/ -- Constellation Energy today reported adjusted earnings of $1.82 per share for the second quarter of 2008, compared to $0.64 adjusted earnings per share (EPS) earned in the same period last year. Adjusted earnings exclude the impact of special items, including approximately $188 million pre-tax for the $170 per residential electric customer credit associated with the Maryland settlement, certain economic, non-qualifying hedges and synfuel earnings. On a Generally Accepted Accounting Principles (GAAP) basis, the company earned $0.95 per share in the second quarter of 2008, compared to $0.64 per share in the same period last year.

Constellation Energy reaffirmed earnings guidance for 2008 at $5.25 to $5.75 per share, and for 2009, the company expects to grow earnings 15 to 20 percent over projected 2008 earnings.

"Second quarter results significantly exceeded expectations and reflect solid execution throughout the enterprise," said Mayo A. Shattuck III, chairman, president and chief executive officer of Constellation Energy. "Our Global Commodities Group delivered strong new business results as rising commodity prices benefited our strategies in power, natural gas and coal markets. Constellation Energy's nuclear fleet continued its excellent operating performance in the second quarter. We successfully completed nuclear refueling outages at our R.E. Ginna Nuclear Power Plant and Nine Mile Point Nuclear Station Unit 2, while maintaining an extremely low forced outage rate at our three other nuclear facilities. We are proud of our three refueling outages that resulted in the first, third and 11th shortest durations out of 42 units that refueled during the first half of the year.

"During the second quarter, we expanded our existing fleet by 300 megawatts through the refurbishment of our Gould Street Power Plant in Baltimore and the acquisition of the West Valley Power Plant near Salt Lake City, strategically broadening our footprint in western markets," said Shattuck. "In addition, we continued to execute our 'Invest-Develop-Harvest' strategy with the sale of gas assets in Arkansas. With the purchase of Nufcor International Limited, we acquired specialized uranium capabilities and expanded our risk management services.

"Lastly, we continued to make significant strides in our conservation and energy-efficiency initiatives at Baltimore Gas and Electric Company (BGE)," said Shattuck. "The combined potential of our Smart Energy Savers(SM) pilots and PeakRewards(SM) programs, including smart thermostats, advanced meters, dynamic pricing and energy efficiency, is between 1,500 and 1,700 megawatts. The potential for BGE's PeakRewards(SM) program, which has been highly successful in trials, is extraordinary and represents one of the most encouraging developments for BGE customers."

The following table summarizes adjusted earnings per share and earnings per share reported in accordance with GAAP for the company's business segments and provides a reconciliation to total company reported earnings.

Three Months Ended June 30, 2008 2007 Reported Reported GAAP Adjusted GAAP Adjusted EARNINGS PER COMMON SHARE EPS* EPS EPS* EPS Baltimore Gas and Electric $(0.60) $0.09 (1) $0.08 $0.08 Merchant Energy 1.56 1.74 (2) 0.56 0.56 (3) Other Nonregulated (0.01) (0.01) - - Diluted Earnings Per Share from Continuing Operations 0.95 1.82 0.64 0.64 Income from Discontinued Operations Assuming Dilution - - - - Diluted Earnings Per Share $0.95 $1.82 $0.64 $0.64 * Unaudited. GAAP EPS was adjusted by the following amounts to calculate Adjusted EPS (1) Addition of earnings impact related to the Maryland settlement agreement of $0.70 per share and subtraction of effective tax rate impact related to Maryland settlement agreement of $0.01 per share. (2) Addition of mark-to-market losses on certain non-qualifying hedges of $0.19 per share and subtraction of earnings from our synthetic fuel processing facilities of $0.01 per share. (3) Addition of impairment losses and other costs of $0.07 per share and addition for workforce reduction costs of $0.01 per share. Subtraction of earnings from our synthetic fuel processing facilities of $0.07 per share and subtraction of mark-to-market gains on certain non-qualifying hedges of $0.01 per share. Six Months Ended June 30, 2008 2007 Reported Reported GAAP Adjusted GAAP Adjusted EARNINGS PER COMMON SHARE EPS* EPS EPS* EPS Baltimore Gas and Electric $(0.19) $0.46 (1) $0.44 $0.44 Merchant Energy 1.95 2.30 (2) 1.22 1.17 (3) Other Nonregulated - - 0.06 0.06 Diluted Earnings Per Share from Continuing Operations 1.76 2.76 1.72 1.67 Income from Discontinued Operations Assuming Dilution - - (0.01) - Diluted Earnings Per Share $1.76 $2.76 $1.71 $1.67 * Unaudited. GAAP EPS was adjusted by the following amounts to calculate Adjusted EPS (1) Addition of earnings impact related to the Maryland settlement agreement of $0.70 per share and subtraction of effective tax rate impact related to Maryland settlement agreement of $0.05 per share. (2) Addition of mark-to-market losses on certain non-qualifying hedges of $0.38 per share and subtraction of earnings from our synthetic fuel processing facilities of $0.03 per share. (3) Addition of impairment losses and other costs of $0.07 per share, addition of mark-to-market losses on certain non-qualifying hedges of $0.04 per share, and addition for workforce reduction costs of $0.01 per share. Subtraction of earnings from our synthetic fuel processing facilities of $0.17 per share. Baltimore Gas and Electric

BGE reported adjusted earnings of 9 cents per share in the second quarter of 2008, up 1 cent per share over second quarter 2007 adjusted EPS. The increase in second quarter 2008 adjusted EPS was due to higher electric transmission revenue and the benefits from the Maryland settlement, which was partially offset by higher storm expenses.

Merchant

On an adjusted basis, the Merchant segment earned $1.74 per share during the second quarter of 2008, up $1.18 per share from the second quarter last year. On the positive side, Global Commodities was favorable $1.20 per share, primarily driven by strong new business results and an increased backlog realization compared to a relatively weak second quarter in 2007. In addition, Customer Supply was favorable 14 cents per share, primarily driven by higher backlog realization versus the second quarter of last year. Generation was unfavorable 19 cents, driven by the differences in planned refueling outages at our nuclear plants as compared to the same quarter last year, higher costs to improve fossil peaking unit reliability in response to the Reliability Pricing Model (RPM) capacity market, and unplanned outages at the company's Baltimore coal plants.

Financial Statements

The June 30, 2008, financial statements and supplemental information are attached.

Adjusted Earnings

Constellation 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, the impact of certain economic, non-qualifying hedges and synfuel earnings. The mark-to-market impact of these hedges is significant to reported results, but economically neutral to the company in that offsetting gains or losses on underlying accrual positions will be recognized in the future. Synfuel earnings have been excluded due to the potential for oil-price volatility to result in a difficult-to-forecast phase-out of tax credits.

We present adjusted EPS 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 a measure provides a picture of our results that is more comparable among periods since it excludes the impact of items such as workforce reduction costs or gains and losses on the sale of assets, which may recur occasionally, but tend to be irregular as to timing, thereby distorting comparisons between periods. However, investors should note that this non-GAAP measure involves judgment by management (in particular, judgment as to what is classified as a special item or an economic, non-qualifying hedge to be excluded from adjusted earnings). This non-GAAP measure is 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 and synfuel results due to the difficulty of doing so. The impact of special items, economic, non-qualifying hedges and synfuel results 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 a substitute to GAAP information.

SEC Filings

The company plans to file its Form 10-Q for the three months ended June 30, 2008, on or about August 8, 2008.

Forward-Looking Statements

We make statements in this news release that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to be materially different from those we project. For a full discussion of these risks, uncertainties and factors, we encourage you to read our documents on file with the Securities and Exchange Commission, including those set forth in our periodic reports under the forward-looking statements and risk factors sections. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Conference Call July 31, 2008

Constellation Energy will host a conference call at 8:30 a.m. (EDT) on Thursday, July 31, 2008, to review the results. To participate, analysts, investors, media and the public in the U.S. may dial (888) 455-2894 shortly before 8:30 a.m. The international phone number is (773) 681-5899. The conference password is ENERGY. A replay will be available approximately one hour after the end of the call by dialing (866) 483-9032 or (203) 369-1585 (international).

A live audio webcast of the conference call, presentation slides and the earnings press release will be available on the Investor Relations page of Constellation Energy's Web site (http://www.constellation.com/). A webcast replay, as well as a replay in downloadable MP3 format, will also be available on the site shortly after the completion of the call. The call will also be recorded and archived on the site.

Constellation Energy (http://www.constellation.com/), a FORTUNE 125 company with 2007 revenues of $21 billion, is the nation's largest competitive supplier of electricity to large commercial and industrial customers and the nation's largest wholesale power seller. Constellation Energy also manages fuels and energy services on behalf of energy intensive industries and utilities. It owns a diversified fleet of 83 generating units located throughout the United States, totaling approximately 9,000 megawatts of generating capacity. The company delivers electricity and natural gas through the Baltimore Gas and Electric Company (BGE), its regulated utility in Central Maryland.

Addendum -- Amounts Excluded from Adjusted EPS

Non-qualifying Hedges -- after-tax loss of $(34.7) million, or $(0.19) per share

During the second quarter of 2008, we recognized a $(34.7) million after-tax loss related to certain non-qualifying hedges of gas transportation rights, international freight contracts, and gas storage contracts, which are economic hedges that do not meet the criteria or are not designated for cash-flow hedge accounting under FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, and thus are required to be marked-to-market. This mark-to-market loss is essentially a timing difference that is expected to be offset as we realize the related accrual contracts in cash in future periods.

Accrual of Maryland Settlement -- after-tax charge of $(125.3) million, or $(0.70) per share

In April 2008, BGE accrued approximately $188 million pre-tax for the $170 per residential electric customer credit provided for in the settlement agreement with the State of Maryland and the Maryland Public Service Commission. We expect these credits to be paid to customers in the third quarter of 2008. We have excluded this nonrecurring charge from our adjusted results.

Effective Tax Rate Impact: Maryland Settlement -- after-tax benefit of $2.1 million, or $0.01 per share

As a result of the $188 million charge for the BGE residential electric customer credits discussed above, BGE's 2008 effective tax rate will be reduced. Pursuant to Accounting Principles Board (APB) Opinion No. 28, Interim Financial Reporting, and FASB Interpretation FIN 18, Accounting for Income Taxes in Interim Periods an Interpretation of APB Opinion No. 28, we record quarterly income tax expense based on an estimate of the full-year 2008 effective tax rate, which will be reduced by these credits. We have excluded this reduction to income tax expense from BGE's adjusted quarterly earnings to be consistent with how we are treating the $188 million non-recurring charge.

Synfuel Earnings -- after-tax gain of $1.4 million, or $0.01 per share

We have removed a $1.4 million gain realized in the second quarter of 2008 related to our synfuel production activities, which ceased at the end of 2007 upon expiration of the tax credit.

Constellation Energy Group and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 (In Millions, Except Per Share Amounts) Revenues Nonregulated revenues $4,445.3 $4,172.9 $8,157.2 $8,366.7 Regulated electric revenues 448.7 544.3 1,158.0 1,059.1 Regulated gas revenues 183.1 159.1 574.1 561.6 Total revenues 5,077.1 4,876.3 9,889.3 9,987.4 Expenses Fuel and purchased energy expenses 3,880.4 3,885.2 7,623.5 7,901.9 Operating expenses 711.5 580.4 1,301.6 1,149.1 Impairment losses and other costs - 20.2 - 20.2 Workforce reduction costs - 2.3 - 2.3 Depreciation, depletion, and amortization 141.9 142.8 290.2 275.2 Accretion of asset retirement obligations 17.0 18.2 33.6 35.9 Taxes other than income taxes 71.1 72.8 145.9 146.0 Total expenses 4,821.9 4,721.9 9,394.8 9,530.6 Gains on Sales of Upstream Gas Assets 76.5 - 91.5 - Income from Operations 331.7 154.4 586.0 456.8 Gain on Sale of Subsidiary Equity - CEP - 12.9 - 12.9 Other Income, Primarily Interest Income 15.1 45.2 57.4 87.6 Fixed Charges Interest expense 73.5 71.1 152.3 151.4 Interest capitalized and allowance for borrowed funds used during construction (8.6) (4.5) (15.7) (8.4) BGE preference stock dividends 3.3 3.3 6.6 6.6 Total fixed charges 68.2 69.9 143.2 149.6 Income from Continuing Operations Before Income Taxes 278.6 142.6 500.2 407.7 Income Tax Expense 107.1 26.3 183.0 94.1 Income from Continuing Operations 171.5 116.3 317.2 313.6 Loss from discontinued operations, net of income taxes of $0.8 - - - (1.6) Net Income $171.5 $116.3 $317.2 $312.0 Earnings Applicable to Common Stock $171.5 $116.3 $317.2 $312.0 Average Shares of Common Stock Outstanding - Basic 178.4 180.3 178.3 180.5 Average Shares of Common Stock Outstanding - Diluted 180.2 182.7 180.2 182.8 Earnings Per Common Share from Continuing Operations - Basic $0.96 $0.65 $1.78 $1.74 Loss from discontinued operations - Basic - - - (0.01) Earnings Per Common Share - Basic $0.96 $0.65 $1.78 $1.73 Earnings Per Common Share from Continuing Operations - Diluted $0.95 $0.64 $1.76 $1.72 Loss from discontinued operations - Diluted - - - (0.01) Earnings Per Common Share - Diluted $0.95 $0.64 $1.76 $1.71 Certain prior-period amounts have been reclassified to conform with the current period's presentation. Constellation Energy Group and Subsidiaries Consolidated Balance Sheets (Unaudited) June 30, December 31, 2008 2007 ASSETS (In Millions) Current Assets Cash and cash equivalents $1,230.7 $1,095.9 Accounts receivable (net of allowance for uncollectibles of $154.8 and $44.9, respectively) 5,356.1 4,289.5 Fuel stocks 931.3 591.3 Materials and supplies 213.4 207.5 Derivative assets 3,766.4 760.6 Unamortized energy contract assets 86.1 32.0 Deferred income taxes - 300.7 Other 704.3 408.1 Total current assets 12,288.3 7,685.6 Investments And Other Assets Nuclear decommissioning trust funds 1,315.0 1,330.8 Other investments 507.5 542.2 Regulatory assets (net) 532.4 576.2 Goodwill 266.4 261.3 Derivative assets 2,948.5 1,030.2 Unamortized energy contract assets 170.8 178.3 Other 386.0 370.6 Total investments and other assets 6,126.6 4,289.6 Property, Plant And Equipment Nonregulated property, plant and equipment 8,751.8 8,087.0 Regulated property, plant and equipment 6,241.6 6,051.2 Nuclear fuel (net of amortization) 367.2 374.3 Accumulated depreciation (4,923.6) (4,745.4) Net property, plant and equipment 10,437.0 9,767.1 Total Assets $28,851.9 $21,742.3 LIABILITIES AND EQUITY Current Liabilities Short-term borrowings $145.7 $14.0 Current portion of long-term debt 144.4 380.6 Accounts payable and accrued liabilities 3,638.4 2,630.1 Customer deposits and collateral 492.1 146.6 Derivative liabilities 3,355.6 1,134.3 Unamortized energy contract liabilities 389.7 392.2 Deferred income taxes 546.9 - Accrued expenses and other 805.2 956.0 Total current liabilities 9,518.0 5,653.8 Deferred Credits And Other Liabilities Deferred income taxes 1,349.5 1,588.5 Asset retirement obligations 951.5 917.6 Derivative liabilities 2,560.2 1,118.9 Unamortized energy contract liabilities 1,090.2 1,218.6 Defined benefit obligations 774.6 828.6 Deferred investment tax credits 47.2 50.5 Other 164.6 155.9 Total deferred credits and other liabilities 6,937.8 5,878.6 Long-Term Debt Long-term debt of nonregulated businesses 3,528.3 2,830.8 Long-term debt of BGE 1,508.0 1,334.2 Rate stabilization securitization bonds of BGE 590.0 623.2 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 (4.7) (4.8) Current portion of long-term debt (144.4) (380.6) Total long-term debt 5,734.9 4,660.5 Minority Interests 20.1 19.2 BGE Preference Stock Not Subject To Mandatory Redemption 190.0 190.0 Common Shareholders' Equity Common stock 2,571.2 2,513.3 Retained earnings 4,038.1 3,919.5 Accumulated other comprehensive loss (158.2) (1,092.6) Total common shareholders' equity 6,451.1 5,340.2 Total Liabilities And Equity $28,851.9 $21,742.3 Certain prior-period amounts have been reclassified to conform with the current period's presentation. Constellation Energy Group and Subsidiaries Merchant Energy Operating Statistics (Unaudited) Six Months Ended June 30, Oil & Hydro & Nuclear Coal Gas Renewables Other Total Generation by Fuel Type (%) 2008 61.6 33.7 0.2 3.0 1.5 100.0 2007 59.8 35.6 0.7 2.5 1.4 100.0 Thousands of MWH 2008 15,506 8,474 47 751 376 25,154 2007 15,147 9,011 182 628 344 25,312 Utility Operating Statistics (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 ELECTRIC Revenues (In Millions) Residential $217.6 $312.4 $722.3 $611.4 Commercial Excluding Delivery Service Only 135.4 142.0 255.4 276.8 Delivery Service Only 55.3 53.1 107.4 103.1 Industrial Excluding Delivery Service Only 7.4 7.9 13.6 14.6 Delivery Service Only 7.3 7.1 13.8 13.7 System Sales 423.0 522.5 1,112.5 1,019.6 Other 25.7 21.8 45.6 39.5 Total $448.7 $544.3 $1,158.1 $1,059.1 Distribution Volumes (In Thousands) - MWH Residential 2,813 2,926 6,511 6,732 Commercial Excluding Delivery Service Only 946 1,066 1,846 2,120 Delivery Service Only 2,867 2,923 5,642 5,715 Industrial Excluding Delivery Service Only 62 73 113 138 Delivery Service Only 793 791 1,548 1,540 Total 7,481 7,779 15,660 16,245 GAS Revenues (In Millions) Residential Excluding Delivery Service Only $86.5 $82.9 $327.2 $343.0 Delivery Service Only 3.4 3.5 10.7 10.9 Commercial Excluding Delivery Service Only 29.9 26.1 99.0 99.3 Delivery Service Only 9.7 7.5 24.7 22.8 Industrial Excluding Delivery Service Only 1.3 1.2 5.1 5.2 Delivery Service Only 3.8 4.4 7.9 8.5 System Sales 134.6 125.6 474.6 489.7 Off-System Sales 51.1 34.9 104.4 75.5 Other 2.4 2.3 5.5 4.9 Total $188.1 $162.8 $584.5 $570.1 Distribution Volumes (In Thousands) - DTH Residential Excluding Delivery Service Only 4,215 5,262 22,163 24,907 Delivery Service Only 444 571 2,395 2,761 Commercial Excluding Delivery Service Only 1,932 2,070 7,700 8,179 Delivery Service Only 6,118 6,366 16,628 17,016 Industrial Excluding Delivery Service Only 92 103 426 446 Delivery Service Only 4,359 4,237 9,518 8,401 System Sales 17,160 18,609 58,830 61,710 Off-System Sales 4,176 4,227 9,420 8,744 Total 21,336 22,836 68,250 70,454 Utility operating statistics do not reflect the elimination of intercompany transactions. Heating/Cooling Degree Days (Calendar- Month Basis) Heating Degree Days - Actual 510 573 2,839 3,000 - Normal 528 523 3,000 2,971 Cooling Degree Days - Actual 237 251 238 258 - Normal 234 234 238 238 Constellation Energy Group and Subsidiaries Supplemental Financial Statistics (Unaudited) Six Months Ended June 30, 2008 2007 Effective Tax Rate 36.1% 22.7% Equity Investment In Nonregulated Businesses -- End of Period (In Millions) $5,010.4 $3,453.4 Equity Investment In Regulated Business -- End of Period (In Millions) $1,440.7 $1,705.6 Common Stock Data Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Common Stock Dividends -- Per Share -- Declared $0.4775 $0.4350 $0.9550 $0.8700 -- Paid $0.4775 $0.4350 $0.9125 $0.8125 Market Value Per Share -- High $94.62 $95.57 $107.97 $95.57 -- Low $78.74 $82.71 $78.74 $68.78 -- Close $82.10 $87.17 $82.10 $87.17 Shares Outstanding -- End of Period (In Millions) 178.5 180.4 178.5 180.4 Book Value per Share -- End of Period $36.14 $28.60 $36.14 $28.60

Constellation Energy Group

CONTACT: Media, Robert L. Gould, Debra Larsson or Diana L. Hayden,+1-410 470-7433; Investors, Kevin Hadlock, +1-410 470-3647 or Janet Mosher,+1-410 470-1884 all of Constellation Energy Group

Web site: http://www.constellation.com/

Company News On-Call: http://www.prnewswire.com/comp/084087.html

Source: PRNewswire-FirstCall

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