constellation energy Q3 2006 Earnings Presentation

Constellation EnergyQ3 2006 Earnings

October 27, 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; 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; our ability to successfully identify and complete acquisitions and sales of businesses and assets; cost and other effects of legal and administrative proceedings that may not be covered by insurance, including environmental liabilities; 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, 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. 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 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 assets, 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

Merger Termination

• Reached joint and amicable agreement with FPL Group to terminatemerger– Termination request initiated by Constellation– Tremendous respect for FPL Group

• Risks and uncertainties in Maryland too significant to overcome– Created potential for protracted and open-ended merger review process– Company minimized distractions from merger process and focused on

delivering results in the interim– Imprudent to expose commercial businesses to indefinite uncertainty

• Termination not driven by any single or isolated event– Recognition that no clear path led to merger completion– No events on the horizon would create certainty in the near term

• Right decision for shareholders to focus Constellation’s efforts on growth that the company can control

• Working constructively to balance needs of Maryland and maintaining a financially healthy utility

5

Q3 2006 Adjusted EPS Summary

$1.10 - $1.25Q3 Earnings Guidance

(0.08)(0.11)Synfuel Earnings

$1.08$1.56Adjusted Earnings

-0.08Special Items

See Appendix

0.13(0.20)(Gain) / Loss on Economic Non-Qualifying Hedges

$1.03 $1.79GAAP Earnings

Q3 2005Q3 2006($ per share)

A proven business model, crisp execution and rigorous risk management has enabled Constellation to deliver 20 consecutive

quarters of meeting or exceeding management guidance

6

Q3 2006 Operating Highlights• Merchant business delivered exceptional results in all areas

– Commodities

Delivered strong new business growth via power and portfolio management and trading

Sustained pattern of adding to backlog of future earnings

– NewEnergy

Continued gross margin improvement driven by improved pricing and lower costs to serve load

Strong third quarter sales volumes and high retention rates

– Generation

Improving results driven by roll off of below-market sales from the fleet

On target to achieve full-year productivity target for 2006

• BGE performing in line with expectations

• S&P upgraded CEG senior unsecured debt rating to BBB+ from BBB

7

Sale of Gas-fired Merchant Plants• Announced sale of gas-fired generation plants to Tenaska Power Fund L.P. on

October 11, 2006, for $1.635 billion in cash– Plants sold on a merchant basis– After-tax proceeds expected to be approximately $1.5 billion

– Expect closing by end of 2006 or in early 2007

• Continuation of a consistent pattern to evaluate owned and prospective assets and buy or sell when values are attractive

• If proceeds used to repurchase debt and equity proportional to existing capital structure, transaction would be neutral in 2007 and accretive thereafter

• Proceeds expected to be applied to debt reduction – Should reach long-term target net debt to total capital ratio of 40% upon completion of divestiture– Balance of proceeds and future free cash flow will be available to invest in growth businesses or to

repurchase debt and equity to maintain long-term leverage ratio

• Including effect of de-levering, transaction will be modestly dilutive through 2009 and accretive thereafter

• Continue to evaluate opportunities to grow our asset base

8

Strategic Fundamentals

• Business built on foundation of low-cost baseload fleet

– High quality assets located in high-value markets

• Industry-leading intermediation businesses

– Significantly leveraging the value of our physical asset base

– Provide high-value products and services to customers

• Strong cash flow generation and solid balance sheet enables deployment of capital to continue growth

– Solid track record of managing capital investment to achieve above-hurdle rate returns throughout the commodity cycle

9

Long-term Growth

Expiration of hedges established in 2004 and early 2005 for 2006-2007 imply growing 2008 and 2009 margins

Expiration of Nine Mile Point PPA in 2009 and 2011Roll off of Below-Market Fleet Sales

Generate strong cash flowInvest in above hurdle rate projectsIf none identified – return cash to shareholders as possible

Reinvestment of Cash Flow

Specific targets, detailed plansPattern of executionGinna Uprate

Productivity

WholesalePattern of building backlogModerating new business growth

Retail (commercial & industrial)Realistic switched market growthModest market share gainsModestly improving margins

Growing Market Share as Commodities Intermediary

Fundamental Growth Drivers

Supportive Long-term Commodity Price Outlook

10

Solid Base of Growing Earnings

Note: Includes gas-fired merchant plants, except High Desert

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2004 2005 2006 2007 2008

EBIT

DA (

$ bi

llion

s)

Utility Generation Retail Businesses Commodities - Backlog at 9/30 Commodities - New Business

BGE

Generation Fleet

Retail Businesses

Commodities Backlog at 9/30

Commodities New Business

• Earnings from low-risk sources represent 87% of 2007 EBITDA and 86% of 2008 EBITDA- Base of utility earnings- Highly hedged generation output- Retail businesses (NewEnergy) with high customer retention rates- Strong Commodities backlog of already-originated transactions

11

Long-term Earnings Outlook

(1) Adjusted for the effect of special items, certain economic, non-qualifying hedges and synfuel earnings(2) Adjusted for the effect of special items, certain economic, non-qualifying hedges, synfuel earnings, and impacts of gas-fired generation plant

sales

3.28

3.65 - 3.80

4.40 - 4.65

5.25 - 5.75

$2.00

$3.00

$4.00

$5.00

$6.00

2005 2006E 2007E 2008E

See Appendix

• Business outlook for Constellation Energy continues to gain momentum• Raising 2006 earnings guidance to $3.65 - $3.80 per share from $3.35 - $3.65 per share

excluding impact of gas-fired generation sale• Increasing confidence in ability to deliver on 2007 and 2008 guidance

EPS GuidanceAdjusted EPS (1)

2.90

3.30 - 3.45

4.30 - 4.65

5.25 - 5.75

$2.00

$3.00

$4.00

$5.00

$6.00

2005 2006E 2007E 2008E

Adjusted EPS (2) EPS Guidance

Earnings per Share(Excluding Impact of Plant Sale)

Earnings per Share(Including Impact of Plant Sale)

($ p

er s

hare

)

Financial Overview

E. Follin Smith

13

Q3 2006 Adjusted EPS Summary

(0.08)(0.11)Synfuel Earnings

$1.10 - $1.25Q3 Guidance


-0.08Special Items

See Appendix

0.13(0.20)(Gain) / Loss on Economic Non-Qualifying Hedges

$1.03 $1.79GAAP Earnings

Q3 2005Q3 2006($ per share)

14

Q3 2006 Segment Earnings Per Share (1)

$1.10 - $1.25

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

NM0.02-0.02Other Non-regulated

See Appendix

Q3 2006 Earnings Guidance

44%$0.48$1.08$1.56Adjusted Earnings Per Share

60%0.500.841.34Merchant

(17%)($0.04)$0.24$0.20BGE

%EPSQ3 2005Q3 2006

Change($ per share)

15

$0.17 - $0.22$0.20Adjusted Earnings

GuidanceActual

Q3 2006Adjusted Earnings vs. Guidance($ per share)

BGE

($0.04)

Change


Q3 2005Q3 2006

Adjusted Earnings vs. Prior Year ($ per share)

See Appendix

16

$0.90 - $1.05$1.34Adjusted Earnings

GuidanceActual (1)

Q3 2006Adjusted Earnings vs. Guidance($ per share)

Merchant

+17¢ Mid-Atlantic Price / CTC

+14¢ New Energy

See Appendix

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

+3¢ Generation and Headquarters Productivity

-18¢ Inflation, Interest, Other+34¢ Commodities New Business / Backlog / Lower Cost to Serve Load

Variance Primarily Due to:

$0.50$0.84$1.34Adjusted Earnings (1)

ChangeQ3 2005Q3 2006Adjusted Earnings vs. Prior Year($ per share)

17

Merchant – Income Statement (1)

110%5752109NewEnergy

134%165123288Wholesale Competitive Supply

5%12122Qualifying Facilities/Other

(3%)(7)234227 Plants with PPAs

23%$54$231$285 Mid-Atlantic Fleet

1%17675D & A

60%$ 92$152 $244 Net Income

(67%)(64)95159Income Tax

63%156247403Pre-Tax Income

(33%)(12)4052Net Interest Expense

59%168287455EBIT

(28%)(102)374476Total Costs below Gross Margin

(1)

(102)

270

$B / (W)

Change

(3%)

(40%)

41%

%

3839Other Expense

260362O & M

661931Gross Margin

Q3 2005Q3 2006($ in millions)

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

18

Wholesale Competitive Supply (1)

New Business

17053223Total 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). Including gas project-level expenses of $14 million in Q3 2006 and $8 million in Q3 2005, total wholesale competitive supply gross margin in Q3 2006 and Q3 2005 was $288 million and $123 million respectively.

9330123Portfolio Management & Trading

See Appendix

139%$160$115$275Total Contribution Margin (2)

7723100Originated & Realized (2)

($10)$62$52Total Already Originated Business (2)

%$Q3 2005Q3 2006

Change($ in millions)

19

Wholesale Competitive Supply: Origination

$152

88

$64

Q3 2005

$322

142

$180

Q3 2006

(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) Includes gross margin originated to be realized in the current year and future years

104%113%% of Revised Total Origination Target Achieved

75%113%% of Revised Current Year Target Achieved

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

$504$908Total Origination Target (2)

$268$536Current Year Target

322425Future Years

$522$1,029Total Originated

$200$604Current Year

To Be Realized In:

Q1 – Q3 2005Q1 – Q3 2006 ($ in millions)

20

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) Includes portfolio value changes for downstream gas and coal(3) Reflects portfolio pricing on 12/15/05

Backlog (1)

(as of 9/30/06)

300 241 194

604

209

98

$0

$250

$500

$750

$1,000

2006 2007 2008

$ in

mill

ions

New Business Since12/31/05

Value as of 12/31/05(3)

(2)

21

NewEnergy: Improving Performance

Electric Volume Delivered (GWh)

0

25

50

75

3rd Quarter YTD

2005 2006

Realized Electric Gross Margin (GM / MWh)

$1.00

$3.00

$5.00

3Q04 1Q05 3Q05 1Q06 3Q06

Retention Rates

50%

75%

100%

3Q05 4Q05 1Q06 2Q06 3Q06

Including Return to Utility Excluding Return to Utility

Market Share (MW)

0

4,000

8,000

12,000

16,000

Q4 2003 Q4 2004 Q4 2005 Q3 2006

NewEnergy ReliantTXU Great PlainsSUEZ Direct Energy (US Only)Pepco Hess Corp. Sempra

22

NewEnergy: Retail MWh Backlog

Contracted Retail MWh (as of 9/30/06)

6451

16

4019

0

20

40

60

80

100

2005 2006 2007 2008

MW

hs

in m

illio

ns

Delivered Backlog

91% of 2006 plan MWhs delivered or contracted

23

Limiting Variability – Portfolio Management

$0.03

0.06

($0.03)

86%

89%

2007

Percent Hedged as of 9/30/06

0.060.04Fuel down $0.10/MMBtu, Power unchanged

($0.08)($0.05)Power down $1/MWh, Fuel unchanged

59%80%Fuel

($0.02)

Sensitivity to Price Changes as of 9/30/06 ($ per share)

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

83%Power 70%

20092008

• Accrual portfolio managed to reduce exposure of future earnings to changes• MTM portfolio VaR levels remain low at average of $13.9 million in Q3 2006

Note: Percent hedged includes Mid-Atlantic Fleet, Plants with PPA’s, and wholesale and retail competitive supply power businesses. Does not include gas businesses or international coal business.

24

Cumulative Productivity

50

(40)

150

89 (1)

(100)

(50)

0

50

100

150

200

2004 2005 2006 2007

Pre-

tax

Earn

ings

($

mil

lion

s)

Realized Target

Productivity

• Year-to-date, realized $39 million, or 98% of our 2006 productivity target• Since announcing our long-term productivity initiatives, we have added $89

million pre-tax to ongoing annual profits(1) 2006 Productivity target of $40 million; achieved year-to-date productivity of $39 million

25

(235)(10)(78)(147)Capital Expenditures & Investments

148115879Depreciation & Amortization

(68)Dividends

15Equity Issuances – Benefit Plans

959(193) (1)143Working Capital & Other

33Pension Adjustment (pre-tax)

$225Net Cash Flow before Debt Issuances/(Payments)

$278$64($178)$359Free Cash Flow

(87)1(20)(68)Net CapEx

$323$4$35$284Net Income Before Special Items

TotalOther

Non-RegUtilityMerchant($ in millions)

Q3 2006 Consolidated Cash Flow

See Appendix

(1) Includes $176m of deferrals related to the BGE Rate Stabilization Plan

26

Significant Excess Liquidity

-0.51.01.52.02.53.03.54.04.55.05.5

($ b

illi

ons)

Cash & Bank Lines Bank Line Usage

31-Dec-01 (1) 31-Dec-02 31-Dec-03 31-Dec-04 31-Mar-05 30-Jun-05 30-Sep-05 31-Dec-05 31-Mar-06 30-Jun-06 30-Sep-06 (2)

Excess Liquidity

• Excess liquidity of $2 billion at the end of third quarter 2006• Pro forma for additional $1 billion credit facility, excess liquidity at the end of the

third quarter 2006 of more than $3 billion

Historical Excess Liquidity

(1) Excludes $2.5 billion bridge facility(2) Pro Forma for $1 billion bank line established on 10/24/2006

27

Balance Sheet

$10.4$10.4Total Capital

4.54.4Equity (1)

0.30.23rd Party Cash Collateral

See Appendix

(1) Includes preferred stock and minority interest(2) Related to cash flow hedges of commodity transactions(3) Excludes AOCI Balance related to cash flow hedges of commodity transactions and 3rd Party Cash Collateral

1.31.2Add Back: AOCI Balance (2)

44.3%45.9%Adjusted Net Debt to Adjusted Total Capital (3)

4.44.7Net Debt

$4.8$4.9Total Debt

Actual

$0.1$0.150% Trust Preferred

Capital

(0.3)(0.2)Less: Cash

Debt

9/30/066/30/06($ in billions)

28

Credit Metrics

Projected (1)

43.7%

$2.1

12/31/05

50.6%

$1.9

12/31/03

See Appendix

(1) Assumes sale of gas-fired merchant plants completed by FYE 2006(2) Net debt adjusted to exclude 3rd party collateral. Total capital adjusted to exclude AOCI balance related to cash flow hedges of commodity transactions, 3rd

party collateral and AOCI balance related to changes in pension and post-retirement accounting

40 %54.8%Adjusted Net Debtto Capital (2)

$3.0+ $0.6Excess Liquidity ($ billions)

12/31/0612/31/01

Actual

• S&P upgraded CEG senior unsecured debt rating to BBB+• Credit metrics continue to strengthen• Additional liquidity provided by $1 billion credit facility activated upon termination

of merger with FPL

29

Projected 2007 Merchant Gross Margin & EBITDA

(2,650)-(2,600)NPV of Hedges (2)

2,700

950

1,750

20

165

600

350

700

-

-

-

-

-

-

-

-

4,200

950

3,250

50

505

1,000

675

1,150

-

-

-

-

-

-

-

-

900900Negative Impact of Hedges (2)

$2,550$ 3,950Total Merchant - Unhedged

1,6503,050Total Merchant

1540QFs/Other

140435NewEnergy

500800Wholesale Competitive Supply

300575Plants with PPAs

$ 600$ 1,000Mid-Atlantic Fleet

EBITDA (1)Gross Margin (1)($ millions)

NOTE: The Merchant Segment is managed using an integrated portfolio approach. To support investors’ analytical work, Constellation has made assumptions on the allocation of costs and expenses to the various components of the Merchant Segment in order to support analytics around valuation. All calculations exclude High Desert Gas Plant.(1) Includes Nuclear Fuel Amortization for Mid-Atlantic Fleet and Plants with PPAs(2) Represents hedges on Mid-Atlantic Fleet and Plants with PPAs

30

17% - 21%$5.25 - $5.75$4.40 – $4.65$3.35 - $3.65$3.28Prior Adjusted Earnings (2)

GuidanceActual

3.65 – 3.80 17% - 21%5.25 - 5.754.40 - 4.653.28Adjusted Earnings (2)

(1) Preliminary guidance(2) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings(3) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings, and High Desert earnings, which will be classified as discontinued

operationsSee Appendix

$5.25 - $5.75

-

2008

(0.10)(0.34)(0.38)High Desert

22% - 26%$4.30 - $4.65$3.30 - $3.45$2.90Adjusted Earnings excluding High Desert (3)

GAGR2007 (1)20062005($ per share)

Long-term Earnings Outlook

31

Q4 2006 Earnings Per Share Guidance

$0.97$0.85 - $1.00Adjusted Earnings Per Share including High Desert (2)

0.720.65 – 0.80Merchant including High Desert

$0.87$0.75 - $0.90Adjusted Earnings Per Share (1)

$0.10

-

0.25

$0.62

Actual Q4 2005

0.01 – (0.01)Other

(1) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings, and High Desert earnings, which will be classified as discontinued operations(2) Excludes special items, certain economic, non-qualifying hedges and synfuel earningsSee Appendix

$0.04Synfuels

0.19 – 0.25BGE

$0.55 - $0.70Merchant

Guidance Q4 2006($ per share)

Additional Modeling Information

33

Gas-fired Plants – Divestiture Accounting• Financial statement impacts in Q4 2006 – all plants classified as held for sale

– All assets and liabilities to be disposed will be reclassified as current in the balance sheet

– Depreciation discontinued immediately– Hedge accounting discontinued immediately, and prior deferred hedge gains or losses

removed from accumulated other comprehensive income (equity) and recognized in earnings

• Presentation of operations beginning in Q4 2006– High Desert – discontinued operations (determined to be a component for which cash

flows and operations will be eliminated)Single income statement line item including both operating results and gain on saleAll prior periods in the income statement will be reclassified to conform

– Other plants not classified as discontinued operations (due to the lack of separately identifiable cash flows and sales of a commodity in a liquid market)

Operations prior to closing and gain on sale reported in operating results

Divestiture will affect financial statements beginning in Q4 2006

34

Discontinued Operations – High Desert• High Desert results will be reclassified to discontinued operations for all

periods presented beginning with 2006 Form 10-K

• Estimated fourth quarter impact of discontinued operation is ($0.10)• Estimated total 2006 impact of discontinued operations is ($0.34)

(1) Excludes effects of cash flow hedges and gain on sale

20062005

$2.56

(0.24)

$2.80

YTD

$0.62

(0.06)

$0.68

Q1

$0.47

(0.09)

$0.56

Q2

$1.47

(0.09)

$1.56

Q3

$2.90$0.87$0.98$0.50$0.55Revised

(0.38)(0.10)(0.10)(0.09)(0.09)Discontinued Operations (1)

$3.28$0.97$1.08$0.59$0.64As reported

Adjusted EPS

Q4Q3Q2Q1 YTD

See Appendix

35

Gas Plants – Gain on Sale and Proceeds• Gain on sale of approximately $258 million pre-tax will be recognized at closing

• Actual proceeds and net assets sold subject to adjustment prior to closing

258Gain – pre-tax

$1,453Estimated after-tax cash

164– after-tax

1,374Net assets at 9/30/06

$1,632Total estimated proceeds

( $ in millions)

36

$(167) $(80)$154$(321)$(401)Cash Collateral Held

$(33)

(84)

(238)

(19)

($219)

Q3 Change B / (W)

$543 ($477)$762$285Exchanges

(99)185166863rd Parties

(576)947709371Subtotal Posted

Collateral Posted

(656)626542(30)Net Cash Posted Subtotal

($5)Change in Total Collateral Posted

651 $1,835$1,802$2,486Letters of Credit Posted

Change vs. Year-End B / (W)9/30/066/30/0612/31/05($ in millions)

Collateral Positions

Shift from letters of credit to cash collateral has had little impact on our liquidity

37

Synfuel Update (1)

(58)(53)(37)(6)Current period credit phase-out

$0.16

$29

($42)

-

$11

42%

$71

129

35

($94)

2006 Estimate

$0.12

$22

($28)

-

$9

42%

$50

91

25

($67)

YTD 09/30/06

$0.14

$24

($48)

-

$10

42%

$72

142

42

($111)

2007 Estimate

Tax credit phase-out percentage

$0.11Net synfuel EPS

$20Net synfuels income

-Production expenses, net of tax

Impact of phase-out

Pre-phase-out:

$13

19

$8

15

5

($12)

Q3 2006

Net income impact of phase-out

Phase-out catch-up prior quarters

Net income pre-phase-out

Tax credits before phase-out

Tax benefit of pre-tax loss

Pre-tax loss on production

($ in millions, except per share amounts)

(1) Numbers may not sum due to rounding

38

South Carolina Synfuel (1)


In mid-September, South Carolina increased production from 80,000 tons to full production of 250,000 –300,000 tons/month

3.02.81.90.4Production (tons in millions)


$0.09

$16

($31)

-

$4

42%

$47

84

24

($62)

2006 Estimate

$0.07

$12

($21)

-

$3

42%

$33

59

16

($42)

YTD 09/30/06

$0.07

$13

($33)

-

$4

42%

$46

92

29

($74)

2007 Estimate




($1)Production expenses, net of tax

Impact of phase-out

Pre-phase-out:

$6

12

$7

12

3

($9)

Q3 2006








39

Pace Synfuel (1)


In October, Pace synfuel facilities resumed production of approximately 150,000 tons/month

1.71.51.10.1Production (tons in millions)


$0.07

$13

($11)

-

$7

42%

$24

45

1

($32)

2006 Estimate

$0.05

$10

($7)

-

$6

42%

$16

32

9

($25)

YTD 09/30/06

$0.06

$11

($15)

-

$6

42%

$26

50

13

($37)

2007 Estimate




$1Production expenses, net of tax

Impact of phase-out

Pre-phase-out:

$7

7

$1

3

1

($3)

Q3 2006








Non-GAAP Appendix

41

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 EPSQ306 Actual 5, 13, 14, 15, 16 42Q305 Actual 5, 13, 14, 15, 16 42EPS Guidance 5, 11, 13, 14, 15, 16, 30, 31 422005 YTD Actual 11, 30 43Q1, Q2, Q3, and 9 months 06 Actual 34 43Q1, Q2, Q3, and Q4 05 Actual 34 43Q405 Actual 31 44

Q306 Merchant Gross Margin 17, 18 Income from Operations / Net Income 45Q305 Merchant Gross Margin 17, 18 46Q306 Merchant Below Gross Margin 17 45Q305 Merchant Below Gross Margin 17 46

Net Cash Flow before Debt Issuances/(Payments) 25 Operating, Investing and Financing Cash Flow 47Free Cash Flow 25 47

Debt to Total Capital 27, 28 Debt Divided by Total Capitalization 48Projected Debt to Total Capital 28 48

42

Adjusted EPS Q306 and Q305We exclude special items and certain economic, non-qualifying fuel adjustment clause and gas transportation and storage 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 adjusted earnings to exclude synfuel results due to the potential volatility and phase-out of the tax credits. We believe such a measure provides 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 this non-GAAP measure involve judgment by management (in particular, judgments as to what is or is not classified as a special item). We also use this measure 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)

3Q06 ACTUAL RESULTS:

Reported GAAP EPS 1.57$ 0.24$ (0.04)$ 0.20$ 0.02$ 1.79$ GAAP MEASURE

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

Non-qualifying hedges 0.20 - - - - 0.20

Synthetic fuel facility results 0.11 - - - - 0.11

Workforce reduction costs (0.07) - - - - (0.07)

Merger-related costs (0.01) - - - - (0.01)

Total Special Items, Non-qualifying Hedges, and Synfuel Results 0.23 - - - - 0.23

Adjusted EPS 1.34$ 0.24$ (0.04)$ 0.20$ 0.02$ 1.56$ NON-GAAP MEASURE

3Q05 ACTUAL RESULTS:

Reported GAAP EPS 0.78$ 0.28$ (0.04)$ 0.24$ 0.01$ 1.03$

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

0.78 0.28 (0.04) 0.24 - 1.02

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

Non-qualifying hedges (0.13) - - - - (0.13)


Workforce reduction costs (0.01) - - - - (0.01)

Total Special Items, Non-qualifying Hedges, and Synfuel Results (0.06) - - - - (0.06)

Adjusted EPS 0.84$ 0.28$ (0.04)$ 0.24$ -$ 1.08$ 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

43

Adjusted EPS – Prior PeriodsWe exclude special items and certain economic, non-qualifying fuel adjustment clause and gas transportation and storage 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 adjusted earnings to exclude synfuel results due to the potential volatility and phase-out of the tax credits. We believe such a measure provides 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 this non-GAAP measure involve judgment by management (in particular, judgments as to what is or is not classified as a special item). We also use this measure to evaluate performance and for compensation purposes.

RECONCILIATION:2005 YTD

Q1 05 Q2 05 Q3 05 Q4 05 Total Q1 06 Q2 06 Q3 06 Sept 06

ACTUAL RESULTS:

Reported GAAP EPS 0.68$ 0.68$ 1.03$ 1.09$ 3.47$ 0.63$ 0.52$ 1.79$ 2.94$

Income from Discontinued Operations - High Desert 0.09 0.09 0.10 0.10 0.38 0.06 0.09 0.09 0.24 GAAP MEASURES

Income from Discontinued Operations - Others 0.01 0.02 0.01 0.09 0.13 - - - 0.01

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

0.58 0.57 0.92 0.94 3.00 0.57 0.43 1.70 2.69

Special Items and Non-qualifying Hedges Included in Operations:

Non-qualifying hedges (0.04) (0.02) (0.13) 0.06 (0.14) (0.06) - 0.20 0.14

Merger related transaction costs - - - (0.09) (0.09) (0.01) (0.03) (0.01) (0.05)

Workforce reduction costs - - (0.01) - (0.01) - - (0.07) (0.08)

Total Special Items and Non-qualifying Hedges (0.04) (0.02) (0.14) (0.03) (0.24) (0.07) (0.03) 0.12 0.01

Adjusted EPS 0.62 0.59 1.06 0.97 3.24 0.64 0.46 1.58 2.68 NON-GAAP MEASURE

Synthetic fuel facility earnings 0.07 0.09 0.08 0.10 0.34 0.02 (0.01) 0.11 0.12 Adjusted EPS excluding Synfuel results 0.55$ 0.50$ 0.98$ 0.87$ 2.90$ 0.62$ 0.47$ 1.47$ 2.56$ NON-GAAP MEASURE

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

44

Adjusted EPS 4Q05We 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 adjusted earnings to exclude synfuel results due to the potential volatility and phase-out of the tax credits. We believe such a measure provides 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 this 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) 4Q05 ACTUAL RESULTS:Reported GAAP EPS 0.78$ 0.17$ 0.05$ 0.22$ 0.09$ 1.09$ Income from Discontinued Operations * 0.10 - - - 0.09 0.19 GAAP MEASURESCumulative Effects of Changes in Accounting Principles (0.04) - - - - (0.04)

0.72 0.17 0.05 0.22 - 0.94 Special Items, Non-qualifying Hedges, and Synfuel Results Included in Operations:


Non-qualifying hedges 0.06 - - - - 0.06 Merger related transaction costs (0.06) (0.02) (0.01) (0.03) - (0.09) Total Special Items and Non-qualifying Hedges 0.10 (0.02) (0.01) (0.03) - 0.07

Adjusted EPS 0.62$ 0.19$ 0.06$ 0.25$ -$ 0.87$ NON-GAAP MEASURE

* Merchant includes the reclassification of High Desert to Discontinued Operations

EPS Before Discontinued Operations and Cumulative

45

Q306 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 1,002.2$ 605.3$ 396.9$ (112)$ a, b, c 285$ Plants with PPAs 255.0 16.8 238.2 (11) a 227 Wholesale Competitive Supply 1,668.9 1,469.0 199.9 88 a , d, e 288 **NewEnergy 2,094.8 1,964.9 129.9 (20) d 109 QFs / Other 28.1 - 28.1 (7) e, f 22

Total Merchant 5,049.0$ 4,056.0$ 993.0$ (62)$ 931$

Adjustments Merchant Below Arriving At Merchant Gross Margin

Total Merchant: GAAP Below Gross Margin (Non-GAAP)Revenues less fuel and purchased energy expenses 993.0$ 931$ Operations and maintenance expenses (372.6) 11 g, h, i (362) Workforce reduction costs (21.7) 22 j - Merger-related costs (2.5) 3 j - Depreciation, depletion, and amortization (72.9) (2) h, i (75) Taxes other than income taxes (32.6) 33 k - Accretion of asset retirement obligations (17.1) 17 k -

Income From Operations 473.6 494 Other income / (expense) 3.8 (43) b, k, l (39)

EBIT N/A 455 Fixed charges (51.1) (0) i, l (52)

Income Before Income Taxes 426.3 403 Income tax expense (141.5) (18) i, j, m (159)

Net Income 284.8$ 244$

Details of Adjustments Made in Arriving at Merchant Gross Margin:a Adjustment to remove ($115 million) gain from Mid-Atlantic Fleet and ($11 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 $8 million of other indirect costs from non-GAAP gross margin as they are more appropriately categorized as operating expenses.d Adjustment to remove ($39 million) gain in Wholesale Competitive Supply and ($20 million) gain in NewEnergy related to economic, non-qualifying hedges of gas transport contracts.e Adjustment to remove synfuel losses from Wholesale Competitive Supply gross margin of $1 million and Other gross margin of $3 million.f Adjustment to reflect ($10 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 $8 million from O&M to Depreciation and Amortization.i Adjustment to remove Synfuel results, which are not included in determining Merchant Below Gross Margin - $1 million in O&M, $6 million in D&A, $2 million in Fixed Charges, and ($32 million) from income tax expense.j 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 $2 million recorded in Other Income / Expense to Fixed Charges (to show a fixed charge amount net of interest income).m Adjustment to remove tax expense of $23 million related to gains on economic, non-qualifying hedges of gas transportation and storage contracts.

** Excludes $13 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 September 30, 2006

46

Q305 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 746.7$ 563.8$ 182.9$ 48$ a, b 231$ Plants with PPAs 254.6 23.7 230.9 3 a 234 Wholesale Competitive Supply 1,383.0 1,252.5 130.5 (8) a , c, d, e 123 **NewEnergy 1,990.1 1,938.0 52.1 - 52 QFs / Other 22.8 - 22.8 (2) d, e 21

Total Merchant 4,397.2$ 3,778.0$ 619.2$ 41$ 661$

Adjustments Merchant Below Arriving At Merchant Gross Margin

Total Merchant: GAAP Below Gross Margin (Non-GAAP)Revenues less fuel and purchased energy expenses 619.2$ 661$ Operations and maintenance expenses (273.4) 13 f, g, h (260) Workforce reduction costs (3.9) 4 iDepreciation, depletion, and amortization (74.3) (2) g, h (76) Taxes other than income taxes (31.3) 31 j - Accretion of asset retirement obligations (15.8) 16 j -

Income From Operations 220.5 325 Other income / (expense) 9.7 (46) b, j, k (38)

EBIT N/A 287 Fixed charges (43.8) 4 k (40)

Income Before Income Taxes 186.4 247 Income tax expense (44.7) (51) h, i, l (95)

Income from Continuing Operations 141.7 152 Loss from discontinued operations (0.2) 0.2 m -

Net Income 141.5$ 152$

Details of Adjustments Made in Arriving at Merchant Gross Margin:a Adjustment to remove losses of $53 million from Mid-Atlantic Fleet and losses of $3 million from PPAs 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 $36 million loss related to economic, non-qualifying hedges of fuel adjustment clauses and gas transport contracts.d Adjustment to remove synfuel losses from Wholesale Competitive Supply gross margin of $5 million and Other gross margin of $8 million.e Adjustment to remove indirect costs $8 million in Wholesale Competitive Supply and reflect ($10 million) in Other for purposes of non-GAAP gross margin measure.

Details of Adjustments Made in Arriving at Merchant Below Gross Margin:f Adjustment detailed in "e" above are offset by adjustments made to O&M costs. g Adjustment to reclassify certain allocated costs totaling $8 million from O&M to Depreciation and Amortization.h 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, and ($34 million) from income tax expense.i Adjustment to remove Special Items and related taxes, which are not included in determining Merchant Below Gross Margin.j Adjustment to reflect management's view of these items as Other Income / Expense.k Adjustment to move Interest Income of $4 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 ($15 million) related to losses on economic, non-qualifying hedges of fuel adjustment clauses and gas transport contracts.m Adjustment to remove loss from discontinued operations which is treated as a special item.

** Excludes $8 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 September 30, 2005

47

Cash FlowsThe following is a reconciliation of the non-GAAP financial measures of Net Cash Flow before Debt Issuances/Payments and Free Cash Flow for the nine months ended September 30, 2006. We utilize these non-GAAP measures because we believe they are helpful in understanding our ability to reduce debt by existing cash.

RECONCILIATION:

QTD SEPTEMBER ACTUAL RESULTS:Net cash used in operating activities (GAAP measure) 582 Adjustment for derivative contracts presented as financing activities under SFAS 149 (5) Adjusted Net Cash Used in Operating Activities 577$ NON-GAAP MEASURE

Net cash used in investing activities (GAAP measure) (300)

Net Cash Used in Financing Activities (Excl. Debt-Related Sources & Uses) *Common stock dividends paid (68) Proceeds from issuance of common stock 15 Net proceeds from acquired contracts - Other financing activities, excluding SFAS 149 activities included in operating 1 Adjusted Net Cash Used in Financing Activities (52)

Net Cash Flow before Debt Issuances/(Payments) 225 NON-GAAP MEASURE

Less: Proceeds from issuance of common stock (15) Add: Common stock dividends paid 68

Free Cash Flow 278$ NON-GAAP MEASURE

* Total GAAP Cash Used in Financing Activities (incl. debt-related sources & uses) was $189 million QTD SEPTEMBER 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)

48

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 and remove the non-economic impact commodity hedges and cash collateral held, 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) 4,449.5$ 4,449.5$ 4,590.9$ 4,590.9$ 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 0.4 21.7 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 257.7 257.7 257.7 257.7 257.7 257.7 257.7 257.7 250.0 250.0 50% Equity credit to trust preferred securities - (125.0) - (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 185.0 185.0 155.0 155.0 0.7 0.7 9.6 9.6 975.0 975.0 Unamortized discount and premium (5.2) - (6.0) - (8.0) - (10.2) - (5.2) - Subtotal 4,887.0 4,767.6 4,997.6 4,900.3 4,861.3 4,745.2 5,392.0 5,277.2 5,094.2 5,195.4 LESS: Cash - 320.7 - 228.1 - 813.0 - 721.3 - 72.4 Total Net Debt 4,887.0 4,446.9 48.8% 4,997.6 4,672.2 50.7% 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 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 Minority Interests - 21.9 - 21.6 - 22.4 - 113.4 - 101.8 Common shareholders' equity 4,329.6 4,329.6 4,208.5 4,208.5 4,915.5 4,915.5 4,140.5 4,140.5 3,843.6 3,843.6

Subtotal 4,519.6 4,541.5 4,398.5 4,420.1 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 - 125.0

Total Equity 4,519.6 4,666.5 51.2% 4,398.5 4,545.1 49.3% 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 9,406.6$ 9,113.4$ 100.0% 9,396.1$ 9,217.3$ 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 1,333.1 1,157.0 323.0 (9.6) (30.0) Counterparty cash collateral held reflected as a reduction of cash balance (328) (167) (388) (120) - Adjusted Net Debt to Total Capital 44.3% 45.9% 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.

($ millions)

December 31, 2005

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

December 31, 2001

GAAP Balances Non-GAAP Ratio

December 31, 2003


September 30, 2006


June 30, 2006

constellation energy Q3 2006 Earnings Presentation

Economy & Finance