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

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 2004

MARYLAND

(States of incorporation)

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

410-783-2800

(Registrants' telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Not Applicable

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý

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

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

        Aggregate market value of Constellation Energy Group, Inc. Common Stock, without par value, held by non-affiliates as of June 30, 2004 was approximately $6,391,974,086 based upon New York Stock Exchange composite transaction closing price.

CONSTELLATION ENERGY GROUP, INC. COMMON STOCK, WITHOUT PAR VALUE 176,847,227 SHARES OUTSTANDING ON FEBRUARY 28, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

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

TABLE OF CONTENTS

Forward Looking Statements

We make statements in this report that are considered forward looking statements within the meaning of the Securities Exchange Act of 1934. Sometimes these statements will 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 and projections 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. These risks, uncertainties, and factors include, but are not limited to:

•

the timing and extent of changes in commodity prices and volatilities for energy and energy related products including coal, natural gas, oil, electricity, nuclear fuel, and emission allowances,

•

the liquidity and competitiveness of wholesale markets for energy commodities,

•

the effect of weather and general economic and business conditions on energy supply, demand, and prices,

•

the ability to attract and retain customers in our competitive supply activities and to adequately forecast their energy usage,

•

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,

•

regulatory or legislative developments that affect deregulation, transmission or distribution rates and revenues, demand for energy, or increases in costs, including costs related to nuclear power plants, safety, or environmental compliance,

•

the inability of Baltimore Gas and Electric Company (BGE) to recover all its costs associated with providing electric residential customers service during the electric rate freeze period,

•

the conditions of the capital markets, interest rates, availability of credit, liquidity, and general economic conditions, as well as Constellation Energy Group's (Constellation Energy) and BGE's ability to maintain their current credit ratings,

•

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 performance commitments,

•

operational factors affecting commercial 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 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 determining the fair value of energy contracts, such as the ability to obtain market prices and, in the absence of verifiable market prices, the appropriateness of models and model inputs (including, but not limited to, estimated 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, and

•

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 the other sections of this report and our other periodic reports filed with the Securities and Exchange Commission (SEC) for more information on these factors. These forward looking statements represent our estimates and assumptions only as of the date of this report.

        Changes may occur after that date, and neither Constellation Energy nor BGE assume responsibility to update these forward looking statements.

PART I

Item 1. Business

Overview

Constellation Energy is a North American energy company which includes a merchant energy business and BGE, a regulated electric and gas public utility in central Maryland.

        Constellation Energy was incorporated in Maryland on September 25, 1995. On April 30, 1999, Constellation Energy became the holding company for BGE and its subsidiaries. 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.

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        Our merchant energy business is a competitive provider of energy solutions for a variety of customers. It has electric generation assets located in various regions of the United States and provides energy solutions to meet customers' needs. Our merchant energy business focuses on serving the full energy and capacity requirements (load-serving) of, and providing other energy products and risk management services for various customers, such as utilities, municipalities, cooperatives, retail aggregators, and commercial and industrial customers.

        Our merchant energy business includes:

•

a generation operation that owns, operates, and maintains fossil, nuclear, and hydroelectric generating facilities and interests in qualifying facilities, fuel processing facilities and power projects in the United States,

•

a marketing and risk management operation that provides energy products and services primarily to distribution utilities, power generators, and other wholesale customers,

•

an electric and gas retail operation that provides energy services to commercial and industrial customers, and

•

an operations and maintenance consulting services operation.

        BGE is a regulated electric transmission and distribution utility company and a regulated gas distribution utility company with a service territory that covers the City of Baltimore and all or part of ten counties in central Maryland. BGE was incorporated in Maryland in 1906.

        Our other nonregulated businesses:

•

design, construct, and operate heating, cooling, and cogeneration facilities for commercial, industrial, and governmental customers throughout North America, and

•

provide home improvements, service heating, air conditioning, plumbing, electrical, and indoor air quality systems, and provide natural gas 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, real estate projects, and interests in a Panamanian distribution facility and in a fund that holds interests in two South American energy projects. We discuss these non-core assets in more detail in Item 7. Management's Discussion and Analysis—Results of Operations section.

        For a discussion of recent events that have impacted us, please refer to Item 7. Management's Discussion and Analysis—Significant Events section. For a discussion of our strategy, please refer to Item 7. Management's Discussion and Analysis—Strategy section. For a discussion of the seasonality of our business, please refer to Item 7. Management's Discussion and Analysis—Business Environment section.

        Constellation Energy maintains a website at constellation.com where copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments may be obtained free of charge. These reports are posted on our website the same day they are filed with the SEC. The SEC maintains a website (sec.gov), where copies of our filings may be obtained free of charge. The website address for BGE is bge.com. These website addresses are inactive textual references and the contents of these websites are not part of this Form 10-K.

        In addition, the website for Constellation Energy includes copies of our Corporate Governance Guidelines, Principles of Business Integrity, Corporate Compliance Program and Insider Trading Policy, and the charters for the Audit, Compensation and Nominating, and Corporate Governance Committees of the Board of Directors. Copies of each of these documents may be printed from the website or may be obtained from Constellation Energy upon written request to the Corporate Secretary.

        The Principles of Business Integrity is a code of ethics which applies to all of our directors, officers, and employees, including the chief executive officer, chief financial officer, and chief accounting officer. We will post any amendments to, or waivers from, the Principles of Business Integrity applicable to our chief executive officer, chief financial officer, or chief accounting officer on our website.

Operating Segments

The percentages of revenues, net income, and assets attributable to our operating segments are shown in the tables below. We present information about our operating segments, including certain special items, in Note 3 to Consolidated Financial Statements.

(1)

Excludes loss on discontinued operations in 2004 and cumulative effects of changes in accounting principles in 2003 as discussed in more detail in Item 8. Financial Statements and Supplementary Data.

2

Merchant Energy Business

Introduction

Our merchant energy business integrates electric generation assets with the marketing and risk management of energy and energy-related commodities, allowing us to manage energy price risk over geographic regions and time.

        Constellation Energy Commodities Group (formerly known as Constellation Power Source), our wholesale marketing and risk management operation, dispatches the energy from our generating facilities and facilities with which we have power purchase agreements, manages the risks associated with selling the output and obtaining non-nuclear fuels, and enters into transactions to meet customers' energy and risk management requirements. Constellation NewEnergy, our electric and gas retail operation, provides electricity, natural gas, transportation, and other energy services to commercial and industrial customers.

        Constellation Generation Group, our merchant generation operation, oversees the ownership, operations, maintenance, and performance of our fossil and nuclear generation and fuel processing facilities. Our generation capacity supports our wholesale and retail operations by providing a source of reliable power supply that provides a physical hedge for some of our load-serving activities.

        Our merchant energy business:

•

provided service to distribution utilities, municipalities, and commercial and industrial customers with approximately 31,000 megawatts (MW) of peak load in the aggregate during 2004,

•

provided approximately 279,000 million British Thermal Units (mmBTUs) of natural gas to commercial and industrial customers during 2004, and

•

managed approximately 12,530 MW of generation capacity.

        We analyze the results of our merchant energy business as follows:

•

Mid-Atlantic Region—our fossil, nuclear, and hydroelectric generating facilities and load-serving activities in the PJM Interconnection (PJM) region for which the output is primarily used to serve BGE. This also includes active portfolio management of the generating assets and other physical and financial contractual arrangements, as well as other PJM competitive supply activities.

•

Plants with Power Purchase Agreements—our generating facilities outside the Mid-Atlantic Region with long-term power purchase agreements, including our Nine Mile Point Nuclear Station (Nine Mile Point), R.E. Ginna Nuclear Plant (Ginna), Oleander, University Park, and High Desert generating facilities.

•

Wholesale Competitive Supply—our marketing and risk management operation that provides energy products and services outside the Mid-Atlantic Region primarily to distribution utilities, power generators, and other wholesale customers.



•

Retail Competitive Supply—our operation that provides electric and gas energy products and services to commercial and industrial customers.

•

Other—our investments in qualifying facilities and domestic power projects and our operations and maintenance consulting services.

        We present details about our generating properties in Item 2. Properties.

Mid-Atlantic Region

We own 6,418 MW of fossil, nuclear and hydroelectric generation capacity in the Mid-Atlantic Region. The output of these plants is managed by our wholesale marketing and risk management operation and is hedged through a combination of power sales to wholesale and retail market participants.

        BGE transferred all of these facilities to our merchant energy generation subsidiaries on July 1, 2000 as a result of the implementation of electric customer choice and competition among suppliers in Maryland, except for the Handsome Lake project that commenced operations in mid-2001. The assets transferred from BGE are subject to the lien of BGE's mortgage.

        Our merchant energy business provides standard offer service to BGE as discussed in the Baltimore Gas and Electric Company—Standard Offer Service section. Our merchant energy business meets the load-serving requirements of various contracts using the output from the Mid-Atlantic Region and from purchases in the wholesale market. For 2004, the peak load supplied to BGE was approximately 4,100 MW.

Plants with Power Purchase Agreements

We own 3,855 MW of nuclear and natural gas/oil generation capacity with power purchase agreements for their output. Our facilities with power purchase agreements consist of:

•

the Nine Mile Point facility,

•

the Ginna facility, which was acquired in June 2004,

•

the High Desert facility,

•

the Oleander facility, and

•

the University Park facility.

        We own 100% of Nine Mile Point Unit 1 (609 MW) and 82% of Unit 2 (941 MW). The remaining interest in Nine Mile Point Unit 2 is owned by the Long Island Power Authority. Unit 1 entered service in 1969 and Unit 2 in 1988. Nine Mile Point is located within the New York Independent System Operator (NYISO) region.

        We sell 90% of our share of Nine Mile Point's output to the former owners of the plant at an average price of nearly $35 per megawatt-hour (MWH) under agreements that terminate between 2009 and 2011. The agreements are unit contingent (if the output is not available because the plant is not operating, there is no requirement to provide output from other sources). The remaining 10% of Nine Mile Point's output is managed by our wholesale marketing and risk management operation and sold into the wholesale market.

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        After termination of the power purchase agreements, a revenue sharing agreement with the former owners of the plant will begin and continue through 2021. Under this agreement, which applies only to Unit 2, a predetermined price is compared to the market price for electricity. If the market price exceeds the strike price, then 80% of this excess amount is shared with the former owners of the plant. The revenue sharing agreement is unit contingent and is based on the operation of the unit.

        We exclusively operate Unit 2 under an operating agreement with the Long Island Power Authority. The Long Island Power Authority is responsible for 18% of the operating costs (and decommissioning costs) of Unit 2 and has representation on the Nine Mile Point Unit 2 management committee which provides certain oversight and review functions.

        In May 2004, we filed an application with the Nuclear Regulatory Commission (NRC) for a 20-year license extension for both units at Nine Mile Point. The license on Nine Mile Point's Unit 1 expires in 2009 and in 2026 on Unit 2. We must demonstrate that we can ensure that the units will continue to perform their intended functions through the renewal period. The NRC will also consider the impact of the 20-year license extension on the environment. We expect approval of our application by early 2007 and have assumed license extension for purposes of recording depreciation expense and asset retirement obligations. However, we cannot predict the actual timing of the NRC's decision, or the impact of the decision, if any, on our financial results. If we do not receive the license extension, we will not be able to operate the Nine Mile Point units beyond 2009 and 2026.

        In June 2004, we completed our purchase of the Ginna nuclear facility which is located in Ontario, New York from Rochester Gas & Electric Corporation (RG&E). Ginna consists of a 495 megawatt reactor that entered service in 1970 and is licensed to operate until 2029. The acquisition includes a long-term unit contingent power purchase agreement under which we sell 90% of the plant's output and capacity to RG&E for 10 years at an average price of $44.00 per MWH. The remaining 10% of the plant's output is managed by our wholesale marketing and risk management operation and sold into the wholesale market.

        The High Desert facility has a long-term power sales agreement with the California Department of Water Resources (CDWR). The contract is a "tolling" structure, under which the CDWR pays a fixed amount of $12.1 million per month which provides CDWR the right, but not the obligation, to purchase power from the project at a price linked to the variable cost of production. During the term of the contract, which runs until December 2010, the project will provide energy exclusively to the CDWR.

        We have sold portions of the output of the Oleander and University Park facilities ranging from 50% to 100% under tolling contracts for terms ending in 2005 through 2009. Under these tolling contracts, our respective counterparties will pay a fixed amount per month and have the right, but not the obligation, to purchase power from us at prices linked to the variable fuel and other costs of production.

Competitive Supply

We are a leading supplier of energy products and services in North America to wholesale customers and retail commercial and industrial customers. We discuss our acquisitions of retail commercial and industrial operations in Note 15 to the Consolidated Financial Statements. During 2004, our competitive supply activities served approximately 22,400 MW of peak load and approximately 279,000 mmBTUs of natural gas. Our competitive supply activities also include 2,015 MW from our Rio Nogales, Holland Energy, Big Sandy, and Wolf Hills natural gas-fired generating facilities. These four facilities are not sold forward under long-term agreements, and their output is used to serve customer requirements.

Wholesale and Retail Load-Serving Activities

We structure transactions that serve the full energy and capacity requirements of various customers outside the PJM region such as distribution utilities, municipalities, cooperatives, and retail aggregators that do not own sufficient generating capacity or in-house supply functions to meet their own load requirements. We also structure transactions to supply full energy and capacity requirements and provide natural gas, transportation, and other energy products and services to retail commercial and industrial customers.

        These activities typically occur in regional markets in which end user customers' electricity rates have been deregulated and thereby separated from the cost of generation supply. These markets include:

•

the Northeast (New England and New York),

•

the Midwest region,

•

the West region (Texas and California), and

•

certain areas of Canada.

        Contracts with these customers generally extend from one to ten years, but some can be longer. To meet our customers' load-serving requirements, our merchant energy business obtains energy from various sources, including:

•

bilateral power purchase agreements with third parties,

•

our generation assets,

•

regional power pools, and

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•

tolling contracts with generation companies, which provide us the right, but not the obligation, to purchase power at a price linked to the variable cost of production, including fuel, with terms that generally extend from several months to several years but can be longer.

Portfolio Management

Our wholesale marketing and risk management operation actively uses energy and energy-related commodities in order to manage our portfolio of energy purchases and sales to customers through structured transactions. As part of our risk management activities we trade energy and energy-related commodities to enable price discovery and facilitate the hedging of our load-serving and other risk management products and services. Within our trading function we allow limited risk-taking activities for profit. These activities are actively managed through daily value at risk and liquidity position limits. We discuss value at risk in more detail in Item 7. Management's Discussion and Analysis—Market Risk.

        These activities involve the use of a variety of instruments, including:

•

forward contracts (which commit us to purchase or sell energy commodities in the future),

•

swap agreements (which require payments to or from counterparties based upon the difference between two prices for a predetermined contractual (notional) quantity),

•

option contracts (which convey the right to buy or sell a commodity, financial instrument, or index at a predetermined price), and

•

futures contracts (which are exchange traded standardized commitments to purchase or sell a commodity or financial instrument, or make a cash settlement, at a specified price and future date).

        Active portfolio management allows our wholesale marketing and risk management operation the ability to:

•

manage and hedge its fixed-price purchase and sale commitments,

•

provide fixed-price commitments to customers and suppliers,

•

reduce exposure to the volatility of cash market prices, and

•

hedge fuel requirements at our non-nuclear generation facilities.

Other Competitive Supply Activities

Our wholesale marketing and risk management operation participates in global coal sourcing activities by providing coal for the variable or fixed supply needs of North American and international power generators. In addition, our wholesale marketing and risk management operation provides products and services to upstream (exploration and production) and downstream (transportation and storage) natural gas customers. We also include in our other competitive supply activities the results from our synthetic fuel processing facility in South Carolina.

Other

We hold up to a 50% voting interest in 24 operating energy projects that consist of electric generation (primarily relying on alternative fuel sources), fuel processing, or fuel handling facilities and are either qualifying facilities under the Public Utility Regulatory Policies Act of 1978 or otherwise exempt from, or not subject to, the Public Utility Holding Company Act of 1935. Each electric generating plant sells its output to a local utility under long-term contracts.

        We also provide operation and maintenance services, including testing and start-up to owners of electric generating facilities.

Fuel Sources

Our power plants use diverse fuel sources. Our fuel mix based on capacity owned at December 31, 2004 and our generation based on actual output by fuel type in 2004 were as follows:

(1)

Includes solar, geothermal, hydro, and biomass.

(2)

Switches between natural gas and oil.

        We discuss our risks associated with fuel in more detail in Item 7. Management's Discussion and Analysis—Market Risk.

Nuclear

The output at our nuclear facilities over the past five years (including periods prior to our acquisition of Nine Mile Point and Ginna) is presented in the following table:

*represents our proportionate ownership interest

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        The supply of fuel for nuclear generating stations includes the:

•

purchase of uranium (concentrates and uranium hexafluoride),

•

conversion of uranium concentrates to uranium hexafluoride,

•

enrichment of uranium hexafluoride, and

•

fabrication of nuclear fuel assemblies.

        The nuclear fuel markets are competitive, and although prices for uranium and conversion are increasing, we do not anticipate any significant problems in meeting our future requirements.

Storage of Spent Nuclear Fuel—Federal Facilities
One of the issues associated with the operation and decommissioning of nuclear generating facilities is disposal of spent nuclear fuel. There are no facilities for the reprocessing or permanent disposal of spent nuclear fuel currently in operation in the United States, and the NRC has not licensed any such facilities. The Nuclear Waste Policy Act of 1982 (NWPA) required the federal government through the Department of Energy (DOE), to develop a repository for the disposal of spent nuclear fuel and high-level radioactive waste.

        As required by the NWPA, we are a party to contracts with the DOE to provide for disposal of spent nuclear fuel from our nuclear generating plants. The NWPA and our contracts with the DOE require payments to the DOE of one tenth of one cent (one mill) per kilowatt hour on nuclear electricity generated and sold to pay for the cost of long-term nuclear fuel storage and disposal. We continue to pay those fees into the DOE's Nuclear Waste Fund for Calvert Cliffs, Ginna, and Nine Mile Point. The NWPA and our contracts with the DOE required the DOE to begin taking possession of spent nuclear fuel generated by nuclear generating units no later than January 31, 1998.

        The DOE has stated that it will not meet that obligation until 2010 at the earliest. This delay has required that we undertake additional actions to provide on-site fuel storage at Calvert Cliffs, Ginna, and Nine Mile Point, including the installation of on-site dry fuel storage capacity at Calvert Cliffs, as described in more detail below. In 2004, complaints were filed against the federal government in the United States Court of Federal Claims seeking to recover damages caused by the DOE's failure to meet its contractual obligation to begin disposing of spent nuclear fuel by January 31, 1998. These cases are currently stayed, pending litigation in other related cases.

        In connection with our purchase of Ginna, all of RG&E's rights and obligations related to recovery of damages from the DOE were assigned to us. However, we have an obligation to reimburse RG&E for up to the first $10 million of any recovered damages. We and RG&E are currently requesting to allow us to replace RG&E as the party in interest in the complaint filed against the federal government by RG&E.

Storage of Spent Nuclear Fuel—On-Site Facilities
Calvert Cliffs has a license from the NRC to operate an on-site independent spent fuel storage installation that expires in 2012. We have storage capacity at Calvert Cliffs that will accommodate spent fuel from operations through 2008. In addition, we can expand our temporary storage capacity at Calvert Cliffs to meet future requirements until approximately 2025. Currently, Nine Mile Point and Ginna do not have independent spent fuel storage capacity. Rather, Nine Mile Point's Unit 1 and Ginna have sufficient storage capacity within the plants until 2010. Nine Mile Point's Unit 2 has sufficient storage capacity within the plant until 2012. After that time, independent spent fuel storage capability may need to be developed at each site.

Cost for Decommissioning Uranium Enrichment Facilities
The Energy Policy Act of 1992 contains provisions requiring domestic nuclear utilities to contribute to a fund for decommissioning and decontaminating uranium enrichment facilities that had been operated by DOE. These contributions are generally payable over a 15-year period with escalation for inflation and are based upon the amount of uranium enriched by DOE for each utility through 1992. The 1992 Act provides that these costs are recoverable through utility service rates. BGE is solely responsible for these costs as they

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relate to Calvert Cliffs. The sellers of the Nine Mile Point plant and the Long Island Power Authority are responsible for the costs relating to the Nine Mile Point plant. The seller of Ginna is responsible for the costs related to that facility.

Cost for Decommissioning
We are obligated to decommission our nuclear plants at the time these plants cease operation. Every two years, the NRC requires us to demonstrate reasonable assurance that funds will be available to decommission the sites. When BGE transferred all of its nuclear generating assets to our merchant energy business, it also transferred the trust fund established to pay for decommissioning Calvert Cliffs. At December 31, 2004, the trust fund assets were $331.9 million.

        Under the Maryland Public Service Commission's (Maryland PSC) order regarding the deregulation of electric generation, BGE ratepayers must pay a total of $520 million, in 1993 dollars adjusted for inflation, to decommission Calvert Cliffs through fixed annual collections of approximately $18.7 million until June 30, 2006, and thereafter in an annual amount determined by reference to specified factors. BGE is collecting this amount on behalf of Calvert Cliffs. Any costs to decommission Calvert Cliffs in excess of this $520 million must be paid by Calvert Cliffs. If BGE ratepayers have paid more than this amount at the time of decommissioning, Calvert Cliffs must refund the excess. If the cost to decommission Calvert Cliffs is less than the amount BGE's ratepayers are obligated to pay, Calvert Cliffs may keep the difference.

        The sellers of Nine Mile Point transferred a $441.7 million decommissioning trust fund to us at the time of sale. In return, we assumed all liability for the costs to decommission Unit 1 and 82% of the costs to decommission Unit 2. We believe that this amount is adequate to cover our responsibility for decommissioning Nine Mile Point to a greenfield status (restoration of the site so that it substantially matches the natural state of the surrounding properties and the site's intended use). At December 31, 2004, the Nine Mile Point trust fund assets were $492.2 million.

        Upon the closing of the Ginna acquisition, the seller transferred $200.8 million in decommissioning funds to us. In return, we assumed all liability for the costs to decommission the unit. We believe that this transfer will be sufficient to cover our responsibility for decommissioning Ginna to a greenfield status. At December 31, 2004, the Ginna trust fund assets were $209.6 million.

Coal
We purchase the majority of our coal for electric generation under supply contracts with mining operators, and we acquire the remainder in the spot or forward coal markets. We believe that we will be able to renew supply contracts as they expire or enter into contracts with other coal suppliers. Our primary coal burning facilities have the following requirements:

        Coal deliveries to these facilities are made by rail and barge. The primary source of coal we use is produced from mines located in central and northern Appalachia. The timely delivery of coal together with the maintenance of appropriate levels of inventory is necessary to allow for continued, reliable generation from these facilities.

        During 2003, we expanded our coal sources including restructuring our rail contracts, increasing the range of coals we can consume, adding synthetic fuel as an alternate source, and finding potential other coal supply sources including shipments from Columbia, Venezuela, South Africa, and other international sources.

        All of the Conemaugh and Keystone plants' annual coal requirements are purchased by the plant operators from regional suppliers on the open market. The sulfur restrictions on coal are approximately 2.3% for the Keystone plant and approximately 5.3% for the Conemaugh plant.

        The annual coal requirements for the ACE, Jasmin, and Poso plants, which are located in California, are supplied under contracts with mining operators. The Jasmin and Poso plants are restricted to coal with sulfur content less than 4.0% and ACE is restricted to less than 2.0%.

        All of our requirements reflect historical levels. The actual fuel quantities required can vary substantially from historical levels depending upon the relationship between energy prices and fuel costs, weather conditions, and operating requirements.

Gas
We purchase natural gas, storage capacity, and transportation, as necessary, for electric generation at certain plants. Some of our gas-fired units can use residual fuel oil or distillates instead of gas. Gas is purchased under contracts with suppliers on the spot market and forward markets, including financial exchanges and bilateral agreements. The actual fuel quantities required can vary substantially from year to year depending upon the relationship between energy

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prices and fuel costs, weather conditions, and operating requirements. However, we believe that we will be able to obtain adequate quantities of gas to meet our requirements.

Oil
Under normal burn practices, our requirements for residual fuel oil (No. 6) amount to approximately 1.5 million to 2.0 million barrels of low-sulfur oil per year. Deliveries of residual fuel oil are made from the suppliers' Baltimore Harbor marine terminal for distribution to the various generating plant locations. Also, based on normal burn practices, we require approximately 5.0 million to 6.0 million gallons of distillates (No. 2 oil and kerosene) annually, but these requirements can vary substantially from year to year depending upon the relationship between energy prices and fuel costs, weather conditions, and operating requirements. Distillates are purchased from the suppliers' Baltimore truck terminals for distribution to the various generating plant locations. We have contracts with various suppliers to purchase oil at spot prices, and for future delivery, to meet our requirements.

Competition

Market developments over the past several years have changed the nature of competition in the merchant energy business. Certain companies within the merchant energy sector have curtailed their activities or withdrawn completely from the business. However, new competitors (e.g., financial investors) are entering the market. We encounter competition from companies of various sizes, having varying levels of experience, financial and human resources, and differing strategies.

        We face competition in the market for energy, capacity, and ancillary services. In our merchant energy business, we compete with international, national, and regional full service energy providers, merchants, and producers to obtain competitively priced supplies from a variety of sources and locations, and to utilize efficient transmission or transportation. We principally compete on the basis of price, customer service, reliability, and availability of our products.

        With respect to power generation, we compete in the operation of energy-producing projects, and our competitors in this business are both domestic and international organizations, including various utilities, industrial companies and independent power producers (including affiliates of utilities), some of which have financial resources that are greater than ours.

        Difficulties in making competitive assessments of our company arise from states considering different types of regulatory initiatives concerning competition in the power industry. Increased competition that resulted from some of these initiatives in several states contributed in some instances to a reduction in electricity prices and put pressure on electric utilities to lower their costs, including the cost of purchased electricity. While many states continue their support for retail competition and industry restructuring, other states that were considering deregulation have slowed their plans or postponed consideration of deregulation. In addition, other states are reconsidering deregulation.

        We believe there is adequate growth potential in the current deregulated market and that further market changes could provide additional opportunities for our merchant energy business. Our wholesale marketing and risk management operation also participates in global coal sourcing activities by providing coal for the variable or fixed supply needs of North American and international power generators. In addition, our wholesale marketing and risk management operation provides products and services to upstream and downstream natural gas customers.

        As the economy continues to recover and the market for commercial and industrial supply continues to grow, we have experienced increased competition in our retail commercial and industrial supply activities. The increase in retail competition and the impact of wholesale power prices compared to the rates charged by local utilities may affect the margins that we will realize from our customers. However, we believe that our experience and expertise in assessing and managing risk will help us to remain competitive during volatile or otherwise adverse market circumstances.

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Merchant Energy Operating Statistics

        Operating statistics do not reflect the elimination of intercompany transactions.

        Certain prior-year amounts have been reclassified to conform with the current year's presentation.

Baltimore Gas and Electric Company

BGE is an electric transmission and distribution utility company and a gas distribution utility company with a service territory that covers the City of Baltimore and all or part of ten counties in central Maryland. BGE is regulated by the Maryland PSC and Federal Energy Regulatory Commission (FERC) with respect to rates and other aspects of its business.

        BGE's electric service territory includes an area of approximately 2,300 square miles. There are no municipal or cooperative wholesale customers within BGE's service territory. BGE's gas service territory includes an area of approximately 800 square miles.

        BGE's electric and gas revenues come from many customers—residential, commercial, and industrial. In 2004, BGE's largest electric customer provided approximately two percent of BGE's total electric revenues and BGE's largest gas customer provided approximately one percent of BGE's total gas revenues.

Electric Business

Electric Regulatory Matters and Competition

Deregulation

Effective July 1, 2000, electric customer choice and competition among electric suppliers was implemented in Maryland. As a result of the deregulation of electric generation, the following occurred:

•

All customers can choose their electric energy supplier.

•

BGE provided fixed-price standard offer service for commercial and industrial customers through either June 30, 2002 or June 30, 2004, depending on customer type. For the commercial and industrial customers that did not select an alternative supplier after those time periods, BGE provided a market-based standard offer service. Base rates for commercial and industrial customers were frozen until June 30, 2004.

•

Commercial and industrial customers have several service options that fix competitive transition charges (CTC) through June 30, 2006. CTC revenues were provided to allow BGE to recover stranded costs that resulted from the deregulation of BGE's generating assets.

•

BGE residential base rates for delivery service will not change before July 2006. While total residential base rates remain unchanged over the initial transition period (July 1, 2000 through June 30, 2006), annual standard offer service rate increases are offset by corresponding decreases in the CTC that BGE receives from its customers.

•

While BGE does not sell electric commodity to all customers in its service territory, BGE continues to deliver electricity to all customers and provides meter reading, billing, emergency response, regular maintenance, and balancing services.

•

BGE transferred, at book value, its generating assets and related liabilities to the merchant energy business. At December 31, 2004, BGE remains contingently liable for the $269.8 million outstanding balance for liabilities transferred to the merchant energy business.

Standard Offer Service

BGE provides fixed-price standard offer service for residential customers that do not select an alternative supplier through June 30, 2006. Beginning July 1, 2006, BGE's current obligation to provide fixed-price standard offer service to residential customers ends, and all residential customers that receive their electric supply from BGE will be charged market-based standard offer service rates, as discussed in the Standard Offer Service—Provider of Last Resort (POLR) section.

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        BGE provided fixed-price standard offer service for most of its large commercial and industrial customers through June 30, 2002. The large commercial and industrial customers that did not select an alternative supplier were provided market-based standard offer service through June 30, 2004. BGE provided fixed-price standard offer service to its remaining commercial and industrial customers through June 30, 2004. Beginning July 1, 2004, all commercial and industrial customers that receive their electric supply from BGE are charged market-based standard offer service rates, as discussed in the Standard Offer Service—Provider of Last Resort (POLR) section.

Standard Offer Service—Provider of Last Resort (POLR)
BGE is obligated to provide market-based standard offer service to residential customers from July 1, 2006 through May 31, 2010, and for commercial and industrial customers for one, two, or four-year periods beyond June 30, 2004, depending on customer load. The POLR rates charged during these time periods will recover BGE's wholesale power supply costs and include an administrative fee. The administrative fee includes a shareholder return component and an incremental cost component.

        Bidding to supply BGE's standard offer service to commercial and industrial customers for one, two, or four-year periods beyond June 30, 2004, and to residential customers beyond June 30, 2006, will occur from time to time through a competitive bidding process approved by the Maryland PSC. Successful bidders, which may include affiliates of Constellation Energy, will execute contracts with BGE for varying terms depending on the load being served under the contract.

        We discuss the market risk of our regulated electric business in more detail in Item 7. Management's Discussion and Analysis—Market Risk section.

Electric Load Management

BGE has implemented various programs for use when system-operating conditions or market economics indicate that a reduction in load would be beneficial. We refer to these programs as active load management programs. These programs include:

•

two options for commercial and industrial customers to voluntarily reduce their electric loads,

•

air conditioning control for residential and commercial customers, and

•

residential water heater control.

        These programs generally take effect on summer days when demand and/or wholesale prices are relatively high. These programs had the capability during the 2004 summer to reduce load up to approximately 220 MW.

Transmission and Distribution Facilities

BGE maintains approximately 250 substations and 1,300 circuit miles of transmission lines throughout central Maryland. BGE also maintains nearly 22,900 circuit miles of distribution lines. The transmission facilities are connected to those of neighboring utility systems as part of the PJM Interconnection. Under the PJM Tariff and various agreements, BGE and other market participants can use regional transmission facilities for energy, capacity, and ancillary services transactions including emergency assistance.

        We discuss various FERC initiatives relating to wholesale electric markets in more detail in Item 7. Management's Discussion and Analysis—Federal Regulation section.

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Electric Operating Statistics

(A)

Primarily includes transmission service integration revenues, late payment charges, miscellaneous service fees, and tower leasing revenues.

        Operating statistics do not reflect the elimination of intercompany transactions.

        "Delivery service only" refers to BGE's delivery of commodity to customers that was purchased by the customer from an alternate supplier.

Gas Business

The wholesale price of natural gas as a commodity is not subject to regulation. All BGE gas customers have the option to purchase gas from alternative suppliers, including subsidiaries of Constellation Energy. BGE continues to deliver gas to all customers within its service territory. This delivery service is regulated by the Maryland PSC.

        BGE also provides customers with meter reading, billing, emergency response, regular maintenance, and balancing services.

        Approximately 50% of the gas delivered on BGE's distribution system is for customers that purchase gas from alternative suppliers. These customers are charged fees to recover the costs BGE incurs to deliver the customers' gas through our distribution system.

        For customers that buy their gas from BGE, there is a market-based rates incentive mechanism. Under market-based rates, our actual cost of gas is compared to a market index (a measure of the market price of gas in a given period). The difference between our actual cost and the market index is shared equally between shareholders and customers. BGE must secure fixed-price contracts for at least 10%, but not more than 20%, of forecasted system supply requirements for the November through March period.

        BGE purchases the natural gas it resells to customers directly from many producers and marketers. BGE has transportation and storage agreements that expire from 2005 to 2023.

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        BGE's current pipeline firm transportation entitlements to serve BGE's firm loads are 334,053 dekatherms (DTH) per day during the winter period and 309,053 DTH per day during the summer period.

        BGE's current maximum storage entitlements are 235,080 DTH per day. To supplement its gas supply at times of heavy winter demands and to be available in temporary emergencies affecting gas supply, BGE has:

•

a liquefied natural gas facility for the liquefaction and storage of natural gas with a total storage capacity of 1,092,977 DTH and a daily capacity of 311,500 DTH, and

•

a propane air facility with a mined cavern with a total storage capacity equivalent to 564,200 DTH and a daily capacity of 85,000 DTH.

        BGE has under contract sufficient volumes of propane for the operation of the propane air facility and is capable of liquefying sufficient volumes of natural gas during the summer months for operations of its liquefied natural gas facility during peak winter periods.

        BGE historically has been able to arrange short-term contracts or exchange agreements with other gas companies in the event of short-term disruptions to gas supplies or to meet additional demand.

        BGE also participates in the interstate markets by releasing pipeline capacity or bundling pipeline capacity with gas for off-system sales. Off-system gas sales are low-margin direct sales of gas to wholesale suppliers of natural gas outside BGE's service territory. Earnings from these activities are shared between shareholders and customers. BGE makes these sales as part of a program to balance our supply of, and cost of, natural gas.

Gas Operating Statistics

        Operating statistics do not reflect the elimination of intercompany transactions.

"Delivery service only" refers to BGE's delivery of commodity to customers that was purchased by the customer from an alternate supplier.

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Franchises

BGE has nonexclusive electric and gas franchises to use streets and other highways that are adequate and sufficient to permit them to engage in their present business. Conditions of the franchises are satisfactory.

Other Nonregulated Businesses

Energy Projects and Services

We offer energy projects and services designed primarily to provide energy solutions to large commercial and industrial and governmental customers. These energy products and services include:

•

designing, constructing, and operating heating, cooling, and cogeneration facilities,

•

energy consulting and power-quality services,

•

services to enhance the reliability of individual electric supply systems, and

•

customized financing alternatives.

Home Products and Gas Retail Marketing

We offer services to customers in Maryland including:

•

home improvements,

•

the service of heating, air conditioning, plumbing, electrical, and indoor air quality systems, and

•

the sale of natural gas to residential customers.

Other

Our other nonregulated businesses include investments that we do not consider to be core operations. These include financial investments, real estate projects, and interests in a Panamanian distribution facility and in a fund that holds interests in two South American energy projects. While our intent is to dispose of these assets, market conditions and other events beyond our control may affect the actual sale of these assets. In addition, a future decline in the fair value of these assets could result in losses. We discuss these non-core assets in more detail in Item 7. Management's Discussion and Analysis—Results of Operations section.

Consolidated Capital Requirements

Our total capital requirements for 2004 were $762 million. Of this amount, $497 million was used in our nonregulated businesses and $265 million was used in our regulated business. We estimate our total capital requirements will be $915 million in 2005.

       
        We continuously review and change our capital expenditure programs, so actual expenditures may vary from the estimate above. We discuss our capital requirements further in Item 7. Management's Discussion and Analysis—Capital Resources section.

Environmental Matters

The development (involving site selection, environmental assessments, and permitting), construction, acquisition, and operation of electric generating and distribution facilities are subject to extensive federal, state, and local environmental and land use laws and regulations. From the beginning phases of development to the ongoing operation of existing or new electric generating and distribution facilities, our activities involve compliance with diverse laws and regulations that address emissions and impacts to air and water, protection of natural and cultural resources, and chemical and waste handling and disposal.

        We continuously monitor federal, state, and local environmental initiatives to determine potential impacts on our financial results. As new laws or regulations are promulgated, we assess their applicability and implement the necessary modifications to our facilities or their operation to maintain on-going compliance. Our capital expenditures were approximately $235 million during the five-year period 2000-2004 to comply with existing environmental standards and regulations. Our estimated environmental capital requirements for the next three years are approximately $5 million in 2005, $45 million in 2006, and $80 million in 2007.

Air Quality

The Clean Air Act created the basic framework for the federal and state regulation of air pollution. The cornerstone of the Act is the requirement that National Ambient Air Quality Standards be established to protect public health and public welfare. In addition, the Act also includes technology-driven emission requirements. Many of these provisions could materially affect our facilities and are described in more detail below.

National Ambient Air Quality Standards (NAAQS)
The NAAQS are federal air quality standards that establish maximum ambient air concentrations for the following specific pollutants: ozone (smog), carbon monoxide, lead, particulates, sulfur dioxides (SO₂), and nitrogen dioxides (NO₂). Our generating facilities are primarily affected by ozone and particulates standards. Ozone is formed when sunlight interacts with emissions

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of nitrogen oxides (NOx) and volatile organic compounds (such as from motor vehicle exhaust). Our generating facilities are subject to various permits and programs meant to achieve or preserve attainment of the standards for all these pollutants.

        In order for states to achieve compliance with the NAAQS, federal and/or state legislation or regulation is likely to be adopted that will require additional emission reductions from our facilities. The Environmental Protection Agency (EPA) has proposed the Clean Air Interstate Rule (CAIR) to further reduce SO₂ and NOx emissions by addressing the interstate transport of SO₂and NOx emissions from fossil fuel-fired plants located primarily in the Eastern United States. In addition to CAIR, the Bush Administration is proposing a legislative approach (Clear Skies) which would require similar reductions in emissions of SO₂ and NOx. Depending on the timing and requirements of any federal proposal, one or more states in which we operate may impose more stringent or earlier emission reduction requirements. We favor the Clear Skies approach to achieve future emission reductions as the fairest and most expeditious manner in which to meet the NAAQS.

        As a result of these regulatory and legislative proposals, along with new rules to impose limits on hazardous substances, we expect more stringent air emission standards to be adopted. If new requirements are promulgated as expected we will install additional air emission control equipment at our coal-fired generating facilities in Maryland and at our co-owned coal-fired facilities in Pennsylvania to meet air quality standards. We include in our estimated environmental capital requirements capital spending for these projects, which we expect will be approximately $2 million in 2005, $32 million in 2006, and $75 million in 2007. If these rules are promulgated as we have assumed in our projections, we will spend another $400-$500 million of capital from 2008-2010. Our estimates are subject to significant uncertainties including the timing of any regulatory or legislative change, its implementation timetable, and the amount of emissions reductions that will be required. As a result, we cannot predict our capital spending or the scope or timing of these projects with certainty, and the actual expenditures, scope and timing could differ significantly from our estimates.

        On March 10, 2005, the EPA adopted CAIR. We are in the process of evaluating the impact of the rules on our financial results.

        We own several generating facilities in Maryland and California, states that do not meet the NAAQS for ozone. The Clean Air Act requires states to assess fees against every major stationary source of NOx and volatile organic compounds in areas that have not met the NAAQS for ozone if the NAAQS is not achieved by a specified deadline. If implemented, the fees would be assessed based on the magnitude of a source's emissions as compared to its emissions when the area failed to meet the deadline. The exact method of computing these fees has not been established and will depend in part on state implementation regulations that have not been finalized.

        There are various deadlines for Maryland and California to meet the NAAQS for ozone with the earliest being November 2005. Assessment of fees would commence in 2006 if the current effective dates are maintained. However, there is significant uncertainty regarding the date when fees would be assessed and whether they would be applicable to our facilities because the EPA is involved in litigation regarding these issues. Consequently, we are unable to estimate the ultimate applicability, timing or financial impact of the fees in light of the uncertainty surrounding the effective dates and the methodology that will be used in calculating the fees.

Hazardous Air Emissions
The Clean Air Act requires the EPA to evaluate the public health impacts of hazardous air emissions from electric steam generating facilities. In December 2003, the EPA proposed to regulate the emissions of mercury from coal-fired facilities and nickel from residual oil-fired facilities. Under the mercury proposal, the EPA has proposed compliance alternatives, including a unit specific standard and a cap and trade program. As proposed, compliance with the unit specific limits would be required as early as March 2008, but could be delayed for at least one year as allowed under the proposed requirements. Compliance with the mercury cap and trade program would be required by January 2010. The Bush Administration's Clear Skies legislative proposal also addresses regulation of mercury through a cap and trade approach. The nickel emission limits for residual oil-fired facilities would require compliance by March 2008 but could be delayed for at least one year as allowed under the proposed requirements. We believe final regulations could be issued in 2005 and could affect all coal and oil-fired boilers at our generating facilities. The cost of compliance with the final regulations could be material.

New Source Review
The EPA and several states filed lawsuits against a number of coal-fired power plants primarily in Mid-Western and Southern states alleging violations of the Prevention of Significant Deterioration and Non-Attainment provisions of the Clean Air Act's new source review requirements. The EPA requested information relating to modifications made to our Brandon Shores, Crane, and Wagner plants located in Maryland. The EPA also sent similar, but narrower, information requests to two of our newer Pennsylvania waste-coal burning plants in which we have an ownership interest. We have responded to the EPA, and

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as of the date of this report the EPA has taken no further action.

        Based on the level of emissions control that the EPA and states are seeking in these new source review enforcement actions, we believe that material additional costs and penalties could be incurred, and planned capital expenditures could be accelerated, if the EPA was successful in any future actions regarding our facilities.

        In August 2003, the EPA's equipment replacement rule was promulgated. The rule establishes an equipment replacement cost threshold for determining when major new source review requirements are triggered. The rule provides that plant owners may spend up to 20% of the replacement value of a generation unit on certain component replacements each year without triggering requirements for new pollution controls. A legal challenge to this rule was filed with the United States Court of Appeals and a stay was issued which delayed its effective date. The EPA has also determined to seek additional comment on certain features of the rule, including the 20% threshold. We cannot predict the timing or outcome of the legal challenge or the EPA comment process, or their possible effect on our financial results.

Global Climate Change
Future initiatives regarding greenhouse gas emissions and global warming continue to be the subject of much debate. As a result of our diverse fuel portfolio, our contribution to greenhouse gases varies by plant type. Fossil fuel-fired power plants are significant sources of carbon dioxide emissions, a principal greenhouse gas. Our compliance costs with any mandated federal greenhouse gas reductions in the future could be material.

Water Quality

The Clean Water Act established the basic framework for federal and state regulation of water pollution control. The Act requires facilities that discharge waste or storm water into the waters of the United States to obtain permits requiring them to meet effluent limits in order to achieve ambient water quality standards in the receiving waters. Under current provisions of the Clean Water Act, existing discharge permits are renewed every five years, at which time permit effluent limits come under extensive review and can be modified to account for more stringent regulations. In addition, the permits can be modified at any time.

Water Intake Regulations
In July 2004, the EPA published final rules under the Clean Water Act that require cooling water intake structures to reflect the best technology available for minimizing adverse environmental impacts. The final rules require the installation of additional intake screens or other protective measures, as well as extensive site-specific study and monitoring requirements. We currently have six facilities affected by the regulation. The rule allows for a number of compliance options that will be assessed through 2007, following which we will determine whether any action is required and what our most viable options are if any action is required. Until we determine our most viable option under the final rules, we cannot estimate our compliance costs. However, the costs associated with the final rules could be material.

Hazardous and Solid Waste

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) established the basic framework for federal and state regulations that can require any individual or entity that may have owned or operated a disposal site, as well as transporters or generators of hazardous substances sent to such site, to share in remediation costs. Except to the extent discussed in Note 12 to the Consolidated Financial Statements, compliance with CERCLA requirements is not expected to have a material adverse effect on our financial results.

        The Resource Conservation and Recovery Act (RCRA) gives the EPA authority to control hazardous waste from "cradle-to-grave." This includes the generation, transportation, treatment, storage, and disposal of hazardous waste. RCRA also sets forth a framework for the management of non-hazardous wastes. Although RCRA focuses only on active and future facilities and, unlike CERCLA, does not address abandoned or historical sites, there are provisions that require phasing-out land disposal of hazardous waste, more stringent hazardous waste management standards, and a comprehensive underground storage tank program.

        Our coal-fired generating facilities produce approximately two million tons of combustion by-products ("ash") each year, including approximately 700,000 tons at our Maryland plants. Of the two million tons, approximately half is beneficially re-used in various projects, including as structural fill in surface mine reclamation, and half is placed in landfills. In 2000, the EPA decided not to regulate combustion ash as a hazardous waste under RCRA. Instead, the EPA announced its intention to develop national standards, currently scheduled to be proposed in April 2006, to regulate this material as a non-hazardous waste, and is developing regulations governing the placement of ash in landfills, surface impoundments, and sand/gravel surface mines. The EPA is also developing regulations for ash placement in coal mines, which are expected to be proposed in October 2007. Federal regulation has the potential to result in additional requirements such as groundwater monitoring, liners, and leachate

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collection and treatment systems for all landfills, surface impoundments, and sand and gravel mines used for ash management. Depending on the scope of any final requirements, our compliance costs could be material.

        As a result of these regulatory proposals, the remaining ash placement capacity at our current mine reclamation site and our current ash generation projections, we are exploring our options for the placement of ash, including construction of an ash placement facility. Over the next five years, we estimate that our capital expenditures for this project will be as follows: approximately $10 million in 2006 and, if we decide to construct a facility, approximately $55 million in 2008 towards the purchase of land. Our estimates are subject to significant uncertainties including the timing of any regulatory change, its implementation timetable, and the scope of the final requirements. As a result, we cannot predict our capital spending or the scope and timing of this project with certainty, and the actual expenditures, scope and timing could differ significantly from our estimates.

Employees

Constellation Energy and its subsidiaries had approximately 9,570 employees at December 31, 2004. At the Nine Mile Point plant, approximately 700 employees are represented by the International Brotherhood of Electrical Workers, Local 97. The labor contract with this union expires in June 2006. We believe that our relationship with this union is satisfactory, but there can be no assurances that this will continue to be the case.

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Item 2. Properties

Constellation Energy's corporate offices occupy approximately 106,000 square feet of leased office space in Baltimore, Maryland. The corporate offices for most of our merchant energy business occupy approximately 172,000 square feet of leased office space in another building in Baltimore, Maryland. We describe our electric generation properties on the next page. We also have leases for other offices and services located in the Baltimore metropolitan region, and for various real property and facilities relating to our generation projects.

        BGE's principal headquarters building is located in downtown Baltimore. In January 2004, BGE sold a portion of its headquarters building and is in the process of consolidating its operations into the remainder of the building. In addition, BGE owns propane air and liquefied natural gas facilities as discussed in Item 1. Business—Gas Business section.

        BGE also has rights-of-way to maintain 26-inch natural gas mains across certain Baltimore City-owned property (principally parks) which expired in 2004. BGE is in the process of renewing the rights-of-way with Baltimore City for an additional 25 years. The expiration of the rights-of-way does not affect BGE's ability to use the rights-of-way during the renewal process.

        BGE has electric transmission and electric and gas distribution lines located:

•

in public streets and highways pursuant to franchises, and

•

on rights-of-way secured for the most part by grants from owners of the property.

        All of BGE's property is subject to the lien of BGE's mortgage securing its mortgage bonds. All of the generation facilities transferred to affiliates by BGE on July 1, 2000, along with the stock we own in certain of our subsidiaries, are subject to the lien of BGE's mortgage.

        We believe we have satisfactory title to our power project facilities in accordance with standards generally accepted in the energy industry, subject to exceptions, which in our opinion, would not have a material adverse effect on the use or value of the facilities.

        We also lease office space throughout North America, in the United Kingdom, and in Australia to support our merchant energy business.

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        The following table describes our generating facilities:

(A)

Reflects our proportionate interest in and entitlement to capacity from Keystone and Conemaugh, which include 2 megawatts of diesel capacity for Keystone and 1 megawatt of diesel capacity for Conemaugh.

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        The following table describes our processing facilities:

Item 3. Legal Proceedings

We discuss our legal proceedings in Note 12 to Consolidated Financial Statements.

Item 4. Submission of Matters to Vote of Security Holders

Not applicable.

Executive Officers of the Registrant

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        Officers are elected by, and hold office at the will of, the Board of Directors and do not serve a "term of office" as such. There is no arrangement or understanding between any director or officer and any other person pursuant to which the director or officer was selected.

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PART II

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters

Stock Trading

Constellation Energy's common stock is traded under the ticker symbol CEG. It is listed on the New York, Chicago, and Pacific stock exchanges. It has unlisted trading privileges on the Boston, Cincinnati, and Philadelphia exchanges.

        As of February 28, 2005, there were 45,843 common shareholders of record.

Dividend Policy

Constellation Energy pays dividends on its common stock after its Board of Directors declares them. There are no contractual limitations on Constellation Energy paying common stock dividends.

        Dividends have been paid continuously since 1910 on the common stock of Constellation Energy, BGE, and their predecessors. Future dividends depend upon future earnings, our financial condition, and other factors.

        In January 2005, we announced an increase in our quarterly dividend from $0.285 to $0.335 per share on our common stock payable April 1, 2005 to holders of record on March 10, 2005. This is equivalent to an annual rate of $1.34 per share.

        Quarterly dividends were declared on our common stock during 2004 and 2003 in the amounts set forth below.

        BGE pays dividends on its common stock after its Board of Directors declares them. There are no contractual limitations on BGE paying common stock dividends unless:

•

BGE elects to defer interest payments on the 6.20% Deferrable Interest Subordinated Debentures due 2043, and any deferred interest remains unpaid; or

•

any dividends (and any redemption payments) due on BGE's preference stock have not been paid.

Common Stock Dividends and Price Ranges

* Based on New York Stock Exchange Composite Transactions.

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Item 6. Selected Financial Data

Constellation Energy Group, Inc. and Subsidiaries