constellation energy Q1 2006 Earnings Presentation

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constellation energy Q1 2006 Earnings Presentation

  1. 1. Constellation Energy Q1 2006 Earnings Presentation April 28, 2006
  2. 2. Forward-looking Statements Disclaimer Certain statements made in this presentation are forward-looking statements and may contain words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” and other similar words. We also disclose non-historical information that represents management’s expectations, which are based on numerous assumptions. These statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to be materially different from projected results. These risks include, but are not limited to: the timing and extent of changes in commodity prices for energy including coal, natural gas, oil, electricity, nuclear fuel, and emissions allowances; the timing and extent of deregulation of, and competition in, the energy markets, and the rules and regulations adopted on a transitional basis in those markets; the conditions of the capital markets, interest rates, availability of credit, liquidity and general economic conditions, as well as Constellation Energy’s and BGE’s ability to maintain their current credit ratings; the ability to attract and retain customers in our competitive supply activities and to adequately forecast their energy usage; the effectiveness of Constellation Energy’s and BGE’s risk management policies and procedures and the ability and willingness of our counterparties to satisfy their financial and other commitments; the liquidity and competitiveness of wholesale markets for energy commodities; uncertainties associated with estimating natural gas reserves, developing properties and extracting gas; operational factors affecting the operations of our generating facilities (including nuclear facilities) and BGE’s transmission and distribution facilities, including catastrophic weather-related damages, unscheduled outages or repairs, unanticipated changes in fuel costs or availability, unavailability of coal or gas transportation or electric transmission services, workforce issues, terrorism, liabilities associated with catastrophic events, and other events beyond our control; the inability of BGE to recover all its costs associated with providing electric residential customers service during or after the period when electric rates are frozen per regulation; the effect of weather and general economic and business conditions on energy supply, demand, and prices; regulatory or legislative developments that affect deregulation, transmission or distribution rates, demand for energy, or that would increase costs, including costs related to nuclear power plants, safety, or environmental compliance; the actual outcome of uncertainties associated with assumptions and estimates using judgment when applying critical accounting policies and preparing financial statements, including factors that are estimated in applying mark-to-market accounting, such as the ability to obtain market prices and in the absence of verifiable market prices, the appropriateness of models and model impacts (including, but not limited to, extreme contractual load obligations, unit availability, forward commodity prices, interest rates, correlation and volatility factors); changes in accounting principles or practices; losses on the sale or write-down of assets due to impairment events or changes in management intent with regard to either holding or selling certain assets; cost and other effects of legal and administrative proceedings that may not be covered by insurance, including environmental liabilities; and the inability to complete the proposed merger with FPL Group, Inc., to successfully integrate the businesses of Constellation Energy and FPL Group after the merger or to achieve anticipated synergies. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Please see our periodic reports filed with the SEC for more information on these factors. These forward-looking statements represent estimates and assumptions only as of the date of this 2 presentation, and no duty is undertaken to update them to reflect new information, events or circumstances.
  3. 3. Use of Non-GAAP Financial Measures Constellation Energy presents adjusted earnings per share (adjusted EPS) in addition to its reported earnings per share in accordance with generally accepted accounting principles (reported GAAP EPS). Adjusted EPS is a non-GAAP financial measure that differs from reported GAAP EPS because it excludes the cumulative effects of changes in accounting principles, discontinued operations, special items (which we define as significant items that are not related to our ongoing, underlying business or which distort comparability of results) included in operations, and the impact of certain economic, non-qualifying hedges. This quarter we also provided adjusted EPS excluding synfuel earnings due to the potential for oil- price volatility to result in a difficult-to-forecast phase-out of tax credits. Adjusted EPS presented in future quarters will exclude synfuel earnings. Constellation Energy has excluded from adjusted earnings two categories of non-qualifying hedges: hedges against the Commodities Group New England fuel adjustment clauses and hedges on gas transportation and storage contracts. The mark-to-market impact of these hedges was significant to reported results, but economically neutral to the company in that offsetting gains on underlying accrual positions will be recognized in the future. We present adjusted EPS and adjusted EPS excluding synfuel earnings because we believe that it is appropriate for investors to consider results excluding these items in addition to our results in accordance with GAAP. We believe such measures provide a picture of our results that is comparable among periods since it excludes the impact of items such as workforce reduction costs or gains and losses on the sale of a business, which may recur occasionally, but tend to be irregular as to timing, thereby distorting comparisons between periods. However, investors should note that these non-GAAP measures involve judgments by management (in particular, judgments as to what is classified as a special item or an economic, non- qualifying hedge to be excluded from adjusted earnings). These non-GAAP measures are also used to evaluate management's performance and for compensation purposes. Constellation Energy also provides its earnings guidance in terms of adjusted EPS. Constellation Energy is unable to reconcile its guidance to GAAP earnings per share because we do not predict the future impact of special items, economic, non-qualifying hedges or synfuel earnings due to the difficulty of doing so. The impact of special items, economic, non-qualifying hedges, or synfuel earnings could be material to our operating results computed in accordance with GAAP. We note that such information is not in accordance with GAAP and should not be viewed as an alternative to GAAP information. A reconciliation of pro-forma information to GAAP information is included either on the slide where the information appears or on one of the slides in the Non-GAAP Measures section provided at the end of the presentation. Please see the Summary of Non-GAAP Measures included to find the appropriate GAAP reconciliation and its related slide(s). These slides are only intended to be reviewed in conjunction with the oral presentation to which they relate. 3
  4. 4. Non-Solicitation This communication is not a solicitation of a proxy from any security holder of FPL Group or Constellation Energy. Constellation Energy intends to file with the Securities and Exchange Commission a registration statement that will include a joint proxy statement/prospectus of Constellation Energy and FPL Group and other relevant documents to be mailed to security holders in connection with the proposed transaction. WE URGE INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT FPL GROUP, CONSTELLATION ENERGY, AND THE PROPOSED TRANSACTION. A definitive proxy statement will be sent to security holders of FPL Group and Constellation Energy seeking approval of the proposed transaction. Investors and security holders will be able to obtain these materials (when they are available) and other documents filed with the SEC free of charge at the SEC’s website, www.sec.gov. In addition, a copy of the joint proxy statement/prospectus (when it becomes available) may be obtained free of charge from Constellation Energy, Shareholder Services, 750 E. Pratt Street, Baltimore, MD 21202, or from FPL Group, Shareholder Services, P.O. Box 14000, 700 Universe Blvd., Juno Beach, Florida 33408-0420. This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. FPL Group, Constellation Energy, and their respective directors and executive officers of FPL Group and Constellation Energy and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding FPL Group’s directors and executive officers is available in its proxy statement filed with the SEC by FPL Group on April 5, 2005, and information regarding Constellation Energy’s directors and executive officers is available in its proxy statement filed with the SEC by Constellation Energy on April 13, 2005. Information regarding J. Brian Ferguson, a director of FPL Group elected since the date of the filing of the 2005 definitive proxy statement, can be found in FPL Group’s filing on Form 10-Q dated August 4, 2005. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available. 4
  5. 5. Q1 2006 Earnings Per Share Summary Q1 2006 Q1 2005 ($ per share) GAAP Earnings $0.63 $0.68 Special Items 0.01 (0.01) Loss on Economic Non-Qualifying Hedges 0.06 0.04 (1) Adjusted Earnings 0.70 0.71 (2) Synfuel Earnings (0.02) (0.07) Adjusted Earnings (Excluding Synfuels) $0.68 $0.64 (3) Adjusted Q1 2006 Earnings Guidance (Excluding Synfuel) (4) $0.46 - $0.61 (1) Excludes special items and certain economic, non-qualifying hedges (2) Represents synfuel earnings of $0.09 per share and expected synfuel phase-out risk of ($0.07) per share in Q1’06 and synfuel earnings of $0.07 per share in Q1’05 (3) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings (4) Excludes estimated synfuel earnings of $0.10 per share and estimated synfuel phase-out risk of ($0.03) per share See Appendix 5
  6. 6. Q1 2006 Operating Highlights • Strong Commodities Group performance – Higher backlog going into the quarter – Strong portfolio management and trading results – Substantial progress toward achieving 2006 new business goals and adding certainty to future earnings objectives • Completed planned nuclear refueling outages – Record refueling outage at Nine Mile Point Unit 2 – Calvert Cliffs Unit 1 reactor vessel head replacement will result in improved future reliability and outage performance • Delivered $10 million of incremental productivity gains • NewEnergy performing in line with expectation for the year 6
  7. 7. Maryland Legislative Session • 2006 – Election Year for all Maryland officeholders • End of BGE Price Freeze Service, plus historically high energy commodity prices, plus merger – created political intensity • New Maryland PSC controversy deepened partisan political dynamics late in the General Assembly session 7
  8. 8. Rate Stabilization Plan • Governor-supported rate stabilization plan filed with Maryland PSC • Phases in rate increases over an 18-month period to reach market prices on January 1, 2008 July 1, Jan. 1, June 1, Jan. 1, 2006 2007 2007 2008 Customer Rate Increase +19.4% +5.0%* +25.0% Market * Offset by $60 million per year upon merger closing. • Deferred balances recovered over two-year period beginning June 1, 2007 – Assuming 50% participation, on June 1, 2007 peak regulatory asset of $259 million and peak funding requirement of $189 million • BGE to recover interest at BGE’s actual borrowing cost • Constellation offered to provide economic benefits of $60 million per year for 10 years beginning January 1, 2007 contingent on merger closing – Redirect Nuclear Decommissioning Revenue to reduce residential customer rates (~$19 million) – Cease collecting residential POLR return ($20 million) – Share portion of merger synergies (~$21 million) 8
  9. 9. Merger Update • As with any utility merger, some synergy sharing with customers is expected – Regulated savings expected to be modest compared to other mergers of utilities with contiguous service territories – Rate stabilization plan filed last week with the Maryland PSC provided economic benefits of $60 million per year, including synergy sharing, which are contingent upon merger closing • Procedural schedule for Maryland PSC published April 27 • Uncertainty surrounding closing of merger remains – If risks to closing the merger or economics become unacceptable, Constellation and FPL could agree to terminate the merger 9
  10. 10. Earnings Outlook Actual Guidance ($ per share) 2005 2006 2007 2008 CAGR Adjusted Earnings $3.62 $3.65 - 3.95 $4.75 - 5.00 $5.25 - 5.75 13%- 17% (1) Synfuels Earnings (Included in 1/31/06 $0.34 $0.31 $0.34 - Guidance) Adjusted Earnings $3.28 $3.35 - 3.65 $4.40 - 4.65 $5.25 - 5.75 17% - 21% Excluding Synfuels (2) Memo: Current Projection of $0.34 $0.14 $0.16 - Synfuel EPS (1) Excludes special items and certain economic, non-qualifying hedges (2) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings See Appendix 10
  11. 11. Financial Overview E. Follin Smith
  12. 12. Q1 2006 Adjusted EPS Q1 2006 Q1 2005 ($ per share) GAAP Earnings $0.63 $0.68 Special Items 0.01 (0.01) Loss on Economic Non-Qualifying Hedges 0.06 0.04 Synfuel Earnings (0.02) (0.07) Adjusted Earnings Per Share (1) $0.68 $0.64 Non-Qualifying Hedges: Power $- $(0.04) Gas (0.06) - Total Non-Qualifying Hedges ($0.06) ($0.04) (1) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings See Appendix 12
  13. 13. Q1 2006 Guidance ($ per share) Actual Guidance Change Adjusted Earnings $0.70 $0.53 – 0.68 $0.02 – 0.17 (Including Synfuels) (1) (2) (3) Synfuel Earnings 0.02 0.07 (0.05) Adjusted Earnings $0.68 $0.46 – 0.61 $0.07 – 0.22 (Excluding Synfuels) (4) (1) Excludes special items and certain economic, non-qualifying hedges (2) Represents Synfuel earnings of $0.09 per share and expected synfuel phase-out risk of ($0.07) per share (3) Represents estimated synfuel earnings of $0.10 per share and estimated synfuel phase-out risk of ($0.03) per share (4) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings See Appendix 13
  14. 14. Q1 2006 Segment Earnings Per Share (1) ($ per share) Change Q1 2006 Q1 2005 EPS % BGE $0.38 $0.40 $(0.02) (5%) Merchant 0.29 0.25 0.04 16% Other Non-regulated 0.01 (0.01) 0.02 NM Adjusted Earnings Per Share (1) $0.68 $0.64 $0.04 6% (2) Adjusted Q1 2006 Earnings Guidance $0.46 - $0.61 (1) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings (2) Excludes $0.10 per share of expected synfuel earnings and ($0.03) per share of assumed synfuel phase-out risk See Appendix 14
  15. 15. BGE Adjusted Earnings vs. Guidance Q1 2006 ($ per share) Actual Guidance Adjusted Earnings $0.38 $0.38 - $0.43 Adjusted Earnings vs. Prior Year ($ per share) Q1 2006 Q1 2005 Change Adjusted Earnings $0.38 $0.40 $(0.02) See Appendix 15
  16. 16. Merchant Adjusted Earnings vs. Adjusted Guidance Q1 2006 ($ per share) Actual Guidance (1) Adjusted Earnings $0.29 $0.05 - 0.20 Adjusted Earnings vs. Prior Year Q1 2006 Q1 2005 Change ($ per share) (1) Adjusted Earnings $0.29 $0.25 $0.04 Variance Primarily Due to: +23¢ Wholesale Comp. Supply Backlog -20¢ Mid-Atlantic Fleet +9¢ Wholesale Comp. Supply New Business -4¢ Competitive Transition Charge +3¢ Productivity -3¢ Planned Outages - 4¢ Other (1) Excludes special items, certain economic, non-qualifying hedges and synfuel earnings See Appendix 16
  17. 17. Merchant Gross Margin (1) Change ($ in millions) Q1 2006 Q1 2005 $ % Mid-Atlantic Fleet $112 $188 ($76) Plants with PPAs 171 177 (6) Wholesale Competitive Supply 214 83 131 NewEnergy 75 63 12 Qualifying Facilities/Other 17 13 4 Total Merchant Gross Margin $589 $524 $65 12% (1) Excludes special items, certain economic, non-qualifying hedges and synfuel results See Appendix 17
  18. 18. Merchant – Below Gross Margin Change ($ in millions, except per share) Q1 2006 Q1 2005 $ % (1) (1) Gross Margin $589 $524 $65 12% O&M (361) (318) (43) (14%) D&A (66) (60) (6) (10%) Other Expenses (39) (29) (10) (34%) Total Costs Below Gross Margin (466) (407) (59) (14%) EBIT 123 117 6 5% Net Interest Expense (38) (46) 8 17% Pre-tax Income 85 71 14 20% Income Tax (33) (26) (7) N.M. Net Income $52 $45 $7 16% Shares Outstanding 180.5 178.6 Adjusted EPS $0.29 $0.25 $0.04 (1) Excludes special items, certain economic, non-qualifying hedges and synfuel results 18 See Appendix
  19. 19. Wholesale Competitive Supply (1) Change ($ in millions) Q1 2006 Q1 2005 $ % (2) Total Already Originated Business $88 $21 $67 New Business (2) Originated & Realized 17 42 (25) Portfolio Management & Trading 97 19 78 Total New Business Realized (2) 114 61 53 (2) Total Contribution Margin $202 $82 $120 146% (1) Excludes special items, certain economic, non-qualifying hedges and synfuel results (2) Includes power, gas (non-project), and coal gross margin and gas project margin (projected revenue less operating, depreciation, depletion and interest expenses incurred at the project level) See Appendix 19
  20. 20. Wholesale Competitive Supply: Origination Total Wholesale Competitive Supply Origination Value to be Realized (1) Q1 2006 Q1 2005 ($ in millions) To Be Realized In: Current Year $227 $60 Future Years 171 18 Total Originated $398 $78 Current Year Target $452 $268 % of Current Year Target Achieved 50% 22% Total Origination Target (including future years) $824 $504 % of Total Origination Target Achieved 48% 15% (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) 20
  21. 21. Wholesale Competitive Supply Backlog Backlog (1) $600 (as of 3/31/06) 527 Contracted in $500 2006 Contracted Prior 227 $400 (2) to 12/31/05 ($ in millions) 324 $300 83 227 33 $200 300 241 $100 194 $0 2006 2007 2008 (1) Includes power, gas (non-project), and coal gross margin and gas project margin (projected revenue less operating, depreciation, depletion and interest expenses incurred at the project level) (2) Reflects backlog value as of 12/15/05 21
  22. 22. NewEnergy: Q1 2006 Highlights Change Q1 2006 vs. Q1 2005 Electric Market Volume Served (Peak Megawatts) 15,100 +6% Market Share 24% +1 point Volume Delivered (Megawatt Hours) 15.3 million +17% Q1 Retention Rate 68% Gas Market Volume Served (Bcf) 340 +12% Gas Volume Delivered (Bcf) 91.2 +12% Total Gross Margin (1) $75 million +19% (1) Excludes certain economic, non-qualifying hedges See Appendix 22
  23. 23. NewEnergy: Retail MWh Backlog Contracted Retail MWh (as of 3/31/06) 100 80 (MWhs in millions) 60 40 44 64 20 24 15 9 0 2005 2006 2007 2008 Delivered Backlog 80% of 2006 plan MWhs delivered or contracted 23
  24. 24. Limiting Variability – Portfolio Management 2007 2008 Percent Hedged as of 3/31/06 Power 89% 81% Fuel 86% 78% Sensitivity to Price Changes as of 3/31/06 ($ per share) Power down $1/MWh, Fuel unchanged $(0.03) $(0.05) Fuel down $0.10/MMBtu, Power unch. 0.05 0.06 (1) Power down $1/MWh, Fuel down $0.10/MMBtu $0.01 $0.01 MTM portfolio VaR levels remain low at an average $11.7 million for the quarter (1) Numbersmay not sum due to rounding Note: Percent hedged includes Mid-Atlantic Fleet, Plants with PPA’s, Power Wholesale Competitive Supply and NewEnergy. 24
  25. 25. Synfuel 2005 2006 2007 Actual Estimate Estimate ($ in millions, except per share amounts) Pre-Phase-out: Pre-tax Loss of Production ($85) ($99) ($95) Tax Benefit of Pre-tax Loss 32 38 36 Tax Credits 115 144 147 Net Income (Pre-Phase-out) $62 $83 $88 Synfuel EPS (Pre-Phase-out) $0.34 $0.46 $0.49 Impact of Phase-out (as of 3/31/06) Tax Credit Phase-out Percentage 46% 46% Production Expenses, Net of Tax $- $8 $9 Tax Credits - (65) (68) Net Income $- ($57) ($59) Synfuel EPS Impact $0.00 ($0.32) ($0.33) Net Synfuel EPS (Post Phase-out) $0.34 $0.14 $0.16 25
  26. 26. Q1 2006 Consolidated Cash Flow Other Merchant Utility Non-Reg Total ($ in millions) Net Income Before Special Items $55 $69 $1 $125 Depreciation & Amortization 93 59 8 160 Capital Expenditures & Investments (214) (82) (1) (297) Net CapEx (121) (23) 7 (137) Asset Dispositions & Contract Restructuring 13 - 1 14 Working Capital & Other (879) 133 20 (726) Pension Adjustment (pre-tax) (32) Free Cash Flow ($932) $179 $29 (756) Dividends (60) Equity Issuances – Benefit Plans 21 Net Cash Flow before Debt Issuances/(Payments) ($795) 26 See Appendix
  27. 27. Balance Sheet Actual 12/31/05 3/31/06 ($ in billions) Debt Total Debt $4.7 $5.2 Less: Cash (0.8) (0.4) Net Debt 3.9 4.7 Capital 50% Trust Preferred 0.1 0.1 (1) (2) Equity 5.1 4.5 Total Capital $9.2 $9.4 Net Debt to Total Capital 42.8% 50.4% (3) AOCI Balance $0.3 $1.0 3rd Party Cash Collateral $0.4 $0.2 Adjusted Net Debt to Adjusted Total Capital (4) 43.7% 46.6% (1) Includes preferred stock and minority interest (2) Includes FAS 87 Minimum Pension Liability reduction to equity of $77 million in 2005 (3) Related to cash flow hedges of commodity transactions (4) Excludes AOCI Balance related to cash flow hedges of commodity transactions and 3rd Party Cash Collateral 27 See Appendix
  28. 28. Credit Metrics Actual Projected 12/31/01 12/31/03 12/31/05 12/31/06 Net Debt to Total Capital 54.6% 49.9% 42.8% 45% - 49% Adjusted Net Debt to 54.8% 50.6% 43.7% 42% - 46% Adjusted Total Capital (1) Excess Liquidity ($ billions) $0.6 $1.9 $2.1 • Metrics much stronger than when current credit ratings were established • 4 years of dependable performance from highly hedged deregulated business model • Significantly larger company with more powerful liquidity profile (1) Net debt adjusted to exclude 3rd party collateral. Total capital adjusted to exclude OCI balance related to cash flow hedges of commodity transactions and 3rd party collateral See Appendix 28
  29. 29. Q2 2006 Earnings Per Share Guidance Guidance Actual Q2 2006 Q2 2005 ($ per share) Merchant $0.20 - $0.35 $0.45 BGE 0.08 - 0.13 0.13 Other (0.01) - 0.01 0.01 Adjusted Earnings Per Share [1] $0.30 - $0.45 $0.59 Synfuels $0.06 $0.09 [1] Excludes special items, certain economic, non-qualifying hedges and synfuel earnings See Appendix 29
  30. 30. Additional Modeling Information
  31. 31. Adjusted Earnings Outlook (1) 5.25-5.75 $5.50 4.75-5.00 $5.00 4.40-4.65 $4.50 3.65-3.95 $4.00 3.62 3.35-3.65 3.28 $3.50 3.12 2.82 2.82 2.83 $3.00 2.46 2.42 $2.50 $2.00 $1.50 2002 2003 2004 2005 2006E 2007E 2008E Adjusted EPS Adjusted EPS (excluding synfuel) (1) Adjusted for the effect of special items and certain economic, non-qualifying hedges ’02-’03 ’03-’04 ’04-’05 ’05-’06E ’06E-’07E ’07E-’08E 6-yr CAGR Growth (Adj. EPS) 15% 11% 16% 1 – 9% 27 – 30% 11 – 15% 13 – 15% Growth (Adj. EPS Excl. 17% 0% 16% 2 – 11% 27 - 31% 19 – 24% 14 – 16% Synfuel) 31 See Appendix
  32. 32. Pace Synfuel (1) 2005 Q1 2006 2006 2007 ($ in millions, except per share amounts) Actual Actual Estimate Estimate Pre-Phase-out: Pre-tax Loss of Production ($28) ($9) ($32) ($32) Tax Benefit of Pre-tax Loss 10 3 11 11 Tax Credits 45 13 52 53 Net Income (Pre-Phase-out) $26 $7 $32 $32 Synfuel EPS (Pre-Phase-out) $0.15 $0.04 $0.18 $0.18 Impact of Expected Phase-out (as of 3/31/06) Production Exp., Net of Tax $- $1 $3 $3 Tax Credits - (6) (24) (24) Net Income $- ($5) ($20) ($21) Synfuel EPS Impact $0.00 ($0.03) ($0.11) ($0.12) Net Synfuel EPS (Post Phase-out) $0.15 $0.01 $0.06 $0.06 Expected Tax Credit Phase-out Percentage 46% 46% 46% Production (tons in millions) 1.5 0.5 1.8 1.8 32 (1) Numbers may not sum due to rounding
  33. 33. South Carolina Synfuel (1) 2005 Q1 2006 2006 2007 ($ in millions, except per share amounts) Actual Actual Estimate Estimate Pre-Phase-out: Pre-tax Loss of Production ($57) ($18) ($68) ($63) Tax Benefit of Pre-tax Loss 22 7 26 25 Tax Credits 70 21 92 94 Net Income (Pre-Phase-out) $36 $10 $51 $56 Synfuel EPS (Pre-Phase-out) $0.19 $0.06 $0.28 $0.31 Impact of Expected Phase-out (as of 3/31/06) Production Exp., Net of Tax $- $1 $5 $5 Tax Credits - (10) (41) (43) Net Income $- ($9) ($37) ($38) Synfuel EPS Impact $0.00 ($0.05) ($0.20) ($0.21) Net Synfuel EPS (Post Phase-out) $0.19 $0.01 $0.08 $0.09 Expected Tax Credit Phase-out Percentage 46% 46% 46% Production (tons in millions) 2.4 0.8 3.0 3.0 33 (1) Numbers may not sum due to rounding
  34. 34. Non-GAAP Reconciliations
  35. 35. Summary of Non-GAAP Measures Slide(s) Where Used Slide Containing Non-GAAP Measure in Presentation Most Comparable GAAP Measure Reconciliation Adjusted EPS Reported GAAP EPS Q106 Actual 5, 12, 13, 14, 15, 16, 18 36 Q105 Actual 5, 12, 14, 15, 16, 18 36 EPS Guidance 5, 13, 14, 15, 16, 29, 31 36 2005 YTD Actual 10, 31 37 2004 YTD Actual 31 37 2003 YTD Actual 31 37 2002 YTD Actual 31 37 Q205 Actual 29 38 Q106 Merchant Gross Margin 17, 18, 19, 22 Income from Operations / Net Income 39 Q105 Merchant Gross Margin 17, 18, 19, 22 40 Q106 Merchant Below Gross Margin 18 39 Q105 Merchant Below Gross Margin 18 40 Net Cash Flow before Debt Issuances/(Payments) 26 Operating, Investing and Financing Cash Flow 41 Free Cash Flow 26 41 Debt to Total Capital 27, 28 Debt Divided by Total Capitalization 42 Projected Debt to Total Capital 27, 28 42 35
  36. 36. Adjusted EPS Q106 and Q105 We exclude special items and certain economic, non-qualifying fuel adjustment clause and gas transportation hedges because we believe that it is appropriate for investors to consider results excluding these items, in addition to our results in accordance with GAAP. We have also provided adjusted earnings excluding synfuel results due to the potential volatility and phase-out of the tax credits. We believe such measures provide a picture of our results that is comparable among periods since it excludes the impact of items, which may recur occasionally, but tend to be irregular as to timing and magnitude, thereby distorting comparisons between periods. However, investors should note that these non-GAAP measures involve judgment by management (in particular, judgments as to what is or is not classified as a special item). We also use these measures to evaluate performance and for compensation purposes. RECONCILIATION: Merchant Regulated Regulated Other Energy Electric Gas BGE Nonreg. Total A B C D = (B+C) E F =(A+D+E) 1Q06 ACTUAL RESULTS: Reported GAAP EPS $ 0.24 $ 0.19 $ 0.19 $ 0.38 $ 0.01 $ 0.63 GAAP MEASURE Special Items and Non-qualifying Hedges Included in Operations: Non-qualifying Hedges (0.06) - - - - (0.06) Merger-related Costs (0.01) - - - - (0.01) Total Special Items and Non-qualifying Hedges (0.07) - - - - (0.07) Adjusted EPS 0.31 0.19 0.19 0.38 0.01 0.70 NON-GAAP MEASURE Synthetic fuel facility results 0.02 - - - - 0.02 Adjusted EPS excluding Synfuel results $ 0.29 $ 0.19 $ 0.19 $ 0.38 $ 0.01 $ 0.68 NON-GAAP MEASURE 1Q05 ACTUAL RESULTS: Reported GAAP EPS $ 0.28 $ 0.24 $ 0.16 $ 0.40 $ - $ 0.68 Income from Discontinued Operations - - - - 0.01 0.01 GAAP MEASURES EPS Before Discontinued Operations 0.28 0.24 0.16 0.40 (0.01) 0.67 Special Items and Non-qualifying Hedges Included in Operations: Non-qualifying Hedges (0.04) - - - - (0.04) Adjusted EPS 0.32 0.24 0.16 0.40 (0.01) 0.71 NON-GAAP MEASURE Synthetic fuel facility results 0.07 - - - - 0.07 Adjusted EPS excluding Synfuel results $ 0.25 $ 0.24 $ 0.16 $ 0.40 $ (0.01) $ 0.64 NON-GAAP MEASURE EARNINGS GUIDANCE Constellation Energy is unable to reconcile its earnings guidance excluding special items, Non-qualifying hedges, and Synfuel results to GAAP earnings per share because we do not predict the future impact of special items such as the cumulative effect of changes in accounting 36 principles, the disposition of assets, economic, nonqualifying hedges or synfuel results.
  37. 37. Adjusted EPS YTD 2005, 2004, 2003, 2002 We exclude special items and certain economic, non-qualifying fuel adjustment clause and gas transportation hedges because we believe that it is appropriate for investors to consider results excluding these items, in addition to our results in accordance with GAAP. We have also provided adjusted earnings excluding synfuel results due to the potential volatility and phase-out of the tax credits. We believe such measures provide a picture of our results that is comparable among periods since it excludes the impact of items, which may recur occasionally, but tend to be irregular as to timing and magnitude, thereby distorting comparisons between periods. However, investors should note that these non-GAAP measures involve judgment by management (in particular, judgments as to what is or is not classified as a special item). We also use these measures to evaluate performance and for compensation purposes. RECONCILIATION: Total Total 2005 ACTUAL RESULTS: 2003 ACTUAL RESULTS: Reported GAAP EPS $ 3.47 Reported GAAP EPS $ 1.66 Income from Discontinued Operations 0.13 GAAP MEASURES Income from Discontinued Operations 0.11 GAAP MEASURES Cumulative Effects of Changes in Accounting Principles (0.04) Cumulative Effects of Changes in Accounting Principles (1.19) EPS Before Discontinued Operations and Cumulative EPS Before Discontinued Operations and Cumulative Effects of Changes in Accounting Principles Effects of Changes in Accounting Principles 3.38 2.74 Special Items and Non-qualifying Hedges Included in Operations: Special Items and Non-qualifying Hedges Included in Operations: Non-qualifying Hedges (0.14) Non-qualifying Hedges (0.17) Merger related transaction costs (0.09) Net Gain on Sales of Investments and Other Assets 0.10 Workforce Reduction Costs (0.01) Workforce Reduction Costs (0.01) Total Special Items and Non-qualifying Hedges (0.24) Total Special Items and Non-qualifying Hedges (0.08) Adjusted EPS 3.62 NON-GAAP MEASURE Adjusted EPS $ 2.82 NON-GAAP MEASURE Synthetic fuel facility results (0.34) Synthetic fuel facility results - Adjusted EPS excluding Synfuel results $ 3.28 NON-GAAP MEASURE Adjusted EPS excluding Synfuel results $ 2.82 NON-GAAP MEASURE 2004 ACTUAL RESULTS: 2002 ACTUAL RESULTS: Reported GAAP EPS $ 3.12 Reported GAAP EPS $ 3.20 (Loss) Income from Discontinued Operations (0.16) GAAP MEASURES Income from Discontinued Operations 0.06 GAAP MEASURES EPS Before Discontinued Operations and Cumulative EPS Before Discontinued Operations 3.28 3.14 Special Items Included in Operations: Special Items Included in Operations: Recognition of Prior Year Synthetic Fuel Tax Credits 0.21 Net Gain on Sales of Investments and Other Assets 1.02 Workforce Reduction Costs (0.03) Impairment Losses and Other Costs (0.11) Impairment Losses and Other Costs (0.01) Workforce Reduction Costs (0.23) Net Loss on Sales of Investments and Other Assets (0.01) Total Special Items 0.68 Total Special Items 0.16 Adjusted EPS $ 2.46 NON-GAAP MEASURE Adjusted EPS $ 3.12 NON-GAAP MEASURE Synthetic fuel facility results (0.04) Synthetic fuel facility results (0.29) Adjusted EPS excluding Synfuel results $ 2.42 NON-GAAP MEASURE Adjusted EPS excluding Synfuel results $ 2.83 NON-GAAP MEASURE 37
  38. 38. Adjusted EPS 2Q05 We exclude special items and certain economic, non-qualifying fuel adjustment clause and gas transportation hedges because we believe that it is appropriate for investors to consider results excluding these items, in addition to our results in accordance with GAAP. We have also provided adjusted earnings excluding synfuel results due to the potential volatility and phase-out of the tax credits. We believe such measures provide a picture of our results that is comparable among periods since it excludes the impact of items, which may recur occasionally, but tend to be irregular as to timing and magnitude, thereby distorting comparisons between periods. However, investors should note that these non-GAAP measures involve judgment by management (in particular, judgments as to what is or is not classified as a special item). We also use these measures to evaluate performance and for compensation purposes. RECONCILIATION: Merchant Regulated Regulated Other Energy Electric Gas BGE Nonreg. Total A B C D = (B+C) E F =(A+D+E) 2Q05 ACTUAL RESULTS: Reported GAAP EPS $ 0.53 $ 0.14 $ (0.01) $ 0.13 $ 0.02 $ 0.68 Income from Discontinued Operations 0.01 - - - 0.01 0.02 GAAP MEASURES EPS Before Discontinued Operations 0.52 0.14 (0.01) 0.13 0.01 0.66 Special Items, Non-qualifying Hedges, and Synfuel Results Included in Operations: Non-qualifying Hedges (0.02) - - - - (0.02) Synthetic fuel facility results 0.09 - - - - 0.09 Total Special Items, Non-qualifying Hedges, and Synfuel Results 0.07 - - - - 0.07 Adjusted EPS $ 0.45 $ 0.14 $ (0.01) $ 0.13 $ 0.01 $ 0.59 NON-GAAP MEASURE 38
  39. 39. Q106 Merchant Gross Margin and Below Gross Margin We 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: Quarter Ended March 31, 2006 GAAP Adjustments Merchant GAAP Fuel & Purchased In Arriving Gross Margin Merchant Revenue & Expense Categories Revenues Energy Expenses Difference At Gross Margin Notes (Non-GAAP) ($ millions) Mid-Atlantic Fleet $ 465.4 $ 366.1 $ 99.3 $ 13 a, b, c $ 112 Plants with PPAs 190.7 16.8 173.9 (2) a 171 Wholesale Competitive Supply 1,420.5 1,215.3 205.2 8 a , d, e 214 ** NewEnergy 2,024.2 1,950.9 73.3 2 d 75 QFs / Other 20.8 - 20.8 (4) e, f 17 Total Merchant $ 4,121.6 $ 3,549.1 $ 572.5 $ 17 $ 589 Adjustments Merchant Below Arriving At Merchant Gross Margin Total Merchant: GAAP Below Gross Margin (Non-GAAP) Revenues less fuel and purchased energy expenses $ 572.5 $ 589 Operations and maintenance expenses (375.6) 14 g, h, i (361) Merger related transaction costs (1.3) 1 j - Workforce reduction costs (2.2) 2 j - Depreciation, depletion, and amortization (68.2) 3 h, i (66) Taxes other than income taxes (30.8) 31 k - Accretion of asset retirement obligations (16.5) 17 k - Income From Operations 77.9 162 Other income / (expense) 12.7 (53) b, k, l (39) EBIT N/A 123 Fixed charges (47.3) 9k (38) Income Before Income Taxes 43.3 85 Income tax expense 0.3 (32) i, m (33) Net Income $ 43.6 $ 52 Details of Adjustments Made in Arriving at Merchant Gross Margin: a Adjustment to remove ($14 million) loss from Mid-Atlantic Fleet and $2 million gain from Plants with PPA's of estimated gross margin created through active portfolio management more appropriately categorized as a competitive supply activity. b Adjustment to remove $5 million of decommissioning revenues from non-GAAP gross margin measure and included in Other Income. The offsetting decommissioning expense was recorded in accretion of asset retirement obligations. c Adjustment to remove ($4 million) of other indirect costs have been removed from non-GAAP gross margin as they are more appropriately categorized as operating expenses. d Adjustment to remove ($14 million) loss in Wholesale Competitive Supply and ($2 million) loss in NewEnergy related to economic, non-qualifying hedges of fuel adjustment clauses and gas transport contracts e Adjustment to remove synfuel losses from Wholesale Competitive Supply gross margin of ($6 million) and Other gross margin of ($7 million) f Adjustment to reflect $11 million of direct costs in Other for purposes of non-GAAP gross margin measure. Details of Adjustments Made in Arriving at Merchant Below Gross Margin: g Adjustment detailed in quot;cquot; and quot;fquot; above are offset by adjustments made to O&M costs. h Adjustment to reclassify certain allocated costs totaling $3 million from O&M to Depreciation and Amortization i Adjustment to remove Synfuel results, which are not included in determining Merchant Below Gross Margin - $3 million in O&M, $6 million in D&A, ($25 million) from income tax 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 $9 million recorded in Other Income / Expense to Fixed Charges (to show a fixed charge amount net of interest income). m Adjustment to remove tax benefit ($7 million) related to losses on economic, non-qualifying hedges of fuel adjustment clauses and gas transport contracts and special items ** Excludes $12 million of operating expenses, depreciation, depletion and amortization, and interest expense associated with our Upstream Gas properties PROJECTED GROSS MARGIN AND RESULTS BELOW GROSS MARGIN: 39 Constellation Energy is unable to reconcile its projected gross margin or results below gross margin to GAAP because we do not predict the future impact of reconciling items or special items such as the cumulative effect of changes in accounting principles and the disposition of assets.
  40. 40. Q105 Merchant Gross Margin and Below Gross Margin We utilize the non-GAAP financial measure of Gross Margin to highlight the relationship between the costs of and prices for energy in our Merchant Energy business categories (i.e., Mid-Atlantic Fleet, Plants with PPAs, Wholesale Competitive Supply, NewEnergy, and QFs/Other). We believe this non-GAAP measure helps investors to better understand the changes in the level of our Merchant Energy operating results for these categories from period to period. RECONCILIATION: Quarter Ended March 31, 2005 GAAP Adjustments Merchant GAAP Fuel & Purchased In Arriving Gross Margin Merchant Revenue & Expense Categories Revenues Energy Expenses Difference At Gross Margin Notes (Non-GAAP) ($ millions) Mid-Atlantic Fleet $ 494.8 $ 313.4 $ 181.4 $ 7 a, b, c $ 188 Plants with PPAs 192.5 15.3 177.2 - 177 Wholesale Competitive Supply 868.5 796.7 71.8 10 a , d, e 83 NewEnergy 1,320.5 1,257.5 63.0 - 63 QFs / Other 16.8 - 16.8 (3) e, f 13 Total Merchant $ 2,893.1 $ 2,382.9 $ 510.2 $ 14 $ 524 Adjustments Merchant Below Arriving At Merchant Gross Margin Total Merchant: GAAP Below Gross Margin (Non-GAAP) Revenues less fuel and purchased energy expenses $ 510.2 $ 524 Operations and maintenance expenses (329.9) 12 g, h, i (318) Depreciation, depletion, and amortization (62.9) 3 h, i (60) Taxes other than income taxes (24.5) 25 j - Accretion of asset retirement obligations (15.1) 15 j - Income From Operations 77.8 146 Other income / (expense) 8.4 (38) b, j, k (29) EBIT N/A 117 Fixed charges (48.6) 3k (46) Income Before Income Taxes 37.6 71 Income tax benefit / (expense) 10.9 (37) i, l (26) Income from Continuing Operations 48.5 45 Income from discontinued operations 0.4 - m - Net Income $ 48.9 $ 45 Details of Adjustments Made in Arriving at Merchant Gross Margin: a Adjustment to remove losses of ($8 million) from Mid-Atlantic Fleet of estimated gross margin created through active portfolio management more appropriately categorized as a competitive supply activity. b Adjustment to remove $5 million of decommissioning revenues from non-GAAP gross margin measure and included in Other Income. The offsetting decommissioning expense was recorded in accretion of asset retirement obligations. c Adjustment to remove ($4 million) of other indirect costs have been removed from non-GAAP gross margin as they are more appropriately categorized as operating expenses. d Adjustment to remove ($14 million) loss related to economic, non-qualifying hedges of fuel adjustment clauses and gas transport contracts e Adjustment to remove synfuel losses from Wholesale Competitive Supply gross margin of ($4 million) and Other gross margin of ($8 million) f Adjustment to reflect $11 million of direct costs in Other for purposes of non-GAAP gross margin measure. Details of Adjustments Made in Arriving at Merchant Below Gross Margin: g Adjustment detailed in quot;cquot; and quot;fquot; above are offset by adjustments made to O&M costs. h Adjustment to reclassify certain allocated costs totaling $3 million from O&M to Depreciation and Amortization i Adjustment to remove Synfuel results, which are not included in determining Merchant Below Gross Margin - $2 million in O&M, $6 million in D&A, ($32 million) from income tax expense j Adjustment to reflect management's view of these items as Other Income / Expense. k Adjustment to move Interest Income of $3 million recorded in Other Income / Expense to Fixed Charges (to show a fixed charge amount net of interest income). l Adjustment to remove tax benefit ($5 million) related to losses on economic, non-qualifying hedges of fuel adjustment clauses and gas transport contracts m Adjustment to remove income from discontinued operations which is treated as a special item PROJECTED GROSS MARGIN AND RESULTS BELOW GROSS MARGIN: Constellation Energy is unable to reconcile its projected gross margin or results below gross margin to GAAP because we do not predict the future impact of 40 reconciling items or special items such as the cumulative effect of changes in accounting principles and the disposition of assets.
  41. 41. Cash Flows The following is a reconciliation of the non-GAAP financial measures of Cash Flow for Debt Reduction and Free Cash Flow for the quarter ended March 31, 2006. We utilize this non-GAAP measures because we believe they are helpful in understanding our ability to reduce debt by existing cash. RECONCILIATION: 2006 ($ millions) YTD MARCH ACTUAL RESULTS: Net cash used in operating activities (GAAP measure) (492) Adjustment for derivative contracts presented as financing activities under SFAS 149 20 Adjusted Net Cash Used in Operating Activities $ (472) NON-GAAP MEASURE Net cash used in investing activities (GAAP measure) (286) Net Cash Used in Financing Activities (Excl. Debt-Related Sources & Uses) * Common stock dividends paid (60) Proceeds from issuance of common stock 21 Other financing activities, excluding SFAS 149 activities included in operating 2 Adjusted Net Cash Used in Financing Activities (37) Net Cash Flow before Debt Issuances/(Payments) (795) NON-GAAP MEASURE Less: Proceeds from issuance of common stock (21) Add: Common stock dividends paid 60 Free Cash Flow $ (756) NON-GAAP MEASURE * Total GAAP Cash Provided by Financing Activities (incl. debt-related sources & uses) was $389 million YTD March 06. PROJECTED CASH FLOWS: Constellation Energy is unable to provide a reconciliation of these measures for Projected 2006 because it does not prepare a forecasted statement of cash flows on a GAAP basis. 41
  42. 42. Debt to Total Capital Debt to Total Capital is a non-GAAP ratio that excludes unamortized discounts and premiums, reduces debt by our cash balance, and includes minority interests in equity. In addition, we reflect a 50 percent equity credit for our trust preferred securities, similar to the evaluation performed by major credit rating agencies. Management believes this non-GAAP measures provide investors useful information on our leverage because it is consistent with the evaluation performed by rating agencies, takes into account minority equity interests in our consolidated affiliates and cash available to reduce debt, and facilitates comparability between periods. RECONCILIATION: March 31, 2006 December 31, 2005 December 31, 2003 December 31, 2001 GAAP Balances Non-GAAP Ratio GAAP Balances Non-GAAP Ratio GAAP Balances Non-GAAP Ratio GAAP Balances Non-GAAP Ratio ($ millions) Total long-term debt (gross of current portion) $ 4,589.5 $ 4,589.5 $ 4,610.9 $ 4,610.9 $ 5,134.9 $ 5,134.9 $ 3,874.4 $ 3,874.4 Fair value decrease in fixed to floating rate swap included in long-term debt 6.5 0.9 - - 6.20% deferrable interest subordinated debentures due October 15, 2043 to BGE wholly owned BGE Capital Trust II relating to trust originated preferred securities 257.7 257.7 257.7 257.7 257.7 257.7 250.0 250.0 50% Equity credit to trust preferred securities - (125.0) - (125.0) - (125.0) - (125.0) Adjustment to include High Desert Lease on Balance Sheet at December 31, 2001 - - - - - - - 221.0 Short-term borrowings 425.0 425.0 0.7 0.7 9.6 9.6 975.0 975.0 Unamortized discount and premium (7.6) - (8.0) - (10.2) - (5.2) - Subtotal 5,264.6 5,153.7 4,861.3 4,745.2 5,392.0 5,277.2 5,094.2 5,195.4 LESS: Cash - 424.8 - 813.0 - 721.3 - 72.4 Total Net Debt 5,264.6 4,728.9 50.4% 4,861.3 3,932.2 42.8% 5,392.0 4,555.9 49.9% 5,094.2 5,123.0 54.6% BGE Preference Stock Not Subject To Mandatory Redemption 190.0 190.0 190.0 190.0 190.0 190.0 190.0 190.0 Minority Interests - 22.2 - 22.4 - 113.4 - 101.8 Common shareholders' equity 4,324.0 4,324.0 4,915.5 4,915.5 4,140.5 4,140.5 3,843.6 3,843.6 Subtotal 4,514.0 4,536.2 5,105.5 5,127.9 4,330.5 4,443.9 4,033.6 4,135.4 50% Equity credit to trust preferred securities - 125.0 - 125.0 - 125.0 - 125.0 Total Equity 4,514.0 4,661.2 49.6% 5,105.5 5,252.9 57.2% 4,330.5 4,568.9 50.1% 4,033.6 4,260.4 45.4% Total Capitalization $ 9,778.6 $ 9,390.1 100.0% $ 9,966.8 $ 9,185.1 100.0% $ 9,722.5 $ 9,124.8 100.0% $ 9,127.8 $ 9,383.4 100.0% Exclude commodity hedge AOCI Balance from common shareholders' equity 996.6 323.0 (9.6) (30.0) Counterparty cash collateral held reflected as a reduction of cash balance (216) (388) (120) - Net Debt to Total Capital Excluding commodity hedge AOCI Balance 46.6% 43.7% 50.6% 54.8% PROJECTED LEVERAGE RATIOS: Constellation Energy is unable to provide a reconciliation of this measure for Projected 2006 because it does not prepare a forecasted balance sheet on a GAAP basis. 42

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