constellation energy form 10-q 2006

FORM 10−QCONSTELLATION ENERGY GROUP INC − CEG

Filed: November 09, 2006 (period: September 30, 2006)

Quarterly report which provides a continuing view of a company's financial position

Table of ContentsPART I

Item 3 Quantitative and Qualitative Disclosures About Market Risk 52

PART I

FINANCIAL INFORMATIONItem 1 Financial StatementsItem 2. Management s DiscussionItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and Procedures

PART II.

OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedItem 5. Other InformationItem 6. ExhibitsSIGNATUREEX−2.(A) (EX−2)

EX−3.(A) (EX−3)

EX−4.(A) (EX−4)

EX−4.(B) (EX−4)

EX−4.(C) (EX−10)

EX−10.(A) (EX−10)

EX−10.(B) (EX−10)

EX−10.(C) (EX−10)

EX−10.(D) (EX−10)

EX−12.(A) (EX−12)

EX−12.(B) (EX−12)

EX−31.(A) (EX−31)

EX−31.(B) (EX−31)

EX−31.(C) (EX−31)

EX−31.(D) (EX−31)

EX−32.(A) (EX−32)

EX−32.(B) (EX−32)

EX−32.(C) (EX−32)

EX−32.(D) (EX−32)

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 2006

CommissionFile Number Exact name of registrant as specified in its charter

IRS EmployerIdentification No.

1−12869 CONSTELLATION ENERGY GROUP, INC. 52−1964611

1−1910 BALTIMORE GAS AND ELECTRIC COMPANY 52−0280210

MARYLAND(State of Incorporation of both registrants)

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

410−783−2800(Registrants’ telephone number, including area code)

NOT APPLICABLE(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past90 days. Yes ⌧ No o

Indicate by check mark whether Constellation Energy Group, Inc. is a large accelerated filer, an accelerated filer, or a non−acceleratedfiler. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b−2 of the Exchange Act.(Check one):

Large accelerated filer ⌧ Accelerated filer o Non−accelerated filer o

Indicate by check mark whether Baltimore Gas and Electric Company is a large accelerated filer, an accelerated filer, or anon−accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b−2 of the Exchange Act.(Check one):

Large accelerated filer o Accelerated filer o Non−accelerated filer ⌧

Indicate by check mark whether Constellation Energy Group, Inc. is a shell company (as defined in Rule 12b−2 of the Exchange Act)Yes o No ⌧

Indicate by check mark whether Baltimore Gas and Electric Company is a shell company (as defined in Rule 12b−2 of the ExchangeAct) Yes o No ⌧

Common Stock, without par value 180,007,617 shares outstanding ofConstellation Energy Group, Inc. on October 31, 2006.

Source: CONSTELLATION ENERGY, 10−Q, November 09, 2006

Baltimore Gas and Electric Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10−Q and istherefore filing this form in the reduced disclosure format.


TABLE OF CONTENTS

Page

Part I—Financial InformationItem 1—Financial Statements

Constellation Energy Group, Inc. and SubsidiariesConsolidated Statements of Income 3Consolidated Statements of Comprehensive Income 3Consolidated Balance Sheets 4Consolidated Statements of Cash Flows 6Baltimore Gas and Electric Company and SubsidiariesConsolidated Statements of Income 7Consolidated Balance Sheets 8Consolidated Statements of Cash Flows 10Notes to Consolidated Financial Statements 11

Item 2—Management’s Discussion and Analysis of Financial Condition and Results of OperationsIntroduction and Overview 25Business Environment 25Events of 2006 28Results of Operations 30Financial Condition 45Capital Resources 48

Item 3—Quantitative and Qualitative Disclosures About Market Risk 52Item 4—Controls and Procedures 52

Part II—Other Information 53Item 1—Legal Proceedings 53Item 1A—Risk Factors 53Item 2—Unregistered Sales of Equity Securities and Use of Proceeds 53Item 5—Other Information 54Item 6—Exhibits 55Signature 56

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PART I—FINANCIAL INFORMATIONItem 1—Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Constellation Energy Group, Inc. and Subsidiaries

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2006 2005 2006 2005(In millions, except per share amounts)

RevenuesNonregulated revenues $ 4,672.1 $ 4,183.4 $ 12,428.7 $ 9,771.0Regulated electric revenues 649.9 626.8 1,652.6 1,583.4Regulated gas revenues 111.7 112.2 671.8 618.5Total revenues 5,433.7 4,922.4 14,753.1 11,972.9

ExpensesFuel and purchased energy expenses 4,096.5 3,953.2 11,416.4 9,218.0Operating expenses 519.5 415.4 1,622.5 1,339.3Workforce reduction costs 21.7 3.9 23.9 3.9Merger−related costs 3.4 — 12.4 —Depreciation, depletion, and amortization 140.7 143.3 413.8 407.4Accretion of asset retirement obligations 17.1 15.8 50.3 46.2Taxes other than income taxes 74.9 73.8 222.7 209.4Total expenses 4,873.8 4,605.4 13,762.0 11,224.2

Income from Operations 559.9 317.0 991.1 748.7Other Income 8.7 16.1 36.5 43.0Fixed Charges

Interest expense 83.1 75.7 239.3 230.2Interest capitalized and allowance for borrowed funds used during construction (3.5) (2.1) (10.1) (7.6)BGE preference stock dividends 3.3 3.3 9.9 9.9Total fixed charges 82.9 76.9 239.1 232.5

Income from Continuing Operations Before Income Taxes 485.7 256.2 788.5 559.2Income Tax Expense 161.3 72.1 257.9 138.7Income from Continuing Operations 324.4 184.1 530.6 420.5

Income from discontinued operations, net of income taxes of$4.1, $0.5 and $12.0, respectively — 1.4 0.9 7.4

Net Income $ 324.4 $ 185.5 $ 531.5 $ 427.9

Earnings Applicable to Common Stock $ 324.4 $ 185.5 $ 531.5 $ 427.9

Average Shares of Common Stock Outstanding—Basic 179.7 178.1 179.1 177.5Average Shares of Common Stock Outstanding—Diluted 181.6 180.5 180.9 179.6Earnings Per Common Share from Continuing Operations—Basic $ 1.81 $ 1.03 $ 2.96 $ 2.37

Income from discontinued operations — 0.01 0.01 0.04Earnings Per Common Share—Basic $ 1.81 $ 1.04 $ 2.97 $ 2.41

Earnings Per Common Share from Continuing Operations—Diluted $ 1.79 $ 1.02 $ 2.93 $ 2.34Income from discontinued operations — 0.01 0.01 0.04

Earnings Per Common Share—Diluted $ 1.79 $ 1.03 $ 2.94 $ 2.38

Dividends Declared Per Common Share $ 0.3775 $ 0.335 $ 1.1325 $ 1.005

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)




2006 2005 2006 2005(In millions)

Net Income $ 324.4 $ 185.5 $ 531.5 $ 427.9Other comprehensive income (OCI)

Reclassification of net loss (gain) on sales of securities from OCI tonet income, net of taxes — 1.6 (0.3) 1.5

Reclassification of net loss (gain) on hedging instruments from OCI tonet income, net of taxes 193.0 (318.7) 407.1 (416.9)

Net unrealized (loss) gain on hedging instruments, net of taxes (369.7) 820.8 (1,418.7) 906.9Net unrealized gain on securities, net of taxes 16.7 6.7 20.0 15.3Net unrealized (loss) gain on foreign currency, net of taxes (0.3) 0.7 0.8 1.1

Comprehensive Income (Loss) $ 164.1 $ 696.6 $ (459.6) $ 935.8

See Notes to Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS


September 30, December 31,2006* 2005

(In millions)Assets

Current AssetsCash and cash equivalents $ 320.7 $ 813.0Accounts receivable (net of allowance for uncollectibles of

$53.2 and $47.4, respectively) 2,959.5 2,727.9Fuel stocks 605.7 489.5Materials and supplies 204.2 197.0Mark−to−market energy assets 889.3 1,339.2Risk management assets 231.2 1,244.3Unamortized energy contract assets 40.9 55.6Deferred income taxes 472.0 —Other 531.3 555.3Total current assets 6,254.8 7,421.8

Investments and Other AssetsNuclear decommissioning trust funds 1,170.4 1,110.7Investments in qualifying facilities and power projects 312.5 306.2Regulatory assets (net) 283.4 154.3Goodwill 157.1 147.1Mark−to−market energy assets 814.1 1,089.3Risk management assets 360.3 626.0Unamortized energy contract assets 120.5 141.2Other 340.7 410.6Total investments and other assets 3,559.0 3,985.4

Property, Plant and EquipmentNonregulated property, plant and equipment 8,928.3 8,580.8Regulated property, plant and equipment 5,673.5 5,520.5Nuclear fuel (net of amortization) 362.8 302.0Accumulated depreciation (4,579.1) (4,336.6)Net property, plant and equipment 10,385.5 10,066.7

Total Assets $ 20,199.3 $ 21,473.9

* UnauditedSee Notes to Consolidated Financial Statements.

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(In millions)Liabilities and Equity

Current LiabilitiesShort−term borrowings $ 185.0 $ 0.7Current portion of long−term debt 1,186.1 491.3Accounts payable and accrued liabilities 1,719.9 1,667.9Customer deposits and collateral 419.8 458.9Mark−to−market energy liabilities 822.9 1,348.7Risk management liabilities 1,120.7 483.5Unamortized energy contract liabilities 412.7 489.5Deferred income taxes — 151.4Accrued expenses and other 738.4 780.4Total current liabilities 6,605.5 5,872.3

Deferred Credits and Other LiabilitiesDeferred income taxes 1,268.7 1,180.8Asset retirement obligations 956.2 908.0Mark−to−market energy liabilities 467.8 912.3Risk management liabilities 840.6 1,035.5Unamortized energy contract liabilities 1,022.3 1,118.7Net pension liability 421.8 401.4Postretirement and postemployment benefits 395.3 382.6Deferred investment tax credits 58.9 64.1Other 104.8 101.0Total deferred credits and other liabilities 5,536.4 6,104.4

Long−term DebtLong−term debt of Constellation Energy 3,051.5 3,049.1Long−term debt of nonregulated businesses 329.0 357.5First refunding mortgage bonds of BGE 244.5 342.8Other long−term debt of BGE 824.5 861.56.20% deferrable interest subordinated debentures due October 15, 2043

to BGE wholly owned BGE Capital Trust II relating to trust preferredsecurities 257.7 257.7

Unamortized discount and premium (5.2) (8.0)Current portion of long−term debt (1,186.1) (491.3)Total long−term debt 3,515.9 4,369.3

Minority Interests 21.9 22.4BGE Preference Stock Not Subject to Mandatory Redemption 190.0 190.0Common Shareholders’ Equity

Common stock 2,698.8 2,620.8Retained earnings 3,137.4 2,810.2Accumulated other comprehensive loss (1,506.6) (515.5)Total common shareholders’ equity 4,329.6 4,915.5

Commitments, Guarantees, and Contingencies (see Notes)Total Liabilities and Equity $ 20,199.3 $ 21,473.9

* UnauditedSee Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Nine Months Ended September 30, 2006 2005

(In millions)Cash Flows From Operating Activities

Net income $ 531.5 $ 427.9Adjustments to reconcile to net cash provided by operating activities

(Gain) loss on sales of discontinued operations (0.9 ) 2.4Depreciation, depletion, and amortization 417.1 494.9Accretion of asset retirement obligations 50.3 46.2Deferred income taxes 73.8 7.5Investment tax credit adjustments (5.2 ) (5.4 )Deferred fuel costs (164.7) 12.1Pension and postemployment benefits 35.5 4.0Workforce reduction costs 23.9 3.9Merger−related costs 12.4 —Equity in earnings of affiliates less than dividends received 12.9 28.3Proceeds from derivative power sales contracts classified as financing activities under SFAS No. 149 (38.9) (47.4)Changes in

Accounts receivable (367.7) (719.8)Mark−to−market energy assets and liabilities (241.5) (98.6)Risk management assets and liabilities (2.0 ) (51.5)Materials, supplies, and fuel stocks (267.9) (126.0)Other current assets 53.9 (186.1)Accounts payable and accrued liabilities 30.9 646.2Other current liabilities 32.9 665.9Other (23.2) (5.2 )

Net cash provided by operating activities 163.1 1,099.3

Cash Flows From Investing ActivitiesInvestments in property, plant and equipment (668.0) (476.9)Acquisitions, net of cash acquired (133.5) (238.1)Investments in nuclear decommissioning trust fund securities (275.0) (258.7)Proceeds from nuclear decommissioning trust fund securities 266.2 245.5Sales of investments and other assets 43.5 1.9Contract and portfolio acquisitions (2.3 ) (23.7)Proceeds from sale of discontinued operations — 217.6Issuances of loans receivable (65.4) (82.8)Other investments 33.8 (28.5)

Net cash used in investing activities (800.7) (643.7)

Cash Flows From Financing ActivitiesNet issuance of short−term borrowings 184.3 10.0Proceeds from issuance of

Common stock 56.2 66.5Long−term debt 122.0 —

Repayment of long−term debt (285.8) (338.4)Common stock dividends paid (195.7) (169.1)Proceeds from contract and portfolio acquisitions contracts 221.3 403.3Proceeds from derivative power sales contracts classified as financing activities under

SFAS No. 149 38.9 47.4Other 4.1 (41.8)

Net cash provided by (used in) financing activities 145.3 (22.1)

Net (Decrease) Increase in Cash and Cash Equivalents (492.3) 433.5Cash and Cash Equivalents at Beginning of Period 813.0 706.3

Cash and Cash Equivalents at End of Period $ 320.7 $ 1,139.8*

*Includes $4.8 million related to “Assets held for sale” at September 30, 2005See Notes to Consolidated Financial Statements.Certain prior−period amounts have been reclassified to conform with the current period’s presentation.

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Baltimore Gas and Electric Company and Subsidiaries



2006 2005 2006 2005(In millions)

RevenuesElectric revenues $ 649.9 $ 626.8 $ 1,652.6 $ 1,583.4Gas revenues 114.6 115.9 678.4 626.9Total revenues 764.5 742.7 2,331.0 2,210.3

ExpensesOperating expenses

Electricity purchased for resale 391.1 362.5 933.8 849.0Gas purchased for resale 66.4 72.1 448.6 422.5Operations and maintenance 123.9 112.7 364.2 332.5Merger−related costs 0.8 — 3.3 —

Depreciation and amortization 57.2 58.6 172.1 176.6Taxes other than income taxes 42.1 41.9 126.4 126.7Total expenses 681.5 647.8 2,048.4 1,907.3

Income from Operations 83.0 94.9 282.6 303.0Other Income 3.9 1.2 4.9 4.7Fixed Charges

Interest expense 24.8 23.9 73.3 71.4Allowance for borrowed funds used during construction (0.5) (0.6) (1.4) (1.6)Total fixed charges 24.3 23.3 71.9 69.8

Income Before Income Taxes 62.6 72.8 215.6 237.9Income Taxes 23.7 27.1 83.3 91.0Net Income 38.9 45.7 132.3 146.9Preference Stock Dividends 3.3 3.3 9.9 9.9Earnings Applicable to Common Stock $ 35.6 $ 42.4 $ 122.4 $ 137.0


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(In millions)Assets

Current AssetsCash and cash equivalents $ 14.9 $ 15.1Accounts receivable (net of allowance for uncollectibles of

$15.4 and $13.0, respectively) 310.7 480.5Accounts receivable, affiliated companies 30.9 1.8Fuel stocks 115.0 102.7Materials and supplies 42.2 40.1Prepaid taxes other than income taxes 28.0 45.7Other 36.1 6.5Total current assets 577.8 692.4

Investments and Other AssetsRegulatory assets (net) 283.4 154.3Receivable, affiliated company 160.0 154.7Other 121.5 144.0Total investments and other assets 564.9 453.0

Utility PlantPlant in service

Electric 4,000.8 3,891.1Gas 1,136.0 1,116.7Common 434.0 416.0Total plant in service 5,570.8 5,423.8

Accumulated depreciation (1,972.5) (1,923.8)Net plant in service 3,598.3 3,500.0Construction work in progress 99.8 93.9Plant held for future use 2.9 2.8Net utility plant 3,701.0 3,596.7

Total Assets $ 4,843.7 $ 4,742.1

* Unaudited


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(In millions)Liabilities and Equity

Current LiabilitiesCurrent portion of long−term debt $ 565.9 $ 469.6Accounts payable and accrued liabilities 164.8 169.7Accounts payable and accrued liabilities, affiliated companies 134.1 152.8Borrowing from cash pool, affiliated company 147.3 3.2Customer deposits 70.4 65.1Accrued taxes 19.2 35.5Accrued expenses and other 86.0 79.6Total current liabilities 1,187.7 975.5

Deferred Credits and Other LiabilitiesDeferred income taxes 669.0 608.9Postretirement and postemployment benefits 278.1 277.7Deferred investment tax credits 13.9 15.1Other 17.7 19.0Total deferred credits and other liabilities 978.7 920.7

Long−term DebtFirst refunding mortgage bonds of BGE 244.5 342.8Other long−term debt of BGE 824.5 861.56.20% deferrable interest subordinated debentures due October 15, 2043 to

wholly owned BGE Capital Trust II relating to trust preferred securities 257.7 257.7Long−term debt of nonregulated business 25.0 25.0Unamortized discount and premium (1.8) (2.3)Current portion of long−term debt (565.9) (469.6)Total long−term debt 784.0 1,015.1

Minority Interest 18.2 18.3Preference Stock Not Subject to Mandatory Redemption 190.0 190.0Common Shareholder’s Equity

Common stock 912.2 912.2Retained earnings 772.2 709.6Accumulated other comprehensive income 0.7 0.7Total common shareholder’s equity 1,685.1 1,622.5

Commitments, Guarantees, and Contingencies (see Notes)Total Liabilities and Equity $ 4,843.7 $ 4,742.1

* Unaudited


9


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Nine Months Ended September 30, 2006 2005(In millions)

Cash Flows From Operating ActivitiesNet income $ 132.3 $ 146.9Adjustments to reconcile to net cash provided by operating activities

Depreciation and amortization 180.1 187.5Deferred income taxes 59.0 (6.4)Investment tax credit adjustments (1.2) (1.3)Deferred fuel costs (164.7) 12.1Pension and postemployment benefits (2.5) (5.2)Merger−related costs 3.3 —Allowance for equity funds used during construction (2.6) (2.8)Changes in

Accounts receivable 169.8 22.1Receivables, affiliated companies (29.1) (33.0)Materials, supplies, and fuel stocks (14.4) (22.9)Other current assets (11.7) (20.9)Accounts payable and accrued liabilities (8.3) (3.0)Accounts payable and accrued liabilities, affiliated companies (18.7) (20.1)Other current liabilities (3.7) 9.5Other (12.0) (23.1)

Net cash provided by operating activities 275.6 239.4Cash Flows From Investing Activities

Utility construction expenditures (excluding equity portion of allowance forfunds used during construction) (225.2) (199.2)

Change in cash pool at parent 144.1 10.8Other 10.3 (14.5)Net cash used in investing activities (70.8) (202.9)

Cash Flows From Financing ActivitiesDistribution to parent (59.8) —Repayment of long−term debt (135.3) (23.5)Preference stock dividends paid (9.9) (9.9)Net cash used in financing activities (205.0) (33.4)

Net (Decrease) Increase in Cash and Cash Equivalents (0.2) 3.1Cash and Cash Equivalents at Beginning of Period 15.1 8.2Cash and Cash Equivalents at End of Period $ 14.9 $ 11.3


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Various factors can have a significant impact on our results for interim periods. This means that the results for this quarter are not necessarilyindicative of future quarters or full year results given the seasonality of our business.

Our interim financial statements on the previous pages reflect all adjustments that management believes are necessary for the fairstatement of the results of operations for the interim periods presented. These adjustments are of a normal recurring nature.

Basis of PresentationThis Quarterly Report on Form 10−Q is a combined report of Constellation Energy Group, Inc. (Constellation Energy) and Baltimore Gasand Electric Company (BGE). References in this report to “we” and “our” are to Constellation Energy and its subsidiaries, collectively.References in this report to the “regulated business(es)” are to BGE.

Subsequent EventsTermination of Merger Agreement withFPL Group, Inc.On October 24, 2006, Constellation Energy and FPL Group, Inc. (FPL Group) agreed to terminate the Agreement and Plan of Merger theparties had entered into on December 18, 2005.

Gas−Fired PlantsIn October 2006, we announced an agreement to sell the following natural gas−fired plants owned by our merchant energy business for$1.635 billion:

FacilityCapacity(MW) Unit Type Location

High Desert 830 Combined Cycle CaliforniaRio Nogales 800 Combined Cycle TexasHolland 665 Combined Cycle IllinoisUniversity Park 300 Peaking IllinoisBig Sandy 300 Peaking West VirginiaWolf Hills 250 Peaking Virginia

We expect the transaction to close by the end of 2006 or the first quarter of 2007. We estimate that we will recognize a pre−tax gain ofapproximately $250 million and we expect to receive approximately $1.5 billion in cash after tax payments on the gain. We expect to applythe proceeds from the sale to reduce debt and invest in our business or repurchase equity.

In October 2006, we designated these plants as held for sale and we reclassified the assets associated with these gas−fired plants to“Assets held for sale” and the liabilities to “Liabilities associated with assets held for sale” in our Consolidated Balance Sheets, we ceasedrecording depreciation expense, and discontinued hedge accounting for these facilities. The assets and liabilities associated with thesegas−fired plants will be removed from our Consolidated Balance Sheets at closing.

Variable Interest EntitiesWe have a significant interest in the following variable interest entities (VIE) for which we are not the primary beneficiary:

VIENature of

InvolvementDate of

InvolvementPower projects and fuel supply entities Equity investment and guarantees Prior to 2003Power contract monetization entities Power sale agreements, loans, and

guaranteesMarch 2005

Oil and gas fields Equity investment May 2006Retail power supply Power sale agreement September 2006

We discuss the nature of our involvement with the power contract monetization VIEs in detail in Note 4 to our 2005 Annual Report onForm 10−K.

The following is summary information available as of September 30, 2006 about the VIEs in which we have a significant interest, butare not the primary beneficiary:

PowerContract

MonetizationVIEs

AllOtherVIEs Total


(In millions)Total assets $ 833.6 $ 396.3 $ 1,229.9Total liabilities 652.3 167.6 819.9Our ownership interest — 54.5 54.5Other ownership interests 181.3 174.2 355.5Our maximum exposure to loss 68.9 102.7 171.6

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The maximum exposure to loss represents the loss that we would incur in the unlikely event that our interests in all of these entities wereto become worthless and we were required to fund the full amount of all guarantees associated with these entities. Our maximum exposure toloss as of September 30, 2006 consists of the following:

♦ outstanding receivables, loans, and letters of credit totaling $104.5 million,♦ the carrying amount of our investment totaling $54.4 million, and♦ debt and performance guarantees totaling $12.7 million.We assess the risk of a loss equal to our maximum exposure to be remote.

Merger−Related CostsWe incurred costs during the quarter ended September 30, 2006 related to the proposed merger with FPL Group. The merger was terminatedon October 24, 2006. These costs totaled $3.4 million pre−tax for the quarter ended September 30, 2006 and $12.4 million pre−tax for thenine months ended September 30, 2006. Through September 30, 2006, we have recognized a cumulative total of $29.4 million pre−tax ofmerger costs. Currently, we estimate our total pre−tax merger−related costs will be approximately $35 million.

Workforce Reduction CostsIn March 2006, we approved a restructuring of the workforce at our Ginna nuclear facility. In connection with this restructuring, 32employees were terminated. During the quarter ended March 31, 2006, we recognized costs of $2.2 million pre−tax related to recording aliability for severance and other benefits under our existing benefit programs.

The following table summarizes the status of the involuntary severance liability for Ginna at September 30, 2006:

(In millions)Initial severance liability balance $ 2.2Amounts recorded as pension and postretirement liabilities (0.3)Net cash severance liability 1.9Cash severance payments (1.0)Other —Severance liability balance for Ginna at September 30, 2006 $ 0.9

In July 2006, we announced a planned restructuring of the workforce at our Nine Mile Point nuclear facility. We recognized costsduring the quarter ended September 30, 2006 of $15.1 million pre−tax related to the elimination of 126 positions associated with thisrestructuring. We also initiated a restructuring of the workforce at our Calvert Cliffs nuclear facility during the third quarter of 2006 and werecognized costs of $3.1 million pre−tax related to the elimination of 32 positions associated with this restructuring.

In addition, as a result of the Nine Mile Point restructuring, we incurred a pre−tax settlement charge of $3.5 million in accordance withStatement of Financial Accounting Standards (SFAS) No. 88, Employers’ Accounting for Settlements and Curtailments of Defined BenefitPension Plans and for Termination Benefits. We discuss the settlement charges that we recorded during 2006 in the Pension andPostretirement Benefits section on page 16.

Discontinued OperationsIn the fourth quarter of 2005, we completed the sale of Constellation Power International Investments, Ltd. We recognized an after−tax gainof $0.9 million for the nine months ended September 30, 2006 due to the resolution of an outstanding contingency related to the sale. Wediscuss the details of the outstanding contingency in Note 2 of our 2005 Annual Report on Form 10−K.

Earnings Per ShareBasic earnings per common share (EPS) is computed by dividing earnings applicable to common stock by the weighted−average number ofcommon shares outstanding for the period. Diluted EPS reflects the potential dilution of common stock equivalent shares that could occur ifsecurities or other contracts to issue common stock were exercised or converted into common stock.

Our dilutive common stock equivalent shares consist of stock options and other stock−based compensation awards. The following tablepresents stock options that were not dilutive and were excluded from the computation of diluted EPS in each period, as well as the dilutivecommon stock equivalent shares:

Quarter EndedSeptember 30,


2006 2005 2006 2005 (In millions)

Non−dilutivestock options 2.0 — 2.0 —

Dilutive common stock equivalent shares 1.9 2.4 1.8 2.1

Stock−Based CompensationUnder our long−term incentive plans, we granted stock options, performance−based units, performance and service−based restricted stock,and equity to officers, key employees, and members of the Board of Directors.


We adopted the provisions of SFAS No. 123 Revised (SFAS No. 123R), Share−Based Payment, on October 1, 2005, as described inmore detail in Note 1 of our 2005 Annual Report on Form 10−K. Under SFAS No. 123R, we

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recognize compensation cost ratably or in tranches (depending if the award has cliff or graded vesting) over the period during which anemployee is required to provide service in exchange for the award, which is typically a one to five−year period. We use a forfeitureassumption to estimate the number of awards that are expected to vest during the service period, and we ultimately true−up the estimatedexpense to the actual expense associated with vested awards. We estimate the fair value of stock option awards on the date of grant using theBlack−Scholes option−pricing model, and we re−measure the fair value of liability awards each reporting period.

The following table illustrates the pro−forma effect on net income and earnings per share for all outstanding stock options and stockawards during the quarter and nine months ended September 30, 2005, when the fair value provisions of SFAS No. 123R were not in effect.We do not capitalize any portion of our stock−based compensation.

Quarter EndedSeptember 30, 2005

Nine Months EndedSeptember 30, 2005

(In millions, except per share amounts)Net income, as reported $ 185.5 $ 427.9Add: Stock−based compensation expense

determined under intrinsic value method andincluded in reported net income, net of relatedtax effects 7.8 17.8

Deduct: Stock−based compensation expensedetermined under fair value based method forall awards, net of related tax effects (10.1) (24.5)

Pro−forma net income $ 183.2 $ 421.2Earnings per share:Basic—as reported $ 1.04 $ 2.41Basic—pro forma $ 1.03 $ 2.37Diluted—as reported $ 1.03 $ 2.38Diluted—pro forma $ 1.01 $ 2.34

Accretion of Asset Retirement ObligationsSFAS No. 143, Accounting for Asset Retirement Obligations, provides the accounting requirements for recognizing an estimated liability forlegal obligations associated with the retirement of tangible long−lived assets. Financial Accounting Standards Board (FASB) Interpretation(FIN) 47, Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143, clarifies that obligationsthat are conditional upon a future event are subject to the provisions of SFAS No. 143.

We measure asset retirement obligations at fair value when incurred and capitalize a corresponding amount as part of the book value ofthe related long−lived assets. The increase in the capitalized cost is included in determining depreciation expense over the estimated usefullife of these assets. Since the fair value of the asset retirement obligations is determined using a present value approach, accretion of theliability due to the passage of time is recognized each period to “Accretion of asset retirement obligations” in our Consolidated Statements ofIncome until the settlement of the liability. We record a gain or loss when the liability is settled after retirement.

The change in our “Asset retirement obligations” liability during 2006 was as follows:

(In millions)Liability at January 1, 2006 $ 908.0Accretion expense 50.3Liabilities incurred 0.4Liabilities settled (0.1)Revisions to expected future cash flows (2.4)Other —Liability at September 30, 2006 $ 956.2

AcquisitionsGas PropertiesIn the first quarter of 2006, we acquired working interests in gas and oil producing properties for approximately $100 million in cash. Wepurchased leases, producing wells, and related equipment. We have included the results of operations in our merchant energy businesssegment since the date of acquisition.

CogenexIn April 2005, we acquired Cogenex Corporation from Alliant Energy Corporation. We include Cogenex with our other nonregulatedbusinesses and have included their results in our consolidated financial statements since the date of acquisition. Cogenex is a North Americanenergy services firm providing consulting and technology solutions to industrial, institutional, and governmental customers. We acquired100% ownership of Cogenex for $34.9 million. We acquired cash of $14.4 million as part of the purchase.

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Our final purchase price allocation for the net assets acquired is as follows:

At April 1, 2005(In millions)

Cash $ 14.4Other Current Assets 12.4Total Current Assets 26.8Net Property, Plant and Equipment —Other Assets 34.9Total Assets Acquired 61.7Current Liabilities (8.0)Deferred Credits and Other Liabilities (18.8)Net Assets Acquired $ 34.9

We believe that the pro−forma impact of the Cogenex acquisition would not have been material to our results of operations in 2005.

Information by Operating SegmentOur reportable operating segments are—Merchant Energy, Regulated Electric, and Regulated Gas:

♦ Our merchant energy business is nonregulated and includes:— full requirements load−serving sales of energy, capacity, and ancillary services to utilities and commercial, industrial, and

governmental customers,— structured transactions and risk management services for various customers (including hedging of output from generating

facilities and fuel costs),— deployment of risk capital through portfolio management and trading activities,— gas retail energy products and services to commercial, industrial, and governmental customers,— fossil, nuclear, and interests in hydroelectric generating facilities and qualifying facilities, fuel processing facilities, and

power projects in the United States,— products and services to upstream (exploration and production) and downstream (transportation and storage) wholesale

natural gas customers,— coal sourcing services for the variable or fixed supply needs of North American and international power generators, and

— generation operations and maintenance services.♦ Our regulated electric business purchases, transmits, distributes, andsells electricity in Central Maryland.

♦ Our regulated gas business purchases, transports, and sells natural gas in Central Maryland.Our remaining nonregulated businesses:♦ design, construct, and operate heating, cooling, and cogeneration facilities for commercial, industrial, and municipal customers

throughout North America, and♦ provide home improvements, service electric and gas appliances, service heating, air conditioning, plumbing, electrical, and indoor

air quality systems, and provide natural gas marketing to residential customers in Central Maryland.In addition, we own several investments that we do not consider to be core operations. These include financial investments and real

estate projects.Our Merchant Energy, Regulated Electric, and Regulated Gas reportable segments are strategic businesses based principally upon

regulations, products, and services that require different technology and marketing strategies. We evaluate the performance of these segmentsbased on net income. We account for intersegment revenues using market prices. A summary of information by operating segment is shownon the next page.

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Reportable SegmentsMerchantEnergy

Business

RegulatedElectricBusiness

RegulatedGas

Business

OtherNonregulatedBusinesses Eliminations Consolidated

(In millions)For the three months ended September 30,2006Unaffiliated revenues $ 4,626.6 $ 649.9 $ 111.7 $ 45.5 $ — $ 5,433.7Intersegment revenues 422.4 — 2.9 — (425.3) —Total revenues 5,049.0 649.9 114.6 45.5 (425.3) 5,433.7Net income (loss) 284.8 42.8 (7.3) 4.1 — 324.42005Unaffiliated revenues $ 4,134.2 $ 626.8 $ 112.2 $ 49.2 $ — $ 4,922.4Intersegment revenues 263.0 — 3.7 0.1 (266.8) —Total revenues 4,397.2 626.8 115.9 49.3 (266.8) 4,922.4(Loss) income from discontinued operations (0.2) — — 1.6 — 1.4Net income (loss) 141.5 51.1 (8.6) 1.5 — 185.5For the nine months ended September 30,2006Unaffiliated revenues $ 12,259.5 $ 1,652.6 $ 671.8 $ 169.2 $ — $ 14,753.1Intersegment revenues 862.1 — 6.6 0.1 (868.8) —Total revenues 13,121.6 1,652.6 678.4 169.3 (868.8) 14,753.1Income from discontinued operations — — — 0.9 — 0.9Net income 400.1 96.3 26.3 8.8 — 531.52005Unaffiliated revenues $ 9,627.2 $ 1,583.4 $ 618.5 $ 143.8 $ — $ 11,972.9Intersegment revenues 685.2 — 8.4 0.6 (694.2) —Total revenues 10,312.4 1,583.4 626.9 144.4 (694.2) 11,972.9Income from discontinued operations 2.9 — — 4.5 — 7.4Net income 285.8 120.0 17.3 4.8 — 427.9

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Regulatory Assets (net)—Rate Stabilization DeferralDuring the second quarter of 2006, the Maryland legislature approved Senate Bill 1, which imposes a rate stabilization measure that caps rateincreases by BGE for residential customers at 15% from July 1, 2006 to May 31, 2007. As a result, BGE is recording a regulatory asset on itsConsolidated Balance Sheets equal to the difference between the costs to purchase power and the revenues collected from customers, as wellas related carrying charges from July 1, 2006 to May 31, 2007. During the third quarter of 2006, BGE deferred $176.0 million of purchasedpower costs and carrying charges as a regulatory asset related to the rate stabilization plan. BGE will amortize the regulatory asset to earningsover a period not to exceed ten years once collection from customers begins.

Pension and Postretirement BenefitsWe show the components of net periodic pension benefit cost in the following table:



2006 2005 2006 2005

(In millions)Components of net periodic pension benefit costService cost $ 11.9 $ 11.0 $ 36.5 $ 33.5Interest cost 22.0 20.7 66.5 62.6Expected return on plan assets (23.6) (25.3) (72.1) (74.8 )Amortization of unrecognized prior service cost 1.4 1.4 4.2 4.3Recognized net actuarial loss 9.2 6.5 28.0 18.6Amount capitalized as construction cost (3.1 ) (1.7 ) (9.8) (5.4 )

Net periodic pension benefit cost (1) $ 17.8 $ 12.6 $ 53.3 $ 38.8

(1) The amounts shown above do not reflect a settlement charge of $7.6 million recorded in the third quarter of 2006 related to one of our qualified pension plansand $3.9 million in the third quarter of 2005. Net periodic pension benefit cost excludes a reduction in termination benefits of $0.4 million in 2005. BGE’sportion of our net periodic pension benefit cost was $8.9 million for the quarter ended September 30, 2006 and $5.6 million for the quarter ended September 30,2005. BGE’s portion of our net periodic pension benefit cost was $27.1 million for the nine months ended September 30, 2006 and $16.1 million for the ninemonths ended September 30, 2005.

In the third quarter of 2006, we recorded a pre−tax settlement charge of $7.6 million in our Consolidated Statements of Income for oneof our qualified plans under SFAS No. 88, of which $3.5 million related to our Nine Mile Point workforce restructuring. We discuss ourworkforce restructurings in the Workforce Reduction Costs section on page 12. This charge reflects the recognition of the portion of deferredactuarial gains and losses associated with employees who elected to receive their pension benefit in the form of a lump−sum payment. Inaccordance with SFAS No. 88, a settlement charge must be recognized at the point in time when lump−sum payments exceed annual pensionplan service and interest cost, which occurred in July 2006. We expect to record approximately $7 million pre−tax of additional settlementcharges during the remainder of 2006 as employees continue to receive lump−sum payments from this plan.

We show the components of net periodic postretirement benefit cost in the following table:



2006 2005 2006 2005

(In millions)Components of net periodic postretirement

benefit costService cost $ 1.9 $ 2.0 $ 6.1 $ 5.7Interest cost 6.0 6.0 18.8 17.8Amortization of transition obligation 0.6 0.6 1.7 1.6Amortization of unrecognized prior service cost (0.9) (0.9 ) (2.8 ) (2.6 )Recognized net actuarial loss 1.6 1.7 5.2 4.8Amount capitalized as construction cost (2.0) (2.0 ) (6.3 ) (5.9 )

Net periodic postretirement benefit cost (1) $ 7.2 $ 7.4 $ 22.7 $ 21.4

(1) BGE’s portion of our net periodic postretirement benefit cost was $6.0 million for the quarter ended September 30, 2006 and $6.8 million for the quarter endedSeptember 30, 2005. BGE’s portion of our net periodic postretirement benefit costs was $18.7 million for the nine months ended September 30, 2006 and$18.8 million for the nine months ended September 30, 2005.

Our non−qualified pension plans and our postretirement benefit programs are not funded; however, we have trust assets securing certainexecutive pension benefits. We estimate that we will incur approximately $3 million in pension benefit payments for our non−qualifiedpension plans and approximately $26 million for retiree health and life insurance benefit payments during 2006. We contributed $52 millionto our qualified pension plans in March 2006, even though there was no IRS required minimum contribution in 2006.

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Financing ActivitiesAt September 30, 2006, we had $185.0 million of commercial paper outstanding, and at November 3, 2006 we had no commercial paperoutstanding.

Constellation Energy had committed bank lines of credit under four credit facilities of $3.6 billion at September 30, 2006. We discussthese facilities in more detail in Note 8 of our 2005 Annual Report on Form 10−K. These facilities can issue letters of credit up to$3.6 billion. Letters of credit issued under all of our facilities totaled $1.8 billion at September 30, 2006.

In October 2006, we activated a $1.0 billion 364−day credit facility expiring in October 2007. We can borrow up to $1.0 billion directlyfrom the banks or use the facility to issue letters of credit up to $500.0 million.

In May 2006, we issued $122.0 million of tax−exempt variable rate notes to refinance tax−exempt pollution control loans. We used$75.0 million of the net proceeds to refinance a 6.00% pollution control revenue refunding loan in June 2006 and in July 2006 we used theremaining $47.0 million of proceeds to refinance a 5.55% pollution control revenue refunding loan. As discussed in Note 9 of our 2005Annual Report on Form 10−K, at December 31, 2005, BGE remained contingently liable for an outstanding balance of $269.8 million oftax−exempt debt that was transferred to our merchant energy business. As a result of refinancing $122.0 million of this tax−exempt debt,BGE is only contingently liable for $147.8 million.

In October 2006, BGE issued $300.0 million of 5.90% Senior Unsecured Notes, due October 1, 2016 and $400.0 million of 6.35%Senior Unsecured Notes, due October 1, 2036. We expect to use the proceeds from these issuances for general corporate purposes, includingrefinancing the following long−term debt of BGE:

♦ $300.0 million of 5.25% Notes, due December 15, 2006,♦ $122.0 million of 7.5% First Refunding Mortgage Bonds, due January 15, 2007, and♦ $10.0 million of 6.70% Medium−term Notes, Series D, due December 1, 2006.Additionally, under our employee benefit plans and shareholder investment plans we issued $56.2 million of common stock during the

nine months ended September 30, 2006.Income TaxesTotal income taxes are different from the amount that would be computed by applying the statutory Federal income tax rate of 35% to bookincome before income taxes as follows:



2006 2005 2006 2005 (In millions)

Income from continuing operations before income taxes(excluding BGE preference stock dividends) $ 489.0 $ 259.5 $ 798.4 $ 569.1

Statutory federal income tax rate 35% 35% 35% 35%Income taxes computed at statutory federal rate 171.1 90.8 279.4 199.2(Decreases) increases in income taxes due to:

Synthetic fuel tax credits (15.2) (28.1) (91.2) (80.1)Estimated tax credit phase−out 6.4 — 48.0 —Phase−out true−up from prior periods (19.0) — (11.5) —State income taxes, net of federal tax benefit 19.0 10.8 33.1 24.0Other (1.0) (1.4) 0.1 (4.4)

Total income taxes $ 161.3 $ 72.1 $ 257.9 $ 138.7Effective tax rate 33.0% 27.8% 32.3% 24.4%

Synthetic fuel tax credits are net of our expectation of a 42% phase−out in 2006 based on forward market prices and volatilities atSeptember 30, 2006. We recorded the effect of this phase−out estimate as a reduction in tax credits of $6.4 million during the quarter endedSeptember 30, 2006, and we also recorded a $19.0 million increase in tax credits to reflect the effect of the change in estimate of the taxcredit phase−out of 68% associated with the first six months of 2006 production to our estimate at September 30, 2006 of 42%.

Based on forward market prices and volatilities as of October 26, 2006, we estimate a 36% tax credit phase−out for the year 2006. Theexpected amount of synthetic fuel tax credits phased−out may change materially from period to period as a result of continued changes in oilprices.

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Commitments, Guarantees, and ContingenciesWe have made substantial commitments in connection with our merchant energy, regulated electric and gas, and other nonregulatedbusinesses. These commitments relate to:

♦ purchase of electric generating capacity and energy,♦ procurement and delivery of fuels,♦ the capacity and transmission and transportation rights for the physical delivery of energy to meet our obligations to our customers,

and♦ long−term service agreements, capital for construction programs, and other.Our merchant energy business enters into various long−term contracts for the procurement and delivery of fuels to supply our

generating plant requirements. In most cases, our contracts contain provisions for price escalations, minimum purchase levels, and otherfinancial commitments. These contracts expire in various years between 2006 and 2020. In addition, our merchant energy business enters intolong−term contracts for the capacity and transmission rights for the physical delivery of energy to meet our obligations to our customers.These contracts expire in various years between 2006 and 2019.

Our merchant energy business also has committed to long−term service agreements and other purchase commitments for our plants.Our regulated electric business enters into various long−term contracts for the procurement of electricity. These contracts expire

between 2007 and 2009. Our regulated gas business has gas supply, transportation, and storage contracts that expire between 2006 and 2028.As discussed in Note 1 of our 2005 Annual Report on Form 10−K, the costs under these contracts are fully recoverable by our regulatedbusinesses.

Our other nonregulated businesses have committed to gas purchases, as well as to contribute additional capital for constructionprograms and joint ventures in which they have an interest.

We have also committed to long−term service agreements and other obligations related to our information technology systems.At September 30, 2006, the total amount of commitments was $7,686.6 million. These commitments are primarily related to our

merchant energy business.

Long−Term Power Sales ContractsWe enter into long−term power sales contracts in connection with our load−serving activities. We also enter into long−term power salescontracts associated with certain of our power plants. Our load−serving power sales contracts extend for terms through 2017 and provide forthe sale of energy to electricity distribution utilities and certain retail customers. Our power sales contracts associated with our power plantsextend for terms into 2014 and provide for the sale of all or a portion of the actual output of certain of our power plants. All long−termcontracts were executed at pricing that approximated market rates, including profit margin, at the time of execution.

GuaranteesThe terms of our guarantees are as follows:

Expiration

20062007−2008

2009−2010 Thereafter Total

(In millions)Competitive supply $ 3,873.6 $ 3,254.5 $ 342.4 $ 2,263.9 $ 9,734.4Other 0.6 15.2 1.4 1,289.8 1,307.0

Total $ 3,874.2 $ 3,269.7 $ 343.8 $ 3,553.7 $ 11,041.4

At September 30, 2006, we had a total of $11,041.4 million in guarantees outstanding related to loans, credit facilities, and contractualperformance of certain of our subsidiaries as described below. These guarantees do not represent our incremental obligations, and we do notexpect to fund the full amount under these guarantees.

♦ Constellation Energy guaranteed $9,734.4 million on behalf of our subsidiaries for competitive supply activities. These guaranteesare put into place in order to allow our subsidiaries the flexibility needed to conduct business with counterparties without having topost other forms of collateral. While the face amount of these guarantees is $9,734.4 million, our calculated fair value of obligationscovered by these guarantees was $3,114.9 million at September 30, 2006. If the parent company was required to fund these subsidiaryobligations, the total amount based on September 30, 2006 market prices would be $3,114.9 million. The recorded fair value ofobligations in our Consolidated Balance Sheets for guarantees was $1,234.9 million at September 30, 2006.

♦ Constellation Energy guaranteed $945.0 million primarily on behalf of our nuclear generating facilities mostly due to nuclearinsurance and for credit support to ensure these plants have funds to meet expenses and obligations to safely operate and maintain theplants.

♦ Constellation Energy guaranteed $62.6 million on behalf of our other nonregulated businesses primarily for loans and performancebonds of which $25.0 million was recorded in our Consolidated Balance Sheets at September 30, 2006.

♦ Our merchant energy business guaranteed $29.2 million for loans and other performance guarantees related to certain power projectsin which we have an investment.

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♦ Our other nonregulated businesses guaranteed $6.9 million for performance bonds.♦ BGE guaranteed two−thirds of certain debt of Safe Harbor Water Power Corporation, an unconsolidated investment. At

September 30, 2006, Safe Harbor Water Power Corporation had outstanding debt of $20.0 million. The maximum amount of BGE’sguarantee is $13.3 million.

♦ BGE guaranteed the Trust Preferred Securities of $250.0 million of BGE Capital Trust II.The total fair value of the obligations for our guarantees recorded in our Consolidated Balance Sheets at September 30, 2006 was $1.3

billion and not the $11.0 billion of total guarantees. We assess the risk of loss from these guarantees to be minimal.

Environmental MattersSolid and Hazardous WasteThe Environmental Protection Agency (EPA) and several state agencies have notified us that we are considered a potentially responsibleparty with respect to the clean−up of certain environmentally contaminated sites. We cannot estimate the final clean−up costs for all of thesesites, but the current estimated costs for, and current status of, each site is described in more detail below.

Metal BankIn 1997, the EPA, under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”), issued a Record ofDecision (ROD) for the proposed clean−up at the Metal Bank of America site, a metal reclaimer in Philadelphia. We had previously recordeda liability in our Consolidated Balance Sheets for BGE’s 15.47% share of probable clean−up costs. The EPA and potentially responsibleparties, including BGE, filed cost recovery claims against Metal Bank of America for an equitable share of expected site remediation costs. InMarch 2006, all claims were settled. Under the terms of the settlement, the potentially responsible parties will remediate the site and the costsof the clean−up will be paid from funds held in trust for that purpose. BGE is not required to contribute to the trust and we do not believe thepotentially responsible parties will incur clean−up costs in excess of the amount held by the trust; therefore, in March 2006, we reversed thepreviously recorded liability.

68th Street DumpIn 1999, the EPA proposed to add the 68th Street Dump in Baltimore, Maryland to the Superfund National Priorities List, which is its list ofsites targeted for clean−up and enforcement, and sent a general notice letter to BGE and 19 other parties identifying them as potentially liableparties at the site. In March 2004, we and other potentially responsible parties formed the 68th Street Coalition and entered into consent ordernegotiations with the EPA to investigate clean−up options for the site under the Superfund Alternative Sites Program. In May 2006, asettlement among the EPA and 19 of the potentially responsible parties, including BGE, with respect to investigation of the site becameeffective. The settlement requires the potentially responsible parties, over the course of several years, to identify contamination at the site andrecommend clean−up options. BGE is fully indemnified by a wholly−owned affiliate of Constellation Energy for costs related to thissettlement, as well as any clean−up costs. The clean−up costs will not be known until the investigation is complete. However, those costscould have a material effect on our financial results.

Kane and LombardThe EPA issued its ROD for the Kane and Lombard Drum site located in Baltimore, Maryland on September 30, 2003, which specified theclean−up plan for the site, consisting of enhanced reductive dechlorination, a soil management plan, and institutional controls. An EPA orderrequiring cleanup of the site by 18 parties, including Constellation Energy, is expected to become effective by the end of 2006. The EPAestimates that total clean−up costs will be approximately $7 million. Our share of site−related costs will be 11.1% of the total. We recorded aliability in our Consolidated Balance Sheets for our share of the clean−up costs that we believe is probable.

Spring GardensIn December 1996, BGE signed a consent order with the Maryland Department of the Environment that requires it to implement remedialaction plans for contamination at and around the Spring Gardens site, located in Baltimore, Maryland. The Spring Gardens site was once usedto manufacture gas from coal and oil. Based on the remedial action plans, BGE estimates its probable clean−up costs will total $47 million.BGE has recorded these costs as a liability in its Consolidated Balance Sheets and has deferred these costs, net of accumulated amortizationand amounts it recovered from insurance companies, as a regulatory asset. Based on the results of studies at this site, it is reasonably possiblethat additional costs could exceed the amount BGE has recognized by approximately $14 million. Through September 30, 2006, BGE hasspent approximately $40 million for remediation at this site.

BGE also has investigated other small sites where gas was manufactured in the past. We do not expect the clean−up costs of theremaining smaller sites to have a material effect on our financial results.

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Air QualityIn late July 2005, we received two Notices of Violation (NOVs) from the Placer County Air Pollution Control District, Placer CountyCalifornia (District) alleging that the Rio Bravo Rocklin facility located in Lincoln, California had violated certain District air emissionregulations. We have a combined 50% ownership interest in the partnership which owns the Rio Bravo Rocklin facility. The NOVs allege atotal of 38 violations between January 2003 and March 2005 of either the facility’s air permit or federal, state, and county air emissionstandards related to nitrogen oxide, carbon monoxide, and particulate emissions, as well as violations of certain monitoring and reportingrequirements during that time period. The maximum civil penalties for the alleged violations range from $10,000 to $40,000 per violation.Management of the Rio Bravo Rocklin facility is currently discussing the allegations in the NOVs with District representatives; and therefore,it is not possible to determine the actual liability, if any, of the partnership that owns the Rio Bravo Rocklin facility.

LitigationIn the normal course of business, we are involved in various legal proceedings. We discuss the significant matters below.

Western Power MarketsCity of Tacoma v. AEP, et al.,—The City of Tacoma, on June 7, 2004, in the U.S. District Court, Western District of Washington, filed acomplaint against over 60 companies, including Constellation Energy Commodities Group, Inc. (CCG). The complaint alleges that thedefendants engaged in manipulation of electricity markets resulting in prices for power in the western power markets that were substantiallyabove what market prices would have been in the absence of the alleged unlawful contracts, combinations and conspiracy in violation ofSection 1 of the Sherman Act. The complaint further alleges that the total amount of damages is unknown, but is estimated to exceed$175 million. On February 11, 2005, the Court granted the defendants’ motion to dismiss the action based on the Court’s lack of jurisdictionover the claims in question. The plaintiff has appealed the dismissal of the action to the Ninth Circuit Court of Appeals. We believe that wehave meritorious defenses to this action and intend to defend against it vigorously. However, we cannot predict the timing, or outcome, ofthis case, or its possible effect on our financial results.

MercuryBeginning in September 2002, BGE, Constellation Energy, and several other defendants have been involved in numerous actions filed in theCircuit Court for Baltimore City, Maryland alleging mercury poisoning from several sources, including coal plants formerly owned by BGE.The plants are now owned by a subsidiary of Constellation Energy. In addition to BGE and Constellation Energy, approximately 11 otherdefendants, consisting of pharmaceutical companies, manufacturers of vaccines, and manufacturers of Thimerosal have been sued.Approximately 70 cases, involving claims related to approximately 132 children, have been filed to date, with each claimant seeking$20 million in compensatory damages, plus punitive damages, from us.

In rulings applicable to all but six of the cases, involving claims related to approximately 50 children, the Circuit Court for BaltimoreCity dismissed with prejudice all claims against BGE and Constellation Energy. Plaintiffs may attempt to pursue appeals of the rulings infavor of BGE and Constellation Energy once the cases are finally concluded as to all defendants. We believe that we have meritoriousdefenses and intend to defend the actions vigorously. However, we cannot predict the timing, or outcome, of these cases, or their possibleeffect on our, or BGE’s, financial results.

AsbestosSince 1993, BGE has been involved in several actions concerning asbestos. The actions are based upon the theory of “premises liability,”alleging that BGE knew of and exposed individuals to an asbestos hazard. BGE and numerous other parties are defendants in these cases.

Approximately 522 individuals who were never employees of BGE have pending claims each seeking several million dollars incompensatory and punitive damages. Cross−claims and third−party claims brought by other defendants may also be filed against BGE inthese actions. To date, most asbestos claims against us have been dismissed or resolved without any payment and a small minority have beenresolved for amounts that were not material to our financial results. The remaining claims are currently pending in state courts in Marylandand Pennsylvania.

BGE does not know the specific facts necessary to estimate its potential liability for these claims. The specific facts BGE does not knowinclude:

♦ the identity of BGE’s facilities at which the plaintiffs allegedly worked as contractors,♦ the names of the plaintiffs’ employers,♦ the dates on which and the places where the exposure allegedly occurred, and♦ the facts and circumstances relating to the alleged exposure.Until the relevant facts are determined, we are unable to estimate what our, or BGE’s, liability might be. Although insurance and hold

harmless agreements from contractors who employed the plaintiffs may cover a portion of any awards in the actions, the potential effect onour, or BGE’s, financial results could be material.

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Revenue Sufficiency Guarantee CostsIn April 2006, the Federal Energy Regulatory Commission (FERC) issued an order requiring the Midwest Independent System Operator(MISO) to retroactively re−allocate revenue sufficiency guarantee costs (RSGs) for the period April 2005 to present based on the FERC’sfinding that MISO violated its tariff and incorrectly allocated RSGs among market participants. The re−allocation of RSGs would result insome participants recognizing additional expense and others receiving refunds.

In May 2006, the MISO filed a motion with FERC seeking a stay of the FERC order. The motion was granted by FERC delaying theimplementation of the original order until after the issuance of an order on rehearing. In May 2006, we and other market participants filedrequests for rehearing with FERC.

In October 2006, FERC issued an order on rehearing that reversed the original retroactive re−allocation of RSGs. Based on this orderwe estimate the impact of the RSG re−allocation, if any, to be immaterial to our financial results. However, the order may be appealed andwe cannot predict the ultimate timing or outcome of any appeal.

InsuranceWe discuss our nuclear and non−nuclear insurance programs in Note 12 of our 2005 Annual Report on Form 10−K.

SFAS No. 133 Hedging ActivitiesWe are exposed to market risk, including changes in interest rates and the impact of market fluctuations in the price and transportation costsof electricity, natural gas, and other commodities. We discuss our market risk in more detail in our 2005 Annual Report on Form 10−K.

Interest RatesWe use interest rate swaps to manage our interest rate exposures associated with new debt issuances and to optimize the mix of fixed andfloating−rate debt. The swaps used to manage our exposure prior to the issuance of new debt are designated as cash−flow hedges under SFASNo. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, with the effective portion of gains and losses, net ofassociated deferred income tax effects, recorded in “Accumulated other comprehensive income” in our Consolidated Balance Sheets, inanticipation of planned financing transactions. We reclassify gains and losses on the hedges from “Accumulated other comprehensiveincome” into “Interest expense” in our Consolidated Statements of Income during the periods in which the interest payments being hedgedoccur.

The swaps used to optimize the mix of fixed and floating−rate debt are designated as fair value hedges under SFAS No. 133. We recordany gains or losses on swaps that qualify for fair value hedge accounting treatment, as well as changes in the fair value of the debt beinghedged, in “Interest expense,” and we record any changes in fair value of the swaps and the debt in “Risk management assets and liabilities”and “Long−term debt” in our Consolidated Balance Sheets. In addition, we record the difference between interest on hedged fixed−rate debtand floating−rate swaps in “Interest expense” in the periods that the swaps settle.

“Accumulated other comprehensive income” includes net unrealized pre−tax gains on interest rate cash−flow hedges terminated upondebt issuance totaling $13.2 million at September 30, 2006 and $15.4 million at December 31, 2005. We expect to reclassify $1.3 million ofpre−tax net gains on these cash−flow hedges from “Accumulated other comprehensive income” into “Interest expense” during the nexttwelve months.

During 2004, to optimize the mix of fixed and floating−rate debt, we entered into interest rate swaps qualifying as fair value hedgesrelating to $450.0 million of our fixed−rate debt maturing in 2012 and 2015, and converted this notional amount of debt to floating−rate. Thefair value of these hedges was an unrealized pre−tax loss of $0.4 million at September 30, 2006 and an unrealized pre−tax loss of $0.9million at December 31, 2005 and was recorded as an increase in our “Risk management liabilities” and a decrease in our “Long−term debt.”We have not recognized any hedge ineffectiveness on these interest rate swaps.

Commodity PricesAt September 30, 2006 our merchant energy business had designated certain purchase and sale contracts as cash−flow hedges of forecastedtransactions for the years 2006 through 2015 under SFAS No. 133.

Under the provisions of SFAS No. 133, we record gains and losses on energy derivative contracts designated as cash−flow hedges offorecasted transactions in “Accumulated other comprehensive income” in our Consolidated Balance Sheets prior to the settlement of theanticipated hedged physical transaction. We reclassify these gains or losses into earnings upon settlement of the underlying hedgedtransaction. We record derivatives used for hedging activities from our merchant energy business in “Risk management assets and liabilities”in our Consolidated Balance Sheets.

Our merchant energy business has net unrealized pre−tax losses of $2,143.7 million at September 30, 2006 and $517.1 million atDecember 31, 2005 on these hedges recorded in “Accumulated other comprehensive income.” We expect to reclassify $1,262.5 million of netpre−tax losses on cash−flow hedges from “Accumulated other comprehensive income” into earnings during the next twelve months based onthe market prices at September 30, 2006. However, the actual amount reclassified into earnings could vary from the amounts recorded atSeptember 30, 2006 due to future changes in market prices.

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We recognized into earnings a pre−tax loss of $1.9 million for the quarter ended September 30, 2006 and a pre−tax loss of $4.8 millionfor the quarter ended September 30, 2005 related to the ineffective portion of our hedges.

We recognized into earnings a pre−tax gain of $3.7 million for the nine months ended September 30, 2006 and a pre−tax loss of $3.6million for the nine months ended September 30, 2005 related to the ineffective portion of our hedges. In addition, during the nine monthsended September 30, 2006, we de−designated contracts previously designated as cash−flow hedges for which the forecasted transactionoriginally hedged is probable of not occurring, and as a result we recognized a pre−tax loss of $10.5 million.

Our merchant energy business also enters into natural gas storage contracts under which the gas in storage qualifies for fair value hedgeaccounting treatment under SFAS No. 133. We recognized a $6.3 million pre−tax net gain for the quarter ended September 30, 2006 and apre−tax net loss of $3.6 million for the quarter ended September 30, 2005 due to hedge ineffectiveness. We recognized a $7.9 million pre−taxnet gain for the nine months ended September 30, 2006 and a pre−tax net loss of $3.1 million for the nine months ended September 30, 2005due to hedge ineffectiveness. We record changes in fair value of these hedges as a component of “Fuel and purchased energy expenses” inour Consolidated Statements of Income.

Accounting Standards IssuedSFAS No. 157In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a frameworkfor measuring fair value, and expands disclosures for fair value measurements. SFAS No. 157 is effective for all fair value measurementsbeginning January 1, 2008. We are currently assessing the potential impact of SFAS No. 157. Based upon our initial assessment, we believethat SFAS No. 157 will affect the accounting for derivatives, which is one of our critical accounting policies, in at least two ways:

♦ We record mark−to−market energy assets net of a close−out valuation adjustment, a portion of which represents the initial contractmargin when we are unable to obtain observable market price information for similar contracts. As a result, we do not recognize gainsor losses in earnings at the inception of such contracts; instead, we recognize gains or losses in earnings as we realize cash flowsunder the contract or when observable market data becomes available. SFAS No. 157 will require us to record mark−to−marketenergy assets at fair value without such a valuation adjustment, resulting in the recognition of gains or losses in earnings at theinception of new mark−to−market derivative contracts executed after the effective date.

♦ We presently determine fair value for mark−to−market energy liabilities and risk management liabilities for which prices are notavailable from external sources by discounting the expected cash flows from the contracts using a risk−free discount rate. We do notapply a credit−spread valuation adjustment to reflect our own credit risk in determining fair value for these liabilities. SFAS No. 157will require us to record all liabilities measured at fair value including the effect of the obligor’s credit risk. As a result, we will haveto apply a credit−spread adjustment in order to reflect our own credit risk in determining fair value for these liabilities, which weexpect would result in a lower recorded fair value for these liabilities.

Because SFAS No. 157 applies broadly to all fair value measurements, we have not completed our assessment of its requirements, theeffects of which could extend beyond the matters discussed above. In accordance with the statement’s provisions, we will record the initialeffects of applying SFAS No. 157 by adjusting opening retained earnings as of the required January 1, 2008 adoption date for the effect ofeliminating the close−out valuation adjustment for inception gains. The remaining impacts of adoption will be reflected in earnings in 2008.The ultimate impact of applying the provisions of SFAS No. 157 could be material to our, or BGE’s, financial results.

SFAS No. 158In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, anamendment of FASB Statements No. 87, 106 and 132(R). SFAS No. 158 requires the underfunded status of defined benefit postretirementplans to be recognized as a liability in the balance sheets and the recognition of any subsequent changes in funded status in the year in whichchanges occur through accumulated other comprehensive income. SFAS No. 158 is effective for us on December 31, 2006.

If our pension plan assets earn 2.2% during the fourth quarter of 2006, one quarter of our 8.75% annual return on pension assetsassumption, and interest rates remain at current levels, we estimate an after−tax charge to equity of approximately $90 million would berecorded at December 31, 2006 upon the adoption of SFAS No. 158. The adoption of SFAS No. 158 will not have any impact on our, orBGE’s, debt covenants.

The amounts that will ultimately be recorded upon the adoption of SFAS No. 158 will be determined by our discount rate assumption,which depends on year end interest rates, our actual 2006 return on pension assets, and other factors. As a result, the charge to equity couldbe materially different from our current estimate.

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FIN 48In July 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes. FIN 48 provides guidance for the recognition andmeasurement of an entity’s uncertain tax positions through the use of a “more−likely−than−not” threshold. This threshold would be used toevaluate whether each tax position will be sustained based solely on its technical merits and assuming examination by a taxing authority. FIN48 must be applied to all tax positions beginning January 1, 2007. The cumulative effect of adopting FIN 48 will be recorded in retainedearnings upon adoption. We are currently assessing the potential impact of FIN 48; however, the impact could be material to our, or BGE’s,financial results.

SAB 108In September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 108 (SAB 108), Considering theEffects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 was issued in order toeliminate the diversity in practice surrounding how public companies quantify financial statement misstatements.

SAB 108 establishes an approach that requires quantification of financial statement misstatements based on the effects of themisstatements on each financial statement and the related financial statement disclosures. This model requires quantification of errors basedon both an income statement and balance sheet approach. SAB 108 permits existing public companies to initially apply its provisions forfiscal periods ending after November 15, 2006.

We do not expect the implementation of SAB 108 to have any effect on our financial results.

Accounting Standards AdoptedFSP FIN 46R−6In April 2006, the FASB issued Staff Position (FSP) FIN 46R−6, Determining the Variability to Be Considered in Applying FASBInterpretation No. 46R. FSP FIN 46R−6 provides that, in applying FASB Interpretation No. 46R, Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51, the reporting enterprise should consider the design of the entity, the nature of the entity’s risks, and thepurpose for which the entity was created. FSP FIN 46R−6 must be applied prospectively to new or modified contracts beginning July 1,2006. The adoption of this FSP did not have a material impact on our, or BGE’s, financial results.

FSP 115−1 and 124−1In November 2005, FSP SFAS 115−1 and SFAS 124−1, The Meaning of Other−Than−Temporary Impairment and its Application to CertainInvestments, was issued to replace the measurement and recognition criteria of EITF 03−1, The Meaning of Other−Than−TemporaryImpairment and its Application to Certain Investments. FSP 115−1 and 124−1 references existing guidance in SFAS No. 115, Accounting forCertain Investments in Debt and Equity Securities, SEC Staff Accounting Bulletin No. 59, Accounting for Noncurrent Marketable EquitySecurities, and APB No. 18, The Equity Method of Accounting for Investments in Common Stock. FSP 115−1 and 124−1 requires another−than−temporary analysis to be completed each reporting period (i.e., every quarter) beginning after December 15, 2005. The adoptionof this standard did not have a material impact on our, or BGE’s, financial results.

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Related Party Transactions—BGEIncome StatementBGE provides standard offer service to those customers that do not choose an alternate electric supplier. Our wholesale marketing and riskmanagement operation supplies a portion of BGE’s standard offer service obligation to commercial and industrial customers and providedBGE the energy and capacity required to meet all of its residential standard offer service obligations through June 30, 2006.

Our wholesale marketing and risk management operation will continue to supply a substantial portion of BGE’s standard offer serviceobligation to residential customers through May 31, 2007, as well as a portion of BGE’s standard offer service obligations from June 1, 2007through May 31, 2009. Bidding to supply BGE’s standard offer service to customers will occur from time to time through a competitivebidding process approved by the Maryland Public Service Commission.

The cost of BGE’s purchased energy from nonregulated subsidiaries of Constellation Energy to meet its standard offer serviceobligation was as follows:



2006 2005 2006 2005(In millions)

Purchased energy $ 412.5 $ 248.7 $ 820.8 $ 647.2

In addition, Constellation Energy charges BGE for the costs of certain corporate functions. Certain costs are directly assigned to BGE.We allocate other corporate function costs based on a total percentage of expected use by BGE. We believe this method of allocation isreasonable and approximates the cost BGE would have incurred as an unaffiliated entity.

The following table presents the costs Constellation Energy charged to BGE in each period.



2006 2005 2006 2005 (In millions)

Charges to BGE $ 37.5 $ 28.4 $ 99.2 $ 81.1

Balance SheetBGE participates in a cash pool under a Master Demand Note agreement with Constellation Energy. Under this arrangement, participatingsubsidiaries may invest in or borrow from the pool at market interest rates. Constellation Energy administers the pool and invests excess cashin short−term investments or issues commercial paper to manage consolidated cash requirements. BGE had borrowed $147.3 million atSeptember 30, 2006 and $3.2 million at December 31, 2005 under this arrangement.

BGE’s Consolidated Balance Sheets include intercompany amounts related to corporate functions performed at the ConstellationEnergy holding company, BGE’s purchases to meet its standard offer service obligation, BGE’s charges to Constellation Energy and itsnonregulated affiliates for certain services it provides them, and the participation of BGE’s employees in the Constellation Energy pensionplan.

We believe our allocation methods are reasonable and approximate the costs that would be charged to unaffiliated entities.

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Item 2. Management’s Discussion

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction and OverviewConstellation Energy Group, Inc. (Constellation Energy) is an energy company that conducts its business through various subsidiariesincluding a merchant energy business and Baltimore Gas and Electric Company (BGE). We describe our operating segments in the Notes toConsolidated Financial Statements on page 14.

This Quarterly Report on Form 10−Q is a combined report of Constellation Energy and BGE. References in this report to “we” and“our” are to Constellation Energy and its subsidiaries, collectively. References in this report to the “regulated business(es)” are to BGE.

Our 2005 Annual Report on Form 10−K includes a detailed discussion of various items impacting our business, our results ofoperations, and our financial condition. These include:

♦ Introduction and Overview section which provides a description of our business segments,♦ Strategy section,♦ Business Environment section, including how regulation, weather, and other factors affect our business, and♦ Critical Accounting Policies section.Critical accounting policies are the accounting policies that are most important to the portrayal of our financial condition and results of

operations and require management’s most difficult, subjective, or complex judgment. Our critical accounting policies include accounting forderivatives, evaluation of assets for impairment and other than temporary decline in value, and asset retirement obligations.

In this discussion and analysis, we explain the general financial condition and the results of operations for Constellation Energy andBGE including:

♦ factors which affect our businesses,♦ our earnings and costs in the periods presented,♦ changes in earnings and costs between periods,♦ sources of earnings,♦ impact of these factors on our overall financial condition,♦ expected future expenditures for capital projects, and♦ expected sources of cash for further capital expenditures.As you read this discussion and analysis, refer to our Consolidated Statements of Income on page 3, which present the results of our

operations for the quarters and nine months ended September 30, 2006 and 2005. We analyze and explain the differences between periods inthe specific line items of our Consolidated Statements of Income.

We have organized our discussion and analysis as follows:♦ We describe changes to our business environment during the year.♦ We highlight significant events that occurred in 2006 that are important to understanding our results of operations and financial

condition.♦ We then review our results of operations beginning with an overview of our total company results, followed by a more detailed

review of those results by operating segment.♦ We review our financial condition, addressing our sources and uses of cash, capital resources, commitments, and liquidity.♦ We conclude with a discussion of our exposure to various market risks.

Business EnvironmentWith the evolving regulatory environment surrounding customer choice, increasing competition, and the growth of our merchant energybusiness, various factors affect our financial results. We discuss these various factors in the Forward Looking Statements section on page 54and in Item 1A. Risk Factors on page 53. We discuss our market risks in the Market Risk section beginning on page 50.

In this section, we discuss in more detail events which have impacted our business during the nine months ended September 30, 2006.

Regulation by the Maryland PSCElectric RatesAs a result of the November 1999 Maryland Public Service Commission (Maryland PSC) order regarding the deregulation of electricgeneration in Maryland, BGE’s residential electric base rates were frozen until July 2006. Subsequent orders of the Maryland PSC specifiedthat BGE would procure the power to serve BGE residential customers beginning July 2006 via auctions to be conducted in late 2005 andearly 2006. The procured power costs of these auctions resulted in an average residential customer bill increase of 72%. In a special sessionof the Maryland legislature in June 2006, the legislature approved Senate Bill 1 which, among other things:

♦ reconstitutes the Maryland PSC by dismissing all five of the current Maryland PSC commissioners effective June 30, 2006 andrequiring that five new commissioners be selected by the Governor of Maryland from a list prepared by legislative leaders;

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♦ imposes rate stabilization measures that (i) cap rate increases by BGE for residential Provider of Last Resort (POLR) service at 15%from July 1, 2006 to May 31, 2007, (ii) give residential POLR customers the option from June 1, 2007 until January 1, 2008 ofpaying a full market rate or choosing a short term rate stabilization plan in order to provide a smooth transition to market rateswithout adversely affecting the creditworthiness of BGE, and (iii) provide for full market rates for residential POLR service startingJanuary 1, 2008;

♦ allows BGE to recover deferred costs from its customers over a period not to exceed 10 years, on terms and conditions to bedetermined by the Maryland PSC, including through the issuance of rate stabilization bonds that securitize the deferred costs;

♦ directs the Maryland PSC to conduct a comprehensive review of Maryland’s deregulated electricity market, including theimplications of requiring or allowing utilities to construct, acquire, or lease power generating facilities and alternative approaches topower procurement;

♦ directs the Maryland PSC to investigate measures to mitigate the impact of residential rate increases on BGE customers, including byinvestigating the prior determination of and allowances for stranded costs that occurred when BGE transferred assets to its affiliatesin 2000 and by requiring the Maryland PSC to provide funds to residential customers of BGE for mitigation of BGE’s rate increases,including any adjustment in favor of BGE’s customers to allowances for such stranded costs;

♦ expands the authority of the Maryland PSC to review acquisitions, dispositions, and financings by public service companiesoperating in Maryland;

♦ requires BGE to credit residential electric rates by approximately $39 million per year for 10 years, beginning January 1, 2007,through suspending the collection of the residential return component of the administrative charge for POLR service and a creditagainst funds collected from BGE rate payers for the nuclear decommissioning trust for our Calvert Cliffs Nuclear Power Plant, Inc.(Calvert Cliffs); and

♦ directs Maryland’s taxing authority to consider whether property tax valuation methodologies applied to power plants located inMaryland should be revised in light of the values of those properties in a restructured electric industry.

In September 2006, the Maryland Court of Appeals struck down the provisions of the new energy legislation that called for thetermination and replacement of the current members of the Maryland PSC, finding such provisions to be unconstitutional. As a result, thecurrent Maryland PSC commissioners have remained in office.

Because Senate Bill 1 requires substantial additional decisions and proceedings by the Maryland PSC and other governmentalauthorities to implement many of its provisions, we cannot predict the impact of the legislation on us, BGE, or the energy market inMaryland. The new legislation and its implementation through applicable regulatory proceedings could have a material adverse effect on our,or BGE’s, financial results.

One or more additional parties may challenge the constitutionality of one or more other provisions of the new energy legislation. Theoutcome of any additional challenges and the uncertainty that could result cannot be predicted.

Cost for DecommissioningUnder the November 1999 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 fund the decommissioning of Calvert Cliffs through fixed annual collections. The fixedannual amount was set at approximately $18.7 million through June 30, 2006. On June 28, 2006, BGE received approval from the MarylandPSC to continue annual customer collections at $18.7 million through December 31, 2016. BGE will be required to submit a filing todetermine the level of customer contributions after December 31, 2016.

As discussed above, the new Maryland legislation requires BGE to credit residential electric customers the $18.7 million collectedannually for 10 years beginning January 1, 2007.

Federal RegulationNetwork Transmission RatesIn May 2005, the Federal Energy Regulatory Commission (FERC) issued an order accepting BGE’s joint application to have networktransmission rates established through a formula that tracks costs instead of through fixed rates. The formula approach became effectiveJune 1, 2005, and the implementation of these rates did not have a material effect on our, or BGE’s, financial results. The use of this formulaapproach was allowed by FERC to become effective subject to refund based on the outcome of a hearing before an administrative law judge.However, the various parties participating in this proceeding have arrived at a settlement resolving all issues, which was approved by FERCon April 19, 2006. The settlement did not have a material effect on our, or BGE’s, financial results.

PJM Capacity Market ProposalsIn April 2006, FERC issued an initial order approving PJM Interconnection’s (PJM) proposal to restructure its capacity market. Such arestructuring would change how we are paid for generating plant capacity available to PJM. However,

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FERC found that certain elements of the proposal needed further development before FERC could issue a final order and encouraged theparties to the proceeding, including Constellation Energy, to continue to seek a negotiated resolution of the remaining issues. Subsequently,FERC directed that settlement discussions be conducted among the parties, which resulted in a settlement being filed with FERC forapproval. Currently, we cannot predict the timing or outcome of any additional FERC proceedings on this matter or the possible effect onour, or BGE’s, financial results.

Environmental MattersAir Quality and Hazardous Air EmissionsIn April 2006, the Healthy Air Act (HAA) was enacted into law in Maryland. The HAA establishes through two phases annual sulfur dioxide(SO2), nitrogen oxide (NOx), and mercury emission caps for specific coal−fired units in Maryland, including units located at three of ourfacilities. The first phase reduces SO2 emissions by 74 percent in 2010 and NOx emissions by 59 percent in 2009 (each from 2004 levels), andmercury emissions by 80 percent in 2010 (from a baseline level to be determined). The second phase reduces SO2 emissions by 80 percent in2013 and NOx emissions by 66 percent in 2012 (each from 2004 levels), and mercury emissions by 90 percent in 2013 (from a baseline levelto be determined).

In order to implement the requirements of the HAA, the Maryland Department of the Environment (MDE) is expected to finalize itsClean Power Rule (CPR) by the fourth quarter of 2006. The requirements of the HAA and the CPR for SO2, NOx, and mercury emissions aremore stringent and apply sooner than those of the existing Clean Air Interstate and the Clean Air Mercury Rules. We discuss the Clean AirInterstate and the Clean Air Mercury Rules in more detail in Item 1. Business—Environmental Matters section in our 2005 Annual Report onForm 10−K.

We have reevaluated our capital expenditure estimates provided in Item 1. Business—Environmental Matters section in our 2005Annual Report on Form 10−K and developed ranges of capital expenditure estimates based on bid results and our market information. Thisreevaluation is a result of our current understanding of what the CPR will require and pricing impacts resulting from current market demandfor labor, materials, and contractors necessary to install additional emission control equipment. The upper end of our range would result inour capital expenditures increasing by approximately one−third above our previous estimate of $725 million. Our capital expenditureestimates may change further as we implement our compliance plan. As discussed in our 2005 Annual Report on Form 10−K, our estimatesof capital expenditures continue to be subject to significant uncertainties.

For phase two implementation, we are currently assessing our various compliance alternatives, and although we cannot yet estimate theadditional costs we may incur, such costs could be material.

In September 2006, the EPA adopted a stricter NAAQS for particulate matter. States will be required to meet the new standards by2015, with a possible extension to 2020, depending on local conditions and the availability of controls. We are unable to determine theimpact that complying with the stricter NAAQS for particulate matter will have on our financial results until the states in which ourgenerating facilities are located adopt plans to meet the new standard.

New Source ReviewIn March 2006, the U.S. Court of Appeals for the District of Columbia annulled the equipment replacement rule adopted by theEnvironmental Protection Agency (EPA) in August 2003, which established a threshold for determining when major new source reviewrequirements are triggered. We believe the Court decision, which was anticipated, should have minimal effect on us as it maintains theexisting rules for equipment replacement. However, we anticipate that the EPA will continue to examine the existing equipment replacementrules and may again propose new rules. In addition, the U.S. Supreme Court has agreed to hear a case, not involving us, relating to the newsource review requirements. We cannot predict the timing or outcome of any future EPA regulatory action or the outcome of the U.S.Supreme Court proceeding, or their possible effect on our financial results.

Global Climate ChangeThe HAA and the proposed CPR require that Maryland become a full participant in the Northeast Regional Greenhouse Gas Initiative(RGGI) by June 2007. RGGI is a regional cap−and−trade program initially covering carbon dioxide (CO2) emissions from power plants withcapacity greater than 25 megawatts in the affected states. The program aims to stabilize emissions at current levels beginning in 2009 andreduce regional emissions by 10 percent before 2020.

Under the program, it is expected that affected plants would participate in an auction to obtain sufficient CO2 allowances to support thelevel of emissions that result from plant operations.

We continue to evaluate the potential impact of the HAA and CPR CO2 emissions requirements and RGGI participation on our financialresults; however, our compliance costs could be material.

Accounting Standards Issued and AdoptedWe discuss recently issued and adopted accounting standards in the Accounting Standards Issued and Accounting Standards Adopted sectionsof the Notes to Consolidated Financial Statements beginning on page 22.

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Events of 2006Termination of Merger Agreement with FPL Group, Inc.On October 24, 2006, Constellation Energy and FPL Group, Inc. (FPL Group) agreed to terminate the Agreement and Plan of Merger theparties had entered into on December 18, 2005. In connection with the termination of the merger agreement, Constellation Energy acquiredcertain development rights from FPL Group relating to a wind power project in Western Maryland.

Pursuant to the terms of the termination agreement, if Constellation Energy announces its entry into certain types of transactions on orprior to September 30, 2007, including a merger or stock sale resulting in a third party owning 35% or more of the voting securities ofConstellation Energy, it will be required to pay FPL Group a fee. The fee is $425 million if a transaction is announced on or prior to June 30,2007 and $210 million if a transaction is announced between July 1, 2007 and September 30, 2007.

Commodity PricesDuring the nine months ended September 30, 2006, we continued to experience significant changes in commodity prices. This volatilecommodity price environment continues to impact our results of operations and financial condition, as discussed in more detail in thefollowing sections:

♦ Financial Condition beginning on page 45,♦ Mark−to−Market beginning on page 35,♦ Risk Management Assets and Liabilities on page 39,♦ Market Risk beginning on page 50, and♦ Notes to Consolidated Financial Statements on page 21.

Residential Electric RatesWe discuss the legislation enacted by the Maryland General Assembly in more detail in the Regulation by the Maryland PSC sectionbeginning on page 25.

Gas−Fired PlantsIn October 2006, we announced an agreement to sell six natural gas−fired plants. We discuss this planned sale in more detail in the Notes toConsolidated Financial Statements on page 11.

In October 2006, we designated these plants as assets held for sale and we reclassified the assets associated with these gas−fired plantsto “Assets held for sale” and the liabilities to “Liabilities associated with assets held for sale” in our Consolidated Balance Sheets, we ceasedrecording depreciation expense, and discontinued hedge accounting for these facilities. The assets and liabilities associated with thesegas−fired plants will be removed from our Consolidated Balance Sheets at closing.

Synthetic Fuel FacilitiesPhase−Out of Tax CreditsAs discussed in our 2005 Annual Report on Form 10−K, the Internal Revenue Code provides for a phase−out of synthetic fuel tax credits ifaverage annual wellhead oil prices increase above certain levels. For 2006, we estimate the tax credit reduction would begin if the referenceprice exceeds approximately $54 per barrel and would be fully phased out if the reference price exceeds approximately $68 per barrel.

Based on forward market prices and volatilities as of September 30, 2006, we estimate a 42% tax credit phase−out in 2006. As a result,the amount of tax credits recognized in the first nine months of 2006 reflects the estimated 42% tax credit phase−out.

In July 2006, as a result of oil prices remaining at high levels, we decreased production at our South Carolina facility and productionwas idled at four facilities in which we have a minority ownership interest. In September 2006, as a result of a decrease in oil prices, wedecided to resume full production at our South Carolina facility and in October 2006 production was restarted at our four facilities in whichwe have a minority ownership interest.

Based on forward market prices and volatilities as of October 26, 2006, we estimate a 36% tax credit phase−out in both 2006 and 2007.However, the ultimate amount of tax credits phased−out for 2006 and 2007, is subject to change based on the actual reference price andproduction levels for the entire year. In addition, our ability to claim synthetic fuel tax credits and the potential phase−out of these creditscould be materially impacted by any future legislative changes to the Internal Revenue Code.

We actively monitor and manage our exposure to synthetic fuel tax credit phase−out as part of our ongoing hedging activities. Inaddition, we continue to monitor various options related to our South Carolina facility, including the suspension or cessation of synthetic fuelproduction depending on our expectation of the level of tax credit phase−out.

Impairment AnalysisThe increase in estimated synthetic fuel tax credit phase−out during 2006 indicated there is a potential that we may not be able to recover ourinvestments in synthetic fuel facilities. As a result of this triggering event, we performed an impairment analysis of our investment insynthetic fuel facilities.

At September 30, 2006, the book value of our investment in synthetic fuel facilities is approximately $17 million, substantially all ofwhich is related to our South Carolina facility. We determined that an impairment had not occurred as the expected future undiscounted cashflows exceeded the book value of our investment at September 30, 2006.

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We will continue to monitor the level of synthetic fuel tax credit phase−out and perform impairment analyses as new informationbecomes available. A future increase in synthetic fuel tax credit phase−out could result in an impairment.

Workforce Reduction CostsDuring the quarter ended March 31, 2006, we incurred costs associated with a planned workforce restructuring at our R. E. Ginna NuclearPower Plant (Ginna). In July 2006, we announced a planned workforce restructuring at our Nine Mile Point nuclear facility. We also initiateda restructuring of the workforce at our Calvert Cliffs nuclear facility during the third quarter of 2006.

In addition, during 2006, we recorded a settlement charge in our Consolidated Statements of Income for one of our qualified plans underSFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.

We discuss these restructurings in more detail in the Notes to Consolidated Financial Statements on page 12 and the settlement chargein the Notes to Consolidated Financial Statements on page 16.

AcquisitionDuring 2006, we acquired working interests in gas and oil producing fields. We discuss this acquisition in more detail in the Notes toConsolidated Financial Statements on page 13.Initial Public Offering of Constellation Energy Partners LLCIn June 2006, Constellation Energy Partners LLC, (CEP) a wholly owned limited liability company formed by Constellation Energy, filed aregistration statement on Form S−1 with the Securities and Exchange Commission related to the potential underwritten initial public offeringof CEP’s common units. CEP is principally engaged in the acquisition, development and exploitation of natural gas properties. CEP’sexisting property is located in the Robinson’s Bend Field in the Black Warrior Basin of Alabama.

Although the registration statement relating to the CEP common units has been filed with the Securities and Exchange Commission, ithas not yet become effective. The common units may not be sold, nor may offers to buy be accepted, prior to the time the registrationstatement becomes effective. However, we currently expect to complete the offering in November 2006. This quarterly report does notconstitute an offer to sell or the solicitation of any offer to buy any securities of CEP, and there will not be any sale of any such securities inany state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of suchstate.

Nine Mile Point License ExtensionOn October 30, 2006, we received Nuclear Regulatory Commission approval for license extension for both units at our Nine Mile Pointnuclear facility. With the renewed licenses, we can continue to operate Unit 1 until 2029 and Unit 2 until 2046.

Ginna UprateDuring the fourth quarter of 2006, we completed a planned outage at our Ginna nuclear facility, which included an uprate of the plant from498 megawatts to approximately 580 megawatts. We expect that the increase in capacity of the facility will result in higher revenues in futureyears due to higher generation.

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Results of Operations for the Quarter and Nine Months EndedSeptember 30, 2006 Compared with the Same Periods of 2005

In this section, we discuss our earnings and the factors affecting them. We begin with a general overview, then separately discuss earnings forour operating segments. We discuss changes in other income, fixed charges, and income taxes, as necessary, in the aggregate for all segmentsin the Consolidated Nonoperating Income and Expenses section on page 44.

OverviewResults



2006 2005 2006 2005 (In millions, after−tax)

Merchant energy $ 284.8 $ 141.7 $ 400.1 $ 282.9Regulated electric 42.8 51.1 96.3 120.0Regulated gas (7.3) (8.6) 26.3 17.3Other nonregulated 4.1 (0.1) 7.9 0.3Income from Continuing Operations 324.4 184.1 530.6 420.5

Income from discontinued operations — 1.4 0.9 7.4Net Income $ 324.4 $ 185.5 $ 531.5 $ 427.9Other Items Included in Operations

Workforce reduction costs $ (13.1) $ (2.3) $ (14.4) $ (2.3)Merger−related costs (2.5) — (10.0) —Non−qualifying hedges 35.9 (22.8) 26.2 (34.5)

Total Other Items $ 20.3 $ (25.1) $ 1.8 $ (36.8)

Quarter Ended September 30, 2006Our total net income for the quarter ended September 30, 2006 increased $138.9 million, or $0.76 per share, compared to the same period of2005 mostly because of the following:

♦ We had higher earnings of approximately $129 million after−tax at our merchant energy business due to higher gross margin fromthe Mid−Atlantic Region. We discuss this increase in gross margin in more detail in the Mid−Atlantic Region section on page 34.

♦ We had higher earnings of $38.6 million after−tax at our retail competitive supply operation primarily due to an increase in grossmargin. We discuss our retail gross margin in more detail in the Competitive Supply—Retail section on page 35.

♦ We had higher earnings of approximately $42 million after−tax due to higher gross margin from our wholesale competitive supplyoperation, including the termination and sale of an in−the−money contract. These increases were mostly offset by lower earnings ofapproximately $40 million after−tax due to higher operating expenses primarily because of higher labor and benefit costs due to thegrowth of this operation. We discuss our mark−to−market and wholesale accrual results in more detail in the Competitive Supplysection beginning on page 35.

These increases were partially offset by the following:♦ We had lower earnings of $10.8 million after−tax due to workforce reduction costs incurred during the third quarter of 2006

compared to the same period of 2005.♦ We had lower earnings of $8.1 million after−tax due to higher fixed charges and lower other income. We discuss these items in more

detail in the Consolidated Nonoperating Income and Expenses section on page 44.♦ We had lower earnings of $7.0 million after−tax from our regulated businesses primarily due to higher operations and maintenance

expenses, partially offset by higher gas revenues mostly from the favorable impact of the increase in gas base rates that was approvedin December 2005. We discuss the gas base rate increase in more detail in the Regulated Gas Business section on page 43.

Nine Months Ended September 30, 2006Our total net income for the nine months ended September 30, 2006 increased $103.6 million, or $0.56 per share, compared to the sameperiod of 2005 mostly because of the following:

♦ We had higher earnings of approximately $72 million after−tax due to favorable mark−to−market results, including trading activities,at our wholesale competitive supply operation. We also had higher wholesale accrual gross margin of approximately $108 millionafter−tax. These increases were partially offset by lower earnings of approximately $108 million after−tax due to higher operatingexpenses mostly because of higher labor and benefit costs due to the growth of this operation. We discuss our mark−to−market andwholesale accrual results in more detail in the Competitive Supply section beginning on page 35.

♦ We had higher earnings of approximately $71 million after−tax at our merchant energy business due to higher gross margin from theMid−Atlantic Region. We discuss this increase in gross margin in more detail in the Mid−Atlantic Region section on page 34.

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♦ We had higher earnings of $39.0 million after−tax at our retail competitive supply operation primarily due to an increase in grossmargin. We discuss our retail gross margin in more detail in the Competitive Supply—Retail section on page 35.

♦ We had higher earnings of $9.0 million after−tax from our regulated gas business primarily due to the favorable impact of theincrease in gas base rates that was approved in December 2005.

These increases were partially offset by the following:♦ We had lower earnings of $23.7 million after−tax from our regulated electric business primarily due to higher operations and

maintenance expenses and lower revenues less electricity purchased for resale expenses.♦ We had lower earnings of $20.4 million after−tax at our synthetic fuel facilities mostly due to the expected phase−out of tax credits

as a result of the high price of oil. We discuss the phase−out of tax credits in more detail in the Events of 2006 section beginning onpage 28.

♦ We had lower earnings of $12.1 million after−tax due to workforce reduction costs associated with workforce restructurings at ournuclear generating facilities. We discuss these costs in more detail in the Notes to Consolidated Financial Statements on page 12.

♦ We had lower earnings of $10.0 million after−tax due to incurring additional merger−related costs associated with our merger withFPL Group, which has now been terminated. We discuss these costs in more detail in the Notes to Consolidated Financial Statementson page 12.

♦ We had lower earnings of $7.9 million after−tax due to higher fixed charges and lower other income. We discuss these items in moredetail in the Consolidated Nonoperating Income and Expenses section on page 44.

♦ We had lower income from discontinued operations of $6.5 million.In the following sections, we discuss our net income by business segment in greater detail.

Merchant Energy BusinessBackgroundOur merchant energy business is a competitive provider of energy solutions for various customers. We discuss the impact of deregulation onour merchant energy business in Item 1. Business—Competition section of our 2005 Annual Report on Form 10−K.

Our merchant energy business focuses on delivery of physical, customer−oriented products to producers and consumers, manages therisk and optimizes the value of our owned generation assets, and uses our portfolio management and trading capabilities both to manage riskand to deploy risk capital to generate additional returns. We continue to identify and pursue opportunities which can generate additionalreturns, through portfolio management and trading activities, within our business due to the significant growth in scale of our competitivesupply operations.

We record merchant energy revenues and expenses in our financial results in different periods depending upon which portion of ourbusiness they affect. We discuss our revenue recognition policies in the Critical Accounting Policies section and Note 1 of our 2005 AnnualReport on Form 10−K. We summarize our revenue and expense recognition policies as follows:

♦ We record revenues as they are earned and fuel and purchased energy costs as they are incurred for contracts and activities subject toaccrual accounting, including certain load−serving activities.

♦ Prior to the settlement of the forecasted transaction being hedged, we record changes in the fair value of contracts designated ascash−flow hedges in other comprehensive income to the extent that the hedges are effective. We record the effective portion of thechanges in fair value of hedges in earnings in the period the settlement of the hedged transaction occurs. We record the ineffectiveportion of the changes in fair value of hedges, if any, in earnings in the period in which the change occurs.

♦ We record changes in the fair value of contracts that are subject to mark−to−market accounting in revenues or fuel and purchasedenergy expenses in the period in which the change occurs.

Mark−to−market accounting requires us to make estimates and assumptions using judgment in determining the fair value of certaincontracts and in recording revenues from those contracts. We discuss the effects of mark−to−market accounting on our results in theCompetitive Supply—Mark−to−Market section beginning on page 35.

Our wholesale marketing and risk management operation actively transacts in energy and energy−related commodities in order tomanage our portfolio of energy purchases and sales to customers through structured transactions. As part of these activities we trade energyand energy−related commodities and deploy risk capital in the management of our portfolio in order to earn additional returns. Theseactivities are managed through daily value at risk and stop loss limits and liquidity guidelines, and may have a material impact on ourfinancial results. We discuss the impact of our trading activities in more detail in the Competitive Supply—Mark−to−Market sectionbeginning on page 35 and value at risk in the Market Risk section beginning on page 50.

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Results



2006 2005 2006 2005(In millions)

Revenues $ 5,049.0 $ 4,397.2 $ 13,121.6 $ 10,312.4Fuel and purchased energy expenses (4,056.0) (3,778.0) (10,863.3) (8,606.6)Operating expenses (372.6) (273.4) (1,171.2) (931.8)Workforce reduction costs (21.7) (3.9) (23.9) (3.9)Merger−related costs (2.5) — (8.8) —Depreciation, depletion, and amortization (72.9) (74.3) (213.2) (202.6)Accretion of asset retirement obligations (17.1) (15.8) (50.3) (46.2)Taxes other than income taxes (32.6) (31.3) (94.9) (81.3)Income from Operations $ 473.6 $ 220.5 $ 696.0 $ 440.0

Income from Continuing Operations (after−tax) $ 284.8 $ 141.7 $ 400.1 $ 282.9 Income from discontinued operations (after−tax) — (0.2) — 2.9

Net Income $ 284.8 $ 141.5 $ 400.1 $ 285.8

Other Items Included in Operations (after−tax) Workforce reduction costs $ (13.1) $ (2.3) $ (14.4) $ (2.3) Merger−related costs (1.8) — (7.0) — Non−qualifying hedges 35.9 (22.8) 26.2 (34.5)

Total Other Items $ 21.0 $ (25.1) $ 4.8 $ (36.8)

Above amounts include intercompany transactions eliminated in our Consolidated Financial Statements. The Information by OperatingSegment section within the Notes to Consolidated Financial Statements on page 15 provides a reconciliation of operating results by segmentto our Consolidated Financial Statements.

Revenues and Fuel and Purchased Energy ExpensesOur merchant energy business manages the revenues we realize from the sale of energy to our customers and our costs of procuring fuel andenergy. As discussed on the previous page, our merchant energy business uses either accrual or mark−to−market accounting to record ourrevenues and expenses. Mark−to−market results reflect the net impact of amounts recorded in either revenues or fuel and purchased energyexpenses to recognize changes in fair value of derivative contracts subject to mark−to−market accounting during the reporting period.

The difference between revenues and fuel and purchased energy expenses, including all direct expenses, is the gross margin of ourmerchant energy business, and this measure is a useful tool for assessing the profitability of our merchant energy business. Accordingly, webelieve it is appropriate to discuss the operating results of our merchant energy business by analyzing the changes in gross margin betweenperiods. In managing our portfolio, we may terminate, restructure, or acquire contracts. Such transactions are within the normal course ofmanaging our portfolio and may materially impact the timing of our recognition of revenues, fuel and purchased energy expenses, and cashflows.

We analyze our merchant energy gross margin in the following categories because of the risk profile of each category, differences in therevenue sources, and the nature of fuel and purchased energy expenses. With the exception of a portion of our competitive supply activitiesthat we are required to account for using the mark−to−market method of accounting, all of these activities are accounted for on an accrualbasis.

♦ Mid−Atlantic Region—our fossil, nuclear, and hydroelectric generating facilities and load−serving activities in the PJM region. Thisalso includes active portfolio management of the generating assets and other physical and financial contractual arrangements, as wellas other PJM competitive supply activities. In addition, due to the expiration of its power purchase agreement, beginning inJune 2006, the results of our University Park generating facility are included with the Mid−Atlantic Region. University Park waspreviously included in Plants with Power Purchase Agreements.

♦ Plants with Power Purchase Agreements—our generating facilities outside the Mid−Atlantic Region with long−term power purchaseagreements, including the Nine Mile Point, Ginna, and High Desert facilities. We discuss the pending sale of our High Desert facilityin the Notes to Consolidated Financial Statements on page 11.

♦ Wholesale Competitive Supply—our marketing and risk management operation that provides energy products and services(including portfolio management and trading activities) primarily to distribution utilities, power generators, and other wholesalecustomers. We also provide global coal and upstream and downstream natural gas services.

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

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

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We provide a summary of our revenues, fuel and purchased energy expenses, and gross margin as follows:

Quarter Ended September 30, Nine Months Ended September 30,2006 2005 2006 2005

(Dollar amounts in millions)Revenues:

Mid−Atlantic Region $ 1,002.2 $ 746.7 $ 2,119.2 $ 1,736.9Plants with Power Purchase

Agreements 255.0 254.6 639.7 639.0Competitive Supply

Retail 2,094.8 1,990.1 5,964.9 4,713.6Wholesale 1,668.9 1,383.0 4,339.3 3,180.6

Other 28.1 22.8 58.5 42.3Total 5,049.0 $ 4,397.2 $ 13,121.6 $ 10,312.4

Fuel and purchased energy expenses:Mid−Atlantic Region $ (605.3) $ (563.8) $ (1,370.3) $ (1,105.0)Plants with Power Purchase

Agreements (16.8) (23.7) (52.2) (57.6)Competitive Supply

Retail (1,964.9) (1,938.0) (5,667.6) (4,530.9)Wholesale (1,469.0) (1,252.5) (3,773.2) (2,913.1)

Other — — — —Total $ (4,056.0) $ (3,778.0) $ (10,863.3) $ (8,606.6)

% ofTotal

% ofTotal

% ofTotal

% ofTotal

Gross Margin:Mid−Atlantic Region $ 396.9 40% $ 182.9 30% $ 748.9 33% $ 631.9 37%Plants with Power Purchase Agreements 238.2 24 230.9 37 587.5 26 581.4 34Competitive Supply

Retail 129.9 13 52.1 8 297.3 13 182.7 11Wholesale 199.9 20 130.5 21 566.1 25 267.5 16

Other 28.1 3 22.8 4 58.5 3 42.3 2Total $ 993.0 100% $ 619.2 100% $ 2,258.3 100% $ 1,705.8 100%

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Mid−Atlantic Region



2006 2005 2006 2005(In millions)

Revenues $ 1,002.2 $ 746.7 $ 2,119.2 $ 1,736.9Fuel and purchased energy expenses (605.3) (563.8) (1,370.3) (1,105.0)Gross margin $ 396.9 $ 182.9 $ 748.9 $ 631.9

The increase of $214.0 million in gross margin during the quarter ended September 30, 2006 compared to the same period of 2005 isprimarily due to favorable portfolio management, including the absence of higher load−serving costs, and the expiration on July 1, 2006 offixed−price agreements established six years earlier. These increases were partially offset by lower competitive transition charge (CTC)revenues of approximately $21 million mostly due to the end of the collection of residential CTC revenues in July 2006. We discuss our CTCrevenues in more detail in our 2005 Annual Report on Form 10−K.

The increase of $117.0 million in gross margin during the nine months ended September 30, 2006 compared to the same period of 2005is primarily due to favorable portfolio management, new contracts that began in 2006, and higher revenues from the expiration of thesix−year, fixed−price contracts. These increases were partially offset by the negative impact of higher variable costs, including emissions andcoal, that continued to increase compared to fixed revenues under the six−year contracts.

These increases in gross margin were partially offset by:♦ lower CTC revenues of approximately $42 million due to customers that completed their obligation and the continued decline in the

CTC rate, and♦ lower generation at Calvert Cliffs, which resulted in lower gross margin of approximately $27 million, mostly because of a longer

planned 2006 refueling outage that included replacement of the reactor vessel head.

Plants with Power Purchase Agreements



2006 2005 2006 2005

(In millions)Revenues $ 255.0 $ 254.6 $ 639.7 $ 639.0Fuel and purchased energy expenses (16.8) (23.7) (52.2) (57.6)

Gross margin $ 238.2 $ 230.9 $ 587.5 $ 581.4

Gross margin from our Plants with Power Purchase Agreements increased slightly for the quarter and nine months ended September 30, 2006compared to the same periods of 2005. This was due to an increase in gross margin of approximately $17 million primarily related to ournuclear generating assets in New York mostly due to favorable pricing on the portion of the facilities sold into the wholesale market, partiallyoffset by the absence of approximately $10 million in gross margin from the University Park facility. As discussed in the Revenues and Fueland Purchased Energy Expenses section on page 32, the University Park power purchase agreement expired in May 2006. Beginning inJune 2006, the results of University Park are included in the Mid−Atlantic Region.

Competitive Supply

We analyze our retail accrual, wholesale accrual, and combined mark−to−market competitive supply activities below.

Retail



2006 2005 2006 2005(In millions)

Accrual revenues $ 2,083.3 $ 2,000.6 $ 5,943.2 $ 4,727.3Fuel and purchased energy expenses (1,981.3) (1,938.0) (5,664.8) (4,530.9)Retail accrual activities 102.0 62.6 278.4 196.4Mark−to−market activities 27.9 (10.5) 18.9 (13.7)Gross margin $ 129.9 $ 52.1 $ 297.3 $ 182.7

The increase in gross margin of $39.4 million from our retail accrual activities during the quarter ended September 30, 2006 compared to thesame period of 2005 is primarily due to higher margins mostly because of lower costs related to our load−serving obligations. We had lowercosts mostly because of the absence of extreme summerweather compared to the same period of the prior year.


The increase in gross margin of $82.0 million from our retail accrual activities during the nine months ended September 30, 2006compared to the same period of 2005 is primarily due to:

♦ 3.6 million megawatt hours more of electricity and 41 billion cubic feet more of natural gas served to retail customers during the ninemonths ended September 30, 2006 compared to the same period of 2005, and

♦ higher margins mostly because of lower costs related to our load−serving obligations. We had lower costs mostly because of theabsence of extreme summer weather compared to the prior year.

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Wholesale



2006 2005 2006 2005(In millions)

Accrual revenues $ 1,565.1 $ 1,264.8 $ 4,032.8 $ 2,993.4Fuel and purchased energy expenses (1,469.0) (1,252.5) (3,773.2) (2,913.1)Wholesale accrual activities 96.1 12.3 259.6 80.3Mark−to−market revenues 103.8 118.2 306.5 187.2Gross margin $ 199.9 $ 130.5 $ 566.1 $ 267.5

Our wholesale marketing and risk management operation had $83.8 million of higher gross margin from accrual activities during the quarterended September 30, 2006 compared to the same period of 2005 due to:

♦ approximately $75 million related to new contracts entered into during 2006, higher realized gross margin associated with existingcontracts, and an in−the−money contract that we terminated and sold in exchange for an upfront cash payment and the cancellation offuture performance obligations. This contract termination and sale, which accounted for a majority of the increase in wholesaleaccrual gross margin for the quarter, allowed us to eliminate our exposure to performance risk under this contract and resulted in therealization of earnings during the quarter ended September 30, 2006 that would have been recognized over the life of the contract,and

♦ approximately $9 million related primarily to the growth in our coal and natural gas activities.Our wholesale marketing and risk management operation had $179.3 million of higher gross margin from accrual activities during the

nine months ended September 30, 2006 compared to the same period of 2005 due to:♦ approximately $90 million primarily due to new contracts entered into during 2006 and higher realized gross margin on existing

contracts,♦ approximately $70 million related primarily to the growth in our coal and natural gas activities, and♦ a net increase of approximately $20 million from contract restructurings related to unit contingent power purchase agreements during

the nine months ended September 2006 compared to the same period of 2005. The termination and sale of these contracts has allowedus to eliminate our exposure to performance risk under these contracts.

Mark−to−MarketMark−to−market results include net gains and losses from origination, trading, and risk management activities for which we use themark−to−market method of accounting. We discuss these activities and the mark−to−market method of accounting in more detail in theCritical Accounting Policies section of our 2005 Annual Report on Form 10−K.

As a result of the nature of our operations and the use of mark−to−market accounting for certain activities, mark−to−market earningswill fluctuate. We cannot predict these fluctuations, but the impact on our earnings could be material. We discuss our market risk in moredetail in the Market Risk section beginning on page 50. The primary factors that cause fluctuations in our mark−to−market results are:

♦ the number, size, and profitability of new transactions, including termination or restructuring of existing contracts,♦ the number and size of our open derivative positions, and♦ changes in the level and volatility of forward commodity prices and interest rates.Mark−to−market results were as follows:



2006 2005 2006 2005(In millions)

Unrealized mark−to−market resultsOrigination gains $ 3.6 $ 3.2 $ 9.6 $ 12.8Risk management and trading—mark−to−market

Unrealized changes in fair value 128.1 104.5 315.8 160.7Changes in valuation techniques — — — —Reclassification of settled contracts to realized (95.4) (62.8) (324.3) (124.6)

Total risk management and trading—mark−to−market 32.7 41.7 (8.5) 36.1Total unrealized mark−to−market* 36.3 44.9 1.1 48.9Realized mark−to−market 95.4 62.8 324.3 124.6Total mark−to−market results $ 131.7 $ 107.7 $ 325.4 $ 173.5

* Total unrealized mark−to−market is the sum of origination gains and total risk management and trading—mark−to−market.Origination gains arise primarily from contracts that our wholesale marketing and risk management operation structures to meet the risk

management needs of our customers or relate to our trading activities. Transactions that result in origination gains may be unique and providethe potential for individually significant gains from a single transaction.

Origination gains represent the initial fair value recognized on these transactions. The recognition of origination gains is dependent onsufficient observable market data that validates the initial fair value of the contract. Liquidity and market conditions impact our ability toidentify sufficient, objective market−price information to permit recognition of origination gains. As a result, while our strategy andcompetitive position provide the opportunity to continue to originate such transactions,

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the level of origination gains we are able to recognize may vary from period to period as a result of the number, size, and market−pricetransparency of the individual transactions executed in any period.

Risk management and trading—mark−to−market represents both realized and unrealized gains and losses from changes in the value ofour portfolio, including the recognition of gains associated with decreases in the close−out adjustment when we are able to obtain sufficientmarket price information. We discuss the changes in mark−to−market results below. We show the relationship between our mark−to−marketresults and the change in our net mark−to−market energy asset later in this section.

The increase in mark−to−market results for the quarter and nine−months ended September 30, 2006, reflects our continued deploymentof risk capital in order to take advantage of existing market conditions which generated significant returns and captured additional valuewithin our trading portfolio. Additionally, our mark−to−market results included higher gains on transactions that are not trading positions.These positions are economic hedges of accrual transactions. These economic hedges receive mark−to−market accounting treatment as theyare derivative contracts that are not designated for either cash−flow hedge or accrual accounting.

Mark−to−market results increased $24.0 million during the quarter ended September 30, 2006 compared to the same period of 2005mostly because of higher unrealized changes in fair value. The increase in unrealized changes in fair value included higher pre−tax gains ofapproximately $97 million related to the positive impact of certain economic hedges primarily related to gas transportation and storagecontracts that do not qualify for or are not designated as cash−flow hedges under Statement of Financial Accounting Standards (SFAS)No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The mark−to−market accounting for these economichedges produces a timing difference in the recognition of earnings on these transactions, as we will recognize the earnings on the accrualtransactions related to these hedges in future periods. This increase in unrealized changes in fair value from these economic hedges waspartially offset by lower pre−tax gains of approximately $73 million related to changes in commodity prices, price volatility, and otherfactors.

Mark−to−market results increased $151.9 million during the nine months ended September 30, 2006 compared to the same period of2005 because of an increase in unrealized changes in fair value. Unrealized changes in fair value increased $155.1 million primarily due to:

♦ higher pre−tax gains of approximately $100 million related to the positive impact of certain economic hedges primarily related to gastransportation and storage contracts that do not qualify for or are not designated as cash−flow hedges, and

♦ the impact of a higher level of risk management and trading—mark−to−market activities mostly due to a higher level of openpositions that resulted in increased gains of approximately $80 million.

These increases were partially offset by the absence of a $24.0 million favorable impact related to changes in the close−out adjustmentduring the nine months ended September 30, 2006 compared to the same period of 2005. The close−out adjustments are determined by thechange in open positions, new transactions where we did not have observable market price information, and existing transactions where wehave now observed sufficient market price information and/or we realized cash flows since the transactions’ inception. We discuss theclose−out adjustment in more detail in the Critical Accounting Policies section of our 2005 Annual Report on Form 10−K.

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Mark−to−Market Energy Assets and LiabilitiesOur mark−to−market energy assets and liabilities are comprised of derivative contracts subject to mark−to−market accounting and consistedof the following:

September 30,2006

December 31,2005

(In millions)

Current Assets $ 889.3 $ 1,339.2Noncurrent Assets 814.1 1,089.3Total Assets 1,703.4 2,428.5Current Liabilities 822.9 1,348.7Noncurrent Liabilities 467.8 912.3Total Liabilities 1,290.7 2,261.0Net mark−to−market energy asset $ 412.7 $ 167.5

The following are the primary sources of the change in the net mark−to−market energy asset during the quarter and nine months endedSeptember 30, 2006:

Quarter EndedSeptember 30, 2006

Nine Months EndedSeptember 30, 2006

(In millions)Fair value beginning of period $ 353.7 $ 167.5Changes in fair value recorded in earnings

Origination gains $ 3.6 $ 9.6Unrealized changes in fair value 128.1 315.8Changes in valuation techniques — —Reclassification of settled contracts to realized (95.4) (324.3)

Total changes in fair value recorded in earnings 36.3 1.1Changes in value of exchange−listed futures and

options 41.5 173.4Net change in premiums on options (30.3) 58.8Contracts acquired — —Other changes in fair value 11.5 11.9Fair value at end of period $ 412.7 $ 412.7

Changes in the net mark−to−market energy asset that affected earnings were as follows:♦ Origination gains represent the initial unrealized fair value at the time these contracts are executed to the extent permitted by

applicable accounting rules.♦ Unrealized changes in fair value represent unrealized changes in commodity prices, the volatility of options on commodities, the time

value of options, and other valuation adjustments.♦ Changes in valuation techniques represent improvements in estimation techniques, including modeling and other statistical

enhancements used to value our portfolio to more accurately reflect the fair value of our contracts.♦ Reclassification of settled contracts to realized represent the portion of previously unrealized amounts settled during the period and

recorded as realized revenues.The net mark−to−market energy asset also changed due to the following items recorded in accounts other than in our Consolidated

Statements of Income:♦ Changes in value of exchange−listed futures and options are adjustments to remove unrealized changes in fair value of

exchange−traded contracts that are included in risk management and trading—mark−to−market results. The fair value of thesecontracts is recorded in “Accounts receivable” rather than “Mark−to−market energy assets” in our Consolidated Balance Sheetsbecause these amounts are settled through our margin account with a third−party broker.

♦ Net changes in premiums on options reflects the accounting for premiums on options purchased as an increase in the netmark−to−market energy asset and premiums on options sold as a decrease in the net mark−to−market energy asset.

♦ Contracts acquired represents the initial fair value of acquired derivative contracts recorded in “Mark−to−market energy assets andliabilities.”

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The settlement terms of the net mark−to−market energy asset and sources of fair value as of September 30, 2006 are asfollows:

Settlement Term

2006 2007 2008 2009 2010 2011 Thereafter Fair Value

(In millions)Prices provided by external sources (1) $ 12.9 $ 129.7 $ 199.2 $ 63.0 $ 27.8 $ 14.8 $ 4.9 $ 452.3Prices based on models (6.3 ) 8.4 9.3 (9.6) (24.7) (18.1) 1.4 (39.6)

Total net mark−to−market energy asset $ 6.6 $ 138.1 $ 208.5 $ 53.4 $ 3.1 $ (3.3) $ 6.3 $ 412.7

(1) Includes contracts actively quoted and contracts valued from other external sources.

We manage our mark−to−market risk on a portfolio basis based upon the delivery period of our contracts and the individual componentsof the risks within each contract. Accordingly, we record and manage the energy purchase and sale obligations under our contracts in separatecomponents based upon the commodity (e.g., electricity or gas), the product (e.g., electricity for delivery during peak or off−peak hours), thedelivery location (e.g., by region), the risk profile (e.g., forward or option), and the delivery period (e.g., by month and year).

Consistent with our risk management practices, we have presented the information in the table above based upon the ability to obtainreliable prices for components of the risks in our contracts from external sources rather than on a contract−by−contract basis. Thus, theportion of long−term contracts that is valued using external price sources is presented under the caption “prices provided by externalsources.” This is consistent with how we manage our risk, and we believe it provides the best indication of the basis for the valuation of ourportfolio. Since we manage our risk on a portfolio basis rather than contract−by−contract, it is not practicable to determine separately theportion of long−term contracts that is included in each valuation category. We describe the commodities, products, and delivery periodsincluded in each valuation category in detail below.

The amounts for which fair value is determined using prices provided by external sources represent the portion of forward, swap, andoption contracts for which price quotations are available through brokers or over−the−counter transactions. The term for which such priceinformation is available varies by commodity, region, and product. The fair values included in this category are the following portions of ourcontracts:

♦ forward and swap purchases and sales of electricity during peak and off−peak hours for delivery terms primarily through 2009, butup to 2011, depending upon the region,

♦ options for the purchase and sale of electricity during peak hours for delivery terms through 2008, depending upon the region,♦ forward purchases and sales of electric capacity for delivery terms primarily through 2007, but up to 2008, depending upon the

region,♦ forward and swap purchases and sales of natural gas, coal, and oil for delivery terms primarily through 2011, and♦ options for the purchase and sale of natural gas, coal, and oil for delivery terms through 2008.The remainder of the net mark−to−market energy asset is valued using models. The portion of contracts for which such techniques are

used includes standard products for which external prices are not available and customized products that are valued using modelingtechniques to determine expected future market prices, contract quantities, or both.

Modeling techniques include estimating the present value of cash flows based upon underlying contractual terms and incorporate, whereappropriate, option pricing models and statistical and simulation procedures. Inputs to the models include:

♦ observable market prices,♦ estimated market prices in the absence of quoted market prices,♦ the risk−free market discount rate,♦ volatility factors,♦ estimated correlation of energy commodity prices, and♦ expected generation profiles of specific regions.Additionally, we incorporate counterparty−specific credit quality and factors for market price and volatility uncertainty and other risks

in our valuation. The inputs and factors used to determine fair value reflect management’s best estimates.The electricity, fuel, and other energy contracts we hold have varying terms to maturity, ranging from contracts for delivery the next

hour to contracts with terms of ten years or more. Because an active, liquid electricity futures market comparable to that for othercommodities has not developed, the majority of contracts used in the wholesale marketing and risk management operation are direct contractsbetween market participants and are not exchange−traded or financially settling contracts that can be readily liquidated in their entiretythrough an exchange or other market mechanism. Consequently, we and other market participants generally realize the value of thesecontracts as cash flows become due or payable under the terms of the contracts rather than through selling or liquidating the contractsthemselves.

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Consistent with our risk management practices, the amounts shown in the table on the previous page as being valued using prices fromexternal sources include the portion of long−term contracts for which we can obtain reliable prices from external sources. The remainingportions of these long−term contracts are shown in the table as being valued using models. In order to realize the entire value of a long−termcontract in a single transaction, we would need to sell or assign the entire contract. If we were to sell or assign any of our long−term contractsin their entirety, we may not realize the entire value reflected in the table. However, based upon the nature of the wholesale marketing andrisk management operation, we expect to realize the value of these contracts, as well as any contracts we may enter into in the future tomanage our risk, over time as the contracts and related hedges settle in accordance with their terms. Generally, we do not expect to realize thevalue of these contracts and related hedges by selling or assigning the contracts themselves in total.

The fair values in the table represent expected future cash flows based on the level of forward prices and volatility factors as ofSeptember 30, 2006 and could change significantly as a result of future changes in these factors. Additionally, because the depth and liquidityof the power markets varies substantially between regions and time periods, the prices used to determine fair value could be affectedsignificantly by the volume of transactions executed.

Management uses its best estimates to determine the fair value of commodity and derivative contracts it holds and sells. These estimatesconsider various factors including closing exchange and over−the−counter price quotations, time value, volatility factors, and credit exposure.However, future market prices and actual quantities will vary from those used in recording mark−to−market energy assets and liabilities, andit is possible that such variations could be material.

Risk Management Assets and LiabilitiesWe record derivatives that qualify for designation as hedges under SFAS No. 133 in “Risk management assets and liabilities” in ourConsolidated Balance Sheets. Our risk management assets and liabilities consisted of the following:

September 30,2006

December 31,2005

(In millions)Current Assets $ 231.2 $ 1,244.3Noncurrent Assets 360.3 626.0

Total Assets 591.5 1,870.3

Current Liabilities 1,120.7 483.5Noncurrent Liabilities 840.6 1,035.5

Total Liabilities 1,961.3 1,519.0

Net risk management (liability) asset $ (1,369.8) $ 351.3

The decrease in our net risk management asset of $1,721.1 million since December 31, 2005 was due primarily to decreases in power pricesthat reduced the fair value of our cash−flow hedge positions and the settlement of cash−flow hedges during the nine months endedSeptember 30, 2006. A decrease in the fair value of our cash−flow hedges indicates an increase in value of the accrual positions to whichthese hedges are related.

Other



2006 2005 2006 2005(In millions)

Revenues $ 28.1 $ 22.8 $ 58.5 $ 42.3

Our merchant energy business holds up to a 50% voting interest in 24 operating domestic energy projects that consist of electric generation,fuel processing, or fuel handling facilities. Of these 24 projects, 17 are “qualifying facilities” that receive certain exemptions and pricingunder the Public Utility Regulatory Policy Act of 1978 based on the facilities’ energy source or the use of a cogeneration process.

We believe the current market conditions for our equity−method investments that own geothermal, coal, hydroelectric, and fuelprocessing projects provide sufficient positive cash flows to recover our investments. We continuously monitor issues that potentially couldimpact future profitability of these investments, including environmental and legislative initiatives. We discuss the impact of subsidies fromthe State of California in more detail in the Merchant Energy Business—Other section in our 2005 Annual Report on Form 10−K.

We discuss certain risks and uncertainties in more detail in the Forward Looking Statements section on page 54 and in Item 1A. RiskFactors section on page 53. However, should future events cause these investments to become uneconomic, our investments in these projectscould become impaired under the provisions of APB No. 18.

If our strategy were to change from an intent to hold to an intent to sell for any of our equity−method investments in qualifying facilitiesor power projects, we would need to adjust their book value to fair value, and that adjustment could be material. If we were to sell theseinvestments in the current market, we may have losses that could be material.

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Operating ExpensesOur merchant energy business operating expenses increased $99.2 million during the quarter ended September 30, 2006 compared to thesame period of 2005 mostly due to an increase at our competitive supply operations totaling $79.8 million primarily related to higher laborand benefit costs and the impact of inflation on other costs.

Our merchant energy business operating expenses increased $239.4 million during the nine months ended September 30, 2006compared to the same period of 2005 mostly due to an increase of $220.3 million at our competitive supply operations primarily related tohigher labor and benefit costs and the impact of inflation on other costs and higher costs of $11.0 million due to an outage at our High Desertfacility. These increases in operating expenses were partially offset by lower expenses at our nuclear generating facilities of approximately$15 million mostly due to our productivity initiatives.

Workforce Reduction CostsDuring the nine months ended September 30, 2006, our merchant energy business recognized expenses associated with our workforcereduction efforts at our nuclear facilities. We discuss the workforce reduction programs in more detail in the Notes to Consolidated FinancialStatements on page 12.

Merger−Related CostsWe discuss costs related to the merger, which has been terminated, with FPL Group in more detail in the Notes to Consolidated FinancialStatements on page 12.

Depreciation, Depletion, and Amortization ExpenseMerchant energy depreciation, depletion, and amortization expenses increased $10.6 million during the nine months ended September 30,2006 compared to the same period of 2005 mostly due to an increase of $10.3 million related to our working interests in gas and oilproducing properties.

Taxes Other Than Income TaxesTaxes other than income taxes increased $13.6 million during the nine months ended September 30, 2006 compared to the same period of2005 mostly due to $8.6 million related to higher gross receipts taxes at our retail competitive supply operation and $2.9 million related toour working interests in gas producing properties.

Regulated Electric BusinessOur regulated electric business is discussed in detail in Item 1. Business—Electric Business section of our 2005 Annual Report onForm 10−K.

Results



2006 2005 2006 2005(In millions)

Revenues $ 649.9 $ 626.8 $ 1,652.6 $ 1,583.4Electricity purchased for resale expenses (391.1) (362.5) (933.8) (849.0)Operations and maintenance expenses (89.3) (79.6) (258.9) (235.4)Merger−related costs (0.6) — (2.3) —Depreciation and amortization (45.6) (46.9) (137.1) (141.1)Taxes other than income taxes (34.7) (34.7) (101.5) (102.2)Income from Operations $ 88.6 $ 103.1 $ 219.0 $ 255.7Net Income $ 42.8 $ 51.1 $ 96.3 $ 120.0Other Items Included in Operations (after−tax):

Merger−related costs $ (0.5) $ — $ (2.0) $ —


Net income from the regulated electric business decreased $8.3 million during the quarter ended September 30, 2006 compared to the sameperiod of 2005 mostly because of higher operations and maintenance expenses of $5.9 million after−tax.

Net income from the regulated electric business decreased $23.7 million during the nine months ended September 30, 2006 mostlybecause of higher operations and maintenance expenses of $14.2 million after−tax and decreased revenue less electricity purchased for resaleexpenses of $9.4 million after−tax.

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Electric RevenuesThe changes in electric revenues in 2006 compared to 2005 were caused by:

Quarter EndedSeptember 30,2006 vs. 2005

Nine Months EndedSeptember 30,2006 vs. 2005

(In millions)Distribution volumes $ (13.6) $ (28.2)Standard offer service 214.4 270.5Rate stabilization credits (174.4) (174.4)Total change in electric revenues from electric system

sales 26.4 67.9Other (3.3) 1.3Total change in electric revenues $ 23.1 $ 69.2

Distribution VolumesDistribution volumes are the amount of electricity that BGE delivers to customers in its service territory.

The percentage changes in our distribution volumes, by type of customer, in 2006 compared to 2005 were:



Residential (6.7 )% (5.5 )%Commercial (1.1 ) (1.2 )Industrial (12.1 ) (6.3 )

During the quarter and nine months ended September 30, 2006 compared to the same periods of 2005, we distributed less electricity toresidential and commercial customers mostly due to milder weather and decreased usage per customer, partially offset by an increasednumber of customers. We distributed less electricity to industrial customers mostly due to decreased usage per customer.

Standard Offer ServiceBGE provides standard offer service for customers that do not select an alternative generation supplier as discussed in Item 1.Business—Electric Regulatory Matters and Competition section of our 2005 Annual Report on Form 10−K. We discuss the legislationenacted by the Maryland General Assembly related to the residential electric rate stabilization plan in the Regulation by the Maryland PSCsection beginning on page 25.

Standard offer service revenues increased during the quarter and nine months ended September 30, 2006 compared to the same periodsof 2005 mostly due to an increase to market prices in the standard offer service rates due to the expiration of the residential rate freeze inJuly 2006, partially offset by lower standard offer service volumes.

Rate Stabilization CreditsAs a result of the legislation enacted by the Maryland General Assembly related to the residential electric rate stabilization plan, we arerequired to defer a portion of the full market rate increase during the eleven month period from July 1, 2006 until May 31, 2007 for recoveryin the future. Therefore, the increase in standard offer service revenues is partially offset by rate stabilization credits in order to reduce ratesfor residential customers from market price to the approved increase of 15% in the enacted legislation.

Electricity Purchased for Resale ExpensesElectricity purchased for resale expenses include the cost of electricity purchased for resale to our standard offer service customers. Thesecosts do not include the cost of electricity purchased by delivery service only customers. The following table summarizes our regulatedelectricity purchased for resale expenses:



2006 2005 2006 2005(In millions)

Actual costs $ 565.5 $ 362.5 $ 1,108.2 $ 849.0Deferral under rate stabilization plan (174.4) — (174.4) —Total electricity purchased for resale $ 391.1 $ 362.5 $ 933.8 $ 849.0

In accordance with the rate stabilization plan, we defer the difference between our actual costs of electricity purchased for resale andwhat we are allowed to bill customers under legislation enacted by the Maryland General Assembly. During the quarter and nine monthsended September 30, 2006, we deferred $174.4 million in electricity purchased for resale expenses. These deferred expenses, plus carryingcharges, are included in “Regulatory Assets (net)” in our, and BGE’s, Consolidated Balance Sheets. We discuss the legislation enacted by the


Maryland General Assembly related to the residential electric rate stabilization plan in the Regulation by the Maryland PSC sectionbeginning on page 25.

Electricity purchased for resale expenses increased $28.6 million in the quarter and $84.8 million in the nine month periodsended September 30, 2006 compared to the same periods of 2005 mostly due to increased costs to serve standard offer servicecustomers partially offset by decreased standard offer service volumes.

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Electric Operations and Maintenance ExpensesRegulated electric operations and maintenance expenses increased $9.7 million in the quarter ended September 30, 2006 compared to thesame period of 2005 mostly due to $3.9 million of incremental distribution service restoration expenses associated with 2006 storms, as wellas higher labor and benefit costs and the impact of inflation on other costs.

Regulated electric operations and maintenance expenses increased $23.5 million in the nine months ended September 30, 2006compared to the same period of 2005 mostly due to higher labor and benefit costs and the impact of inflation on other costs and $10.0 millionof incremental distribution service restoration expenses associated with 2006 storms.


Regulated Gas BusinessOur regulated gas business is discussed in detail in Item 1. Business—Gas Business section of our 2005 Annual Report on Form 10−K.

Results



2006 2005 2006 2005(In millions)

Gas revenues $ 114.6 $ 115.9 $ 678.4 $ 626.9Gas purchased for resale expenses (66.4) (72.1) (448.6) (422.5)Operations and maintenance expenses (34.6) (33.1) (105.3) (97.1)Merger−related costs (0.2) — (1.0) —Depreciation and amortization (11.6) (11.7) (35.0) (35.5)Taxes other than income taxes (7.4) (7.2) (24.9) (24.5)(Loss) Income from operations $ (5.6) $ (8.2) $ 63.6 $ 47.3Net (Loss) Income $ (7.3) $ (8.6) $ 26.3 $ 17.3Other Items Included in Operations (after−tax):

Merger−related costs $ (0.2) $ — $ (0.8) $ —


Net income from the regulated gas business increased $9.0 million during the nine months ended September 30, 2006 compared to the sameperiod of 2005 mostly due to increased revenues less gas purchased for resale expenses of $15.4 million after−tax, which was primarily dueto the increase in gas base rates that was approved by the Maryland PSC in December 2005. This increase was partially offset by higheroperations and maintenance expenses of $5.0 million after−tax.

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Gas RevenuesThe changes in gas revenues in 2006 compared to 2005 were caused by:



(In millions)Distribution volumes $ 0.3 $ (22.8)Base rates 3.4 22.3Weather normalization (1.7) 14.8Gas cost adjustments (6.2) 13.2Total change in gas revenues from gas system sales (4.2) 27.5Off−system sales 2.9 22.4Other — 1.6Total change in gas revenues $ (1.3) $ 51.5

Distribution VolumesThe percentage changes in our distribution volumes, by type of customer, in 2006 compared to 2005 were:



Residential 0.5% (17.0)%Commercial (1.2) (15.3)Industrial (5.7) 9.2

During the quarter ended September 30, 2006 compared to the same period in 2005, we distributed about the same amount of gas toresidential customers. We distributed less gas to commercial customers mostly due to decreased usage per customer, partially offset by anincreased number of customers. We distributed less gas to industrial customers due to decreased usage per customer.

During the nine months ended September 30, 2006 compared to the same period in 2005, we distributed less gas to residential andcommercial customers mostly due to milder weather and decreased usage per customer, partially offset by an increased number of customers.We distributed more gas to industrial customers mostly due to increased usage per customer.

Base RatesThe Maryland PSC issued an order in December 2005 granting BGE an annual increase in its gas base rates of $35.6 million. Certain partiesto the proceeding have sought judicial review and Maryland PSC rehearing of the decision. BGE will not seek review of any aspect of theorder. We cannot provide assurance that a court will not reverse any aspect of the order or that it will not remand certain issues to theMaryland PSC.

Weather NormalizationThe Maryland PSC allows us to record a monthly adjustment to our gas distribution revenues to eliminate the effect of abnormalweather patterns on our gas distribution volumes. This means our monthly gas base rate revenues are based on weather that isconsidered “normal” for the month and, therefore, are not affected by actual weather conditions.

Gas Cost AdjustmentsWe charge our gas customers for the natural gas they purchase from us using gas cost adjustment clauses set by the Maryland PSC asdescribed in Note 1 of our 2005 Annual Report on Form 10−K.

Gas cost adjustment revenues decreased during the quarter ended September 30, 2006 compared to the same period of 2005 mostly dueto less gas sold.

Gas cost adjustment revenues increased during the nine months ended September 30, 2006 compared to the same period of 2005because we sold gas at higher prices, partially offset by less gas sold.

Off−System Gas SalesOff−system gas sales are low−margin direct sales of gas to wholesale suppliers of natural gas outside our service territory. Off−system gassales, which occur after we have satisfied our customers’ demand, are not subject to gas cost adjustments. The Maryland PSC approved anarrangement for part of the margin from off−system sales to benefit customers (through reduced costs) and the remainder to be retained byBGE (which benefits shareholders). Changes in off−system sales do not significantly impact earnings.

Revenues from off−system gas sales increased during the quarter ended September 30, 2006 compared to the same period of 2005because we sold more gas, partially offset by lower prices.

Revenues from off−system gas sales increased during the nine months ended September 30, 2006 compared to the same period of 2005because we sold more gas at higher prices.

Gas Purchased For Resale Expenses


Gas purchased for resale expenses include the cost of gas purchased for resale to our customers and for off−system sales. These costs do notinclude the cost of gas purchased by delivery service only customers.

Gas purchased for resale expenses decreased $5.7 million during the quarter ended September 30, 2006 compared to the same period of2005 because we purchased less gas.

Gas costs increased $26.1 million during the nine months ended September 30, 2006 compared to the same period of 2005 because thegas we purchased was at higher prices, partially offset by less gas purchased.

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Gas Operations and Maintenance ExpensesRegulated gas operations and maintenance expenses increased $8.2 million in the nine months ended September 30, 2006 compared to thesame period of 2005 mostly due to higher labor and benefit costs and the impact of inflation on other costs.


Other Nonregulated BusinessesResults



2006 2005 2006 2005(In millions)

Revenues $ 45.5 $ 49.3 $ 169.3 $ 144.4Operating expense (31.3) (36.7) (126.6) (109.1)Merger−related costs (0.1) — (0.3) —Depreciation and amortization (10.6) (10.4) (28.5) (28.2)Taxes other than income taxes (0.2) (0.6) (1.4) (1.4)Income from Operations $ 3.3 $ 1.6 $ 12.5 $ 5.7Income from continuing operations (after−tax) $ 4.1 $ (0.1) $ 7.9 $ 0.3Income from discontinued operations (after−tax) — 1.6 0.9 4.5Net Income $ 4.1 $ 1.5 $ 8.8 $ 4.8

Other Items Included in Operations (after−tax):Merger−related costs $ — $ — $ (0.2) $ —


As discussed in our 2005 Annual Report on Form 10−K, we decided to sell certain non−core assets and accelerate the exit strategies on otherassets that we will continue to hold and own over the next several years. While our intent is to dispose of these assets, market conditions andother events beyond our control may affect the actual sale of these assets. In addition, a future decline in the fair value of these assets couldresult in losses.

Consolidated Nonoperating Income and ExpensesOther IncomeOur other income decreased mostly because of a lower level of interest income earned due to a lower cash balance during the quarter andnine months ended September 30, 2006 compared to the same periods of 2005.

Fixed ChargesOur fixed charges increased mostly because of a higher debt balance, including commercial paper borrowings, and higher interest ratesduring the quarter and nine months ended September 30, 2006 compared to the same periods of 2005.

Income TaxesDuring the quarter ended September 30, 2006, our income taxes increased $89.2 million compared to the same period of 2005 mostly becauseof a $229.5 million increase in pre−tax income.

During the nine months ended September 30, 2006, our income taxes increased $119.2 million compared to the same period of 2005mostly because of a $229.3 million increase in pre−tax income and a $25.4 million decrease in synthetic fuel tax credits claimed. We discussthe phase−out of synthetic fuel tax credits in more detail in the Events of 2006 section beginning on page 28.

During the quarter and nine months ended September 30, 2006, BGE’s income taxes decreased compared to the same periods of 2005mostly because of lower pre−tax income.

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Financial ConditionCash FlowsThe following table summarizes our cash flows for 2006 and 2005, excluding the impact of changes in intercompany balances.

2006 Segment Cash Flows Consolidated Cash FlowsNine Months EndedSeptember 30, 2006


Merchant Regulated Other 2006 2005(In millions)

Operating ActivitiesNet income $ 400.1 $ 122.6 $ 8.8 $ 531.5 $ 427.9Non−cash adjustments to net income 284.2 73.8 22.7 380.7 542.5Changes in working capital (949.5) 134.1 54.0 (761.4) 130.1Pension and postemployment benefits* — — — 35.5 4.0Other (32.6) (16.1) 25.5 (23.2) (5.2)

Net cash (used in) provided by operating activities (297.8) 314.4 111.0 163.1 1,099.3Investing activities

Investments in property, plant and equipment (402.6) (225.1) (40.3) (668.0) (476.9)Acquisitions, net of cash acquired (133.5) — — (133.5) (238.1)Investments in nuclear decommissioning trust fund securities (275.0) — — (275.0) (258.7)Proceeds from nuclear decommissioning trust fund securities 266.2 — — 266.2 245.5Sale of investments and other assets 23.2 0.5 19.8 43.5 1.9Contract and portfolio acquisitions (2.3) — — (2.3) (23.7)Proceeds from sale of discontinued operations — — — — 217.6Issuances of loans receivable (65.4) — — (65.4) (82.8)Other investments 28.1 10.3 (4.6) 33.8 (28.5)

Net cash used in investing activities (561.3) (214.3) (25.1) (800.7) (643.7)Cash flows from operating activities less cash flows from investing

activities $ (859.1) $ 100.1 $ 85.9 (637.6) 455.6Financing Activities*

Net issuance (repayment) of debt 20.5 (328.4)Proceeds from issuance of common stock 56.2 66.5Common stock dividends paid (195.7) (169.1)Proceeds from contract and portfolio acquisitions 221.3 403.3Other 43.0 5.6

Net cash provided by (used in) financing activities 145.3 (22.1)Net (Decrease) Increase in Cash and Cash Equivalents $ (492.3) $ 433.5

*Items are not allocated to the business segments because they are managed for the company as a whole.

Cash Flows from Operating ActivitiesCash provided by operating activities was $163.1 million in 2006 compared to $1,099.3 million in 2005. This $936.2 million decrease wasprimarily due to unfavorable changes in working capital and a decrease in non−cash adjustments to net income in the first nine months of2006.

Changes in working capital had a negative impact of $761.4 million on cash flow from operations in 2006 compared to a positiveimpact of $130.1 million in 2005. The net decrease of $891.5 million was primarily due to the commodity price environment and increasedrisk management and trading activities that resulted in the following negative working capital changes during the nine months endedSeptember 30, 2006:

♦ an increase of approximately $630 million in net cash collateral requirements, including requirements for exchange−settledtransactions. This increase in cash collateral requirements was accompanied by a decrease in our letters of credit requirements, and

♦ an increase in our net mark−to−market energy asset of approximately $245 million. We discuss the changes in our netmark−to−market energy asset in more detail in the Mark−to−Market Energy Assets and Liabilities section on page 37.

Non−cash adjustments to net income decreased by $161.8 million in 2006 compared to 2005 primarily due to the change in deferredfuel costs of $176.8 million related mostly to the deferred recovery of electricity purchased for resale under the BGE rate stabilization plan.We discuss the rate stabilization plan in more detail in the Notes to Consolidated Financial Statements on page 16.

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Cash Flows from Investing ActivitiesCash used in investing activities was $800.7 million in 2006 compared to $643.7 million in 2005. The $157.0 million increase in cash used in2006 compared to 2005 was primarily due to a $191.1 million increase in cash paid for investments in property, plant and equipment and theabsence in 2006 of $217.6 million of proceeds from the sale of discontinued operations. This increase in cash used in investing activities waspartially offset by the following:

♦ a $104.6 million decrease in cash paid for acquisitions,♦ an increase of $62.3 million of cash provided by other investing activities,♦ an increase of $41.6 million of cash provided by sales of investments,♦ a $21.4 million decrease in cash paid for contract and portfolio acquisitions, and♦ a decrease of $17.4 million from issuances of loans receivable.

Cash Flows from Financing ActivitiesCash provided by financing activities was $145.3 million in 2006 compared to a use of $22.1 million in 2005. The increase of $167.4 millionin cash provided in 2006 compared to 2005 was primarily due to a net increase in cash related to changes in short−term borrowings andlong−term debt of $348.9. This increase was partially offset by a decrease of $182.0 million related to proceeds from acquired contracts andhigher dividend payments in 2006 compared to 2005 of $26.6 million. We discuss the proceeds from acquired contracts below.

Contract and Portfolio AcquisitionsDuring 2006 and 2005, our merchant energy business acquired pre−existing energy contracts, which generated significant cash flows at theinception of the agreements. These agreements had contract prices that differed from market prices at closing, which resulted in cashpayments from the counterparty at the acquisition of the contract.

We received $219.0 million during the nine months ended September 30, 2006 and $379.6 million during the same period of 2005 forthese contract acquisitions. We reflect the underlying contracts on a gross basis as assets or liabilities in our Consolidated Balance Sheetsdepending on whether they were at above− or below−market prices at closing; therefore, we have also reflected them on a gross basis in cashflows from investing and financing activities in our Consolidated Statements of Cash Flows as follows:

Nine Months Ended September 30, 2006 2005(In millions)

Financing activities—proceeds from contract and portfolio acquisitions $ 221.3 $ 403.3Investing activities—contract and portfolio acquisitions (2.3) (23.7)Cash flows from contract and portfolio acquisitions $ 219.0 $ 379.6

We record the proceeds we receive to acquire energy purchase and sale agreements as a financing cash inflow because it constitutes aprepayment for a portion of the market price of energy, which we will buy or sell over the term of the agreements and does not represent acash inflow from current period operating activities. For those acquired contracts that are derivatives, we record the ongoing cash flowsrelated to the contract as financing cash flows in accordance with SFAS No. 149.

Security RatingsIndependent credit−rating agencies rate Constellation Energy’s and BGE’s fixed−income securities. The ratings indicate the agencies’assessment of each company’s ability to pay interest, distributions, dividends, and principal on these securities. These ratings affect howmuch it will cost each company to sell these securities; the better the rating, the lower the cost of the securities to each company when theysell them.

The factors that credit rating agencies consider in establishing Constellation Energy’s and BGE’s credit ratings include, but are notlimited to, cash flows, liquidity, business risk profile, regulatory and legislative climate, and the amount of debt as a component of totalcapitalization.

In April 2006, as a result of regulatory and legislative developments in Maryland, Standard & Poor’s Rating Group, Moody’s InvestorsService, and Fitch Ratings reviewed our ratings and took the following actions:

♦ Fitch Ratings downgraded Constellation Energy’s Senior Unsecured Debt rating from A− to BBB+, downgraded BGE’s SeniorUnsecured Debt ratings from A to A−, and reduced certain other credit ratings as noted in the table on the next page.

♦ Fitch Ratings changed Constellation Energy’s outlook to “evolving” and BGE’s outlook to “negative.”

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♦ Moody’s Investor Service downgraded BGE’s Senior Unsecured Debt rating from A2 to A3, reduced certain other credit ratings. InJuly 2006, Moody’s Investor Service made further changes in BGE and CEG’s credit ratings and outlook as discussed below.

♦ Moody’s Investor Service revised Constellation Energy’s rating outlook from “positive” to “developing.”♦ Standard & Poor’s Ratings Group placed the ratings of Constellation Energy and BGE on “credit watch developing” from “positive.”In July 2006, Moody’s Investors Service completed a review of BGE’s rating and took the following actions:♦ downgraded BGE’s senior unsecured debt from A3 to Baa2, and♦ changed Constellation Energy’s outlook to “negative” from “developing.”These actions were a result of the Maryland General Assembly actions and a difficult and uncertain regulatory environment. We discuss

the Maryland General Assembly actions in more detail in the Regulation by the Maryland PSC section beginning on page 25.In September 2006, Standard & Poor’s Ratings Group completed its annual review of Constellation Energy and BGE. Standard &

Poor’s Ratings Group revised its outlook for Constellation Energy’s and BGE’s senior unsecured debt to “positive” from “developing.”Standard & Poor’s Ratings Group also raised Constellation Energy’s senior unsecured debt rating to BBB+ from BBB.

In connection with the announcement of the agreement to terminate the merger with FPL Group, the rating agencies took the followingactions:

♦ Standard & Poor’s Ratings Group reaffirmed Constellation Energy’s and BGE’s credit ratings and revised its outlook onConstellation Energy and BGE to “negative” from “positive.”

♦ Moody’s Investor Service reaffirmed Constellation Energy’s and BGE’s credit ratings and outlook.♦ Fitch—Ratings reaffirmed Constellation Energy’s and BGE’s credit ratings and changed its outlook on Constellation Energy to

“stable” from “evolving.”At the date of this report, our credit ratings were as follows:

Standard& Poor’sRatingGroup

Moody’sInvestorsService

Fitch−Ratings

Constellation EnergyCommercial Paper A−2 P−2 F−2Senior Unsecured Debt BBB+ * Baa1 BBB+ *

BGECommercial Paper A−2 P−2* F−2*Mortgage Bonds A A2* A*Senior Unsecured Debt BBB+ Baa2* A−*Trust Preferred Securities BBB− Baa1* BBB+ *Preference Stock BBB− Baa2* BBB+ *

* In 2006, these credit ratings were adjusted to this current rating.

Available Sources of FundingWe continuously monitor our liquidity requirements and believe that our facilities and access to the capital markets provide sufficientliquidity to meet our business requirements. We discuss our available sources of funding in more detail below.

Constellation EnergyAt September 30, 2006, we had $185.0 million of commercial paper outstanding, and at November 3, 2006 we had no commercial paperoutstanding.

Constellation Energy has committed bank lines of credit under four credit facilities of $3.6 billion at September 30, 2006. We discussthese credit facilities in more detail in Note 8 of our 2005 Annual Report on Form 10−K. These facilities can issue letters of credit up to$3.6 billion. Letters of credit issued under all of our facilities totaled $1.8 billion at September 30, 2006.

In October 2006, Constellation Energy activated a $1.0 billion 364−day credit agreement expiring October 23, 2007. We can borrow upto $1 billion directly from the banks or use the agreements to issue letters of credit up to $500.0 million. As a result, Constellation Energy hascommitted bank lines of credit under five credit facilities of $4.6 billion as of November 7, 2006.

We have executed an agreement to sell six gas−fired generating facilities. We expect the sale to close by the end of 2006 or the firstquarter of 2007 and expect to receive approximately $1.5 billion in cash after tax payments. The proceeds from the sale are expected to beapplied to reduce debt and invest in our business or repurchase equity. We discuss this sale in more detail in the Notes to ConsolidatedFinancial Statements on page 11.

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BGEBGE currently maintains $175.0 million in annual committed credit facilities expiring May 2007 through September 2007. BGE can borrowdirectly from the banks or use the facilities to allow commercial paper to be issued. As of September 30, 2006, BGE had no outstandingcommercial paper, which results in $175.0 million in unused credit facilities.

In October 2006, BGE issued $300.0 million of 5.90% Senior Unsecured Notes, due October 1, 2016 and $400.0 million of 6.35%Senior Unsecured Notes, due October 1, 2036. We expect that the proceeds from these issuances will be used for general corporate purposes,including refinancing the following long−term debt of BGE:

♦ $300.0 million of 5.25% Notes, due December 15, 2006,♦ $122.0 million of 7.5% First Refunding Mortgage Bonds, due January 15, 2007, and♦ $10.0 million of 6.70% Medium−term Notes, Series D, due December 1, 2006.Pursuant to Senate Bill 1, the energy legislation adopted by the Maryland legislature, BGE is permitted to recover deferred costs

associated with the residential electric rate deferral by issuing rate stabilization bonds after January 1, 2007 that securitize the deferred costs.We discuss Senate Bill 1 in more detail in the Regulation by the Maryland PSC section on page 25. We currently intend to issue such bondsand in November 2006, BGE filed an application with the Maryland PSC requesting approval to issue bonds in an aggregate principal amountof approximately $635 million, subject to adjustment.

Capital ResourcesOur estimated annual amounts for the years 2006 and 2007 are shown in the table below.

We will continue to have cash requirements for:♦ working capital needs,♦ payments of interest, distributions, and dividends,♦ capital expenditures, and♦ the retirement of debt and redemption of preference stock.Capital requirements for 2006 and 2007 include estimates of spending for existing and anticipated projects. We continuously review and

modify those estimates. Actual requirements may vary from the estimates included in the table below because of a number of factorsincluding:

♦ regulation, legislation, and competition,♦ BGE load requirements,♦ environmental protection standards,♦ the type and number of projects selected for construction or acquisition,♦ the effect of market conditions on those projects,♦ the cost and availability of capital,♦ the availability of cash from operations, and♦ business decisions to invest in capital projects.

Our estimates are also subject to additional factors. Please see the Forward Looking Statements section on page 54 and Item 1A. RiskFactors section on page 53. We discuss legislation recently enacted by the State of Maryland and its impact on our capital expenditureestimates in the Environmental Matters section beginning on page 27.

Calendar Year Estimates 2006 2007(In millions)

Nonregulated Capital Requirements:Merchant energy

Generation plants $ 205 $ 170Nuclear fuel 140 140Environmental controls 20 215Portfolio acquisitions/investments 365 195Technology/other 165 155

Total merchant energy capital requirements 895 875Other nonregulated capital requirements 25 10Total nonregulated capital requirements 920 885

Regulated Capital Requirements:Regulated electric 285 335Regulated gas 65 110Total regulated capital requirements 350 445

Total capital requirements $ 1,270 $ 1,330

Capital RequirementsMerchant Energy BusinessOur merchant energy business’ capital requirements consist of its continuing requirements, including expenditures for:

♦ improvements to generating plants,♦ nuclear fuel costs,♦ costs of complying with the Environmental Protection Agency (EPA), Maryland, and Pennsylvania environmental regulations,♦ portfolio acquisitions, upstream gas investments, and other investments, and♦ enhancements to our information technology infrastructure.


Regulated Electric and GasRegulated electric and gas construction expenditures primarily include new business construction needs and improvements to existingfacilities, including projects to improve reliability.

Funding for Capital RequirementsWe discuss our funding for capital requirements in our 2005 Annual Report on Form 10−K.

Contractual Payment Obligations and Committed AmountsWe enter into various agreements that result in contractual payment obligations in connection with our business activities. These obligationsprimarily relate to our financing arrangements (such as long−term debt, preference stock, and operating leases), purchases of capacity andenergy to support the growth in our merchant energy business activities, and purchases of fuel and transportation to satisfy the fuelrequirements of our power generating facilities.

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Our total contractual payment obligations as of September 30, 2006, increased approximately $445 million during the first nine monthsof 2006 primarily due to an increase in fuel and transportation obligations and operating leases, partially offset by a decrease in long−termdebt and purchased capacity and energy. Our fuel and transportation obligations and operating leases increased mostly due to new coal andpower purchase contracts related to our merchant energy business. We detail our contractual payment obligations in the following table:

Payments

20062007−2008

2009−2010

There−after Total

(In millions)Contractual Payment ObligationsLong−term debt:1

NonregulatedPrincipal $ 5.4 $ 627.5 $ 501.5 $ 2,246.1 $ 3,380.5Interest 54.3 364.0 313.6 1,455.5 2,187.4

Total 59.7 991.5 815.1 3,701.6 5,567.9BGE

Principal 310.0 416.0 11.5 589.2 1,326.7Interest 19.3 97.5 71.2 775.1 963.1Total 329.3 513.5 82.7 1,364.3 2,289.8

BGE preference stock — — — 190.0 190.0Operating leases2 49.6 340.2 171.8 552.3 1,113.9Purchase obligations:3

Purchased capacity and energy4 133.3 726.2 453.0 558.4 1,870.9Fuel and transportation 730.2 2,833.3 780.5 1,068.7 5,412.7Other 67.8 147.0 59.5 128.7 403.0

Other noncurrent liabilities:Postretirement and postemploy−ment benefits5 6.4 75.7 86.4 226.8 395.3Other — — — — —

Total contractual payment obligations $ 1,376.3 $ 5,627.4 $ 2,449.0 $ 7,790.8 $ 17,243.5

1 Amounts in long−term debt reflect the original maturity date. Investors may require us to repay $282.3 million early through put options and remarketing features. Interest on variable ratedebt is included based on the September 30, 2006 forward curve for interest rates.

2 Our operating lease commitments include future payment obligations under certain power purchase agreements as discussed further in Note 11 of our 2005 Annual Report on Form 10−K.3 Contracts to purchase goods or services that specify all significant terms. Amounts related to certain purchase obligations are based on future purchase expectations which may differ from

actual purchases.4 Our contractual obligations for purchased capacity and energy are shown on a gross basis for certain transactions, including both the fixed payment portions of tolling contracts and

estimated variable payments under unit−contingent power purchase agreements.5 Amounts related to postretirement and postemployment benefits are for unfunded plans and reflect present value amounts consistent with the determination of the related liabilities

recorded on the Consolidated Balance Sheets.

The table below presents our contingent obligations. Our contingent obligations increased approximately $840 million during the firstnine months of 2006, primarily due to guarantees by the parent company for subsidiary obligations to third parties in support of the growth ofour merchant energy business, partially offset by a decrease in outstanding letters of credit.

These amounts do not represent incremental consolidated Constellation Energy obligations; rather, they primarily represent parentalguarantees of certain subsidiary obligations to third parties. Our calculation of the fair value of subsidiary obligations covered by the$9,734.4 million of the competitive supply guarantees was $3,114.9 million at September 30, 2006. Accordingly, if the parent company wasrequired to fund subsidiary obligations, the total amount based on September 30, 2006 market prices would be $3,114.9 million.

Expiration

20062007−2008

2009−2010

There−after Total

(In millions)Contingent ObligationsLetters of credit $ 1,236.2 $ 598.4 $ — $ — $ 1,834.6Guarantees—competitive supply1 3,873.6 3,254.5 342.4 2,263.9 9,734.4Other guarantees, net2 0.6 15.2 1.4 1,264.8 1,282.0Total contingent obligations $ 5,110.4 $ 3,868.1 $ 343.8 $ 3,528.7 $ 12,851.0

1 While the face amount of these guarantees is $9,734.4 million, we do not expect to fund the fullamount. In the event the parent was required to fulfill subsidiary obligations, ourcalculation of the fair value of obligations covered by these guarantees was $3,114.9 million at September 30, 2006.

2 Otherguarantees in the above table are shown net of liabilities of $25.0 million recorded at September 30, 2006 in our Consolidated Balance Sheets.

Liquidity ProvisionsIn many cases, customers of our wholesale marketing and risk management operation rely on the creditworthiness of Constellation Energy. Adecline below investment grade by Constellation Energy would negatively impact the business prospects of that operation.

We regularly review our liquidity needs to ensure that we have adequate facilities available to meet collateral requirements. Thisincludes having liquidity available to meet margin requirements for our competitive supply operations.

We have certain agreements that contain provisions that would require additional collateral upon significant credit rating decreases insenior unsecured debt of Constellation Energy. Decreases in Constellation Energy’s credit ratings would not trigger an early payment on anyof our credit facilities.

Under counterparty contracts related to our wholesale marketing and risk management operation, we are obligated to post collateral ifConstellation Energy’s senior unsecured credit ratings declined below established contractual levels. Based on contractual provisions atSeptember 30, 2006, we

49


estimate that if Constellation Energy’s senior unsecured debt were downgraded we would have the following additional collateralobligations:

Credit RatingsDowngraded to

LevelBelowCurrentRating

IncrementalObligations

CumulativeIncrementalObligations

(In millions)BBB/Baa2 1 $ — $ —BBB−/Baa3 2 542 542Below investment grade 3 282 824

Based on market conditions and contractual obligations at the time of a downgrade, we could be required to post collateral in an amountthat could exceed the amounts specified above, which could be material. We discuss our credit ratings in the Security Ratings sectionbeginning on page 46 and our credit facilities in the Available Sources of Funding section beginning on page 47.

Certain credit facilities of Constellation Energy contain a provision requiring Constellation Energy to maintain a ratio of debt tocapitalization equal to or less than 65%. At September 30, 2006, the debt to capitalization ratio as defined in the credit agreements was 49%.The failure by Constellation Energy to comply with these provisions could result in the acceleration of the maturity of the debt outstandingunder these facilities, which is primarily letters of credit issued in support of our competitive supply operations. We detail our letters of creditin the Contractual Payment Obligations and Committed Amounts section on the previous page.

Certain credit facilities of BGE contain provisions requiring BGE to maintain a ratio of debt to capitalization equal to or less than 65%.At September 30, 2006, the debt to capitalization ratio for BGE as defined in these credit agreements was 44%. At September 30, 2006, noamount is outstanding under these facilities.

Off−Balance Sheet ArrangementsWe discuss our off−balance sheet arrangements in our 2005 Annual Report on Form 10−K.

Market RiskCommodity RiskWe measure the sensitivity of our wholesale marketing and risk management mark−to−market energy contracts to potential changes inmarket prices using value at risk. Value at risk represents the potential pre−tax loss in the fair value of our wholesale marketing and riskmanagement mark−to−market energy assets and liabilities over one and ten−day holding periods. We discuss value at risk in more detail inthe Market Risk section of our 2005 Annual Report on Form 10−K.

The table below is the value at risk associated with our wholesale marketing and risk management operation’s mark−to−market energyassets and liabilities, including both trading and non−trading activities. Generally, over the last several quarters, our value at risk hasincreased. This is the result of the combination of market conditions, increased trading activity including the growth of our gas business, anda higher number of economic hedges of accrual positions. These economic hedges receive mark−to−market accounting treatment as they arederivative contracts that are not designated for either cash−flow hedge or accrual accounting.

During the third quarter of 2006, there was an increase in our value−at−risk primarily due to a higher number of economic hedges ofaccrual positions. We discuss our mark−to−market results in more detail in the Competitive Supply section beginning on page 35.


2005December 31,

2005March 31,

2006June 30,

2006September 30,

2006(In millions)

99% Confidence Level, One−Day HoldingPeriod

Average $ 6.8 $ 10.6 $ 15.4 $ 13.0 $ 18.2High 12.3 14.5 23.5 17.5 24.2

95% Confidence Level, One−Day HoldingPeriod

Average* 5.2 8.0 11.7 9.9 13.9High 9.4 11.0 17.9 13.3 18.4

95% Confidence Level, Ten−Day HoldingPeriod

Average 16.4 25.4 37.1 31.2 43.9High 29.6 34.9 56.5 42.0 58.2

* For 2005, average value at risk was $4.7 million.

The following table details our value at risk for the trading portion of our wholesale marketing and risk management mark−to−marketenergy assets and liabilities over a one−day holding period at a 99% confidence level for the following quarters:


2005December 31,

2005March 31,

2006June 30,

2006September 30,

2006(In millions)

Average $ 6.5 $ 9.3 $ 12.0 $ 10.8 $ 10.0High 11.4 13.3 17.6 15.6 16.2


Due to the inherent limitations of statistical measures such as value at risk and the seasonality of changes in market prices, the value atrisk calculation may not reflect the full extent of our commodity price risk exposure. Additionally, actual changes in the value of options maydiffer from the value at risk calculated using a linear approximation inherent in our calculation method.

As a result, actual changes in the fair value of mark−to−market energy assets and liabilities could differ from the calculated value atrisk, and such changes could have a material impact on our financial results.

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Wholesale Credit RiskWe actively monitor the credit portfolio of our wholesale marketing and risk management operation to attempt to reduce the impact ofcounterparty default. As of September 30, 2006 and December 31, 2005, the credit portfolio of our wholesale marketing and riskmanagement operation had the following public credit ratings:

September 30,2006

December 31,2005

RatingInvestment Grade1 62% 53%Non−Investment Grade 4 7Not Rated 34 40

1 Includes counterparties with an investment grade rating by at least one of the major credit rating agencies. If split rating exists, the lowerrating is used.

We utilize internal credit ratings to evaluate the creditworthiness of our wholesale customers, including those companies that do nothave public credit ratings. The “Not Rated” category in the table above includes counterparties that do not have public credit ratings andinclude governmental entities, municipalities, cooperatives, power pools, and other load−serving entities, and marketers for which wedetermine creditworthiness based on internal credit ratings.

The following table provides the breakdown of the credit quality of our wholesale credit portfolio based on our internal credit ratings.

September 30,2006

December 31,2005

Investment Grade Equivalent 82% 80%Non−Investment Grade 18 20

A portion of our wholesale credit risk is related to transactions that are recorded in our Consolidated Balance Sheets. These transactionsprimarily consist of open positions from our wholesale marketing and risk management operation that are accounted for usingmark−to−market accounting, as well as amounts owed by wholesale counterparties for transactions that settled but have not yet been paid.The following table highlights the credit quality and exposures related to these activities at September 30, 2006:

Rating

Total ExposureBefore Credit

CollateralCredit

CollateralNet

Exposure

Number ofCounterparties Greater

than 10% of NetExposure

Net Exposure ofCounterparties Greater

than 10% of NetExposure

(Dollars in millions)Investment grade $ 1,194 $ 125 $ 1,069 — $ —Split rating 14 12 2 — —Non−investment grade 93 28 65 — —Internally rated—investment grade 472 73 399 — —Internally rated—non−investment grade 114 2 112 — —Total $ 1,887 $ 240 $ 1,647 — $ —

Due to the possibility of extreme volatility in the prices of energy commodities and derivatives, the market value of contractualpositions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If such acounterparty were then to fail to perform its obligations under its contract (for example, fail to deliver the electricity our wholesale marketingand risk management operation had contracted for), we could incur a loss that could have a material impact on our financial results.

Additionally, if a counterparty were to default and we were to liquidate all contracts with that entity, our credit loss would include theloss in value of mark−to−market contracts, the amount owed for settled transactions, and additional payments, if any, we would have to maketo settle unrealized losses on accrual contracts.

Interest Rate Risk, Retail Credit Risk, Foreign Currency Risk, and Equity Price RiskWe discuss our exposure to interest rate risk, retail credit risk, foreign currency risk, and equity price risk in the Market Risk section of our2005 Annual Report on Form 10−K.

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Item 3. Quantitative and Qualitative Disclosures About Market RiskWe discuss the following information related to our market risk:

♦ SFAS No. 133 hedging activities section in the Notes to Consolidated Financial Statements beginning on page 21,♦ activities of our wholesale marketing and risk management operation in the Merchant Energy Business section of Management’s

Discussion and Analysis beginning on page 31,♦ evaluation of commodity and credit risk in the Market Risk section of Management’s Discussion and Analysis beginning on page 50,

and♦ changes to our business environment in the Business Environment section of Management’s Discussion and Analysis beginning on

page 25.

Item 4. Controls and Procedures

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of thecontrol system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud, if any, within Constellation Energy or BGE have been detected. These inherent limitationsinclude errors by personnel in executing controls due to faulty judgment or simple mistakes, which could occur in situations such as whenpersonnel performing controls are new to a job function or when inadequate resources are applied to a process. Additionally, controls can becircumvented by the individual acts of some persons or by collusion of two or more people.The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no

absolute assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls maybecome inadequate because of changes in conditions or personnel, or the degree of compliance with the policies or procedures maydeteriorate. Because of the inherent limitations in a cost−effective control system, misstatements due to error or fraud may occur and notbe detected.Evaluation of Disclosure Controls and Procedures

The principal executive officers and principal financial officer of both Constellation Energy and BGE have evaluated the effectiveness of thedisclosure controls and procedures (as such term is defined in Rules 13a−15(e) and 15d−15(e) under the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) as of the end of the fiscal quarter covered by this quarterly report (the “Evaluation Date”). Based on suchevaluation, such officers have concluded that, as of the Evaluation Date, Constellation Energy’s and BGE’s disclosure controls andprocedures are effective.

Changes in Internal Control over Financial ReportingDuring the quarter ended September 30, 2006, there has been no change in either Constellation Energy’s or BGE’s internal control overfinancial reporting (as such term is defined in Rules 13a−15(f) and 15d−15(f) under the Exchange Act) that has materially affected, or isreasonably likely to materially affect, either Constellation Energy’s or BGE’s internal control over financial reporting.

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PART II. OTHER INFORMATIONItem 1. Legal ProceedingsWe discuss our Legal Proceedings in the Notes to Consolidated Financial Statements beginning on page 20.

Item 1A. Risk FactorsThe risk factors included in our 2005 Annual Report on Form 10−K have not materially changed except as set forth below. You shouldconsider carefully the following risks, along with the risks described under Item 1A. Risk Factors in our 2005 Annual Report on Form 10−K.The risks and uncertainties described herein and in our 2005 Annual Report on Form 10−K are not the only ones that may affect us.Additional risks and uncertainties also may adversely affect our business and operations including those discussed in Item 2. Management’sDiscussion and Analysis. If any of the events described actually occur, our business and financial results could be materially adverselyaffected.

Energy and environmental legislation recently adopted in Maryland may be implemented in a manner that could materially adversely affect our businessprospects and financial results.The recent adoption in Maryland of energy legislation was a response to anticipated increases in residential electric rates. The legislation,among other things, introduces a temporary cap on rate increases and requires the Maryland PSC to evaluate the status of Maryland’sderegulated electricity market, including the implications of requiring or allowing utilities to construct or acquire generating facilities, tore−evaluate the allowance for stranded costs under the Maryland Electric Customer Choice and Competition Act of 1999 and to consideradjustments to power plant property taxes. Because the energy legislation is still in the process of being implemented, and in light of recentlydecided and still pending court cases involving the legislation, we do not know the impact such legislation will have on our business orfinancial results.

In addition, Maryland has adopted the Healthy Air Act, which will mandate, among other things, more rapid emission reductions byMaryland power generation facilities (including those owned and operated by us) than are required by current federal laws and regulations.This legislation will be implemented through the Clean Power Rule, which we expect to be finalized in the fourth quarter of 2006.

If either the energy or environmental legislation is implemented in a manner adverse to us, our financial results could be negativelyimpacted.

Item 2. Unregistered Sales of Equity Securities and Use of ProceedThe following table presents shares surrendered by employees to satisfy tax withholding obligations on vested restricted stock.

Period

Total Numberof SharesPurchased

Average PricePaid for Shares

Total Numberof Shares

Purchased asPart of Publicly

AnnouncedPlans or

Programs

Maximum Numberof Shares thatMay Yet Be

Purchased Underthe Plans and

ProgramsJuly 1—July 31, 2006 575 $ 55.90 — —August 1—August 31, 2006 832 57.87 — —September 1 − September 30, 2006 1,391 59.54 — —Total 2,798 $ 58.30 — —

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Item 5. Other InformationForward Looking StatementsWe 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. Wealso disclose non−historical information that represents management’s expectations, which are based on numerous assumptions. Thesestatements and projections are not guarantees of our future performance and are subject to risks, uncertainties, and other important factorsthat could cause our actual performance or achievements to be materially different from those we project. These risks, uncertainties, andfactors 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, naturalgas, 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,♦ uncertainties associated with estimating natural gas reserves, developing properties, and extracting natural gas,♦ 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

customer service,♦ 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 infuel 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 accountingpolicies and preparing financial statements, including factors that are estimated in determining the fair value of energy contracts, suchas 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,♦ the ability to successfully identify and complete acquisitions and sales of businesses and 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 for more information on these factors. Theseforward 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 lookingstatements.

54


Item 6. Exhibits

Exhibit No. 2(a) Purchase and Sale Agreement by and between Constellation Power, Inc. and TPF Generation Holdings, LLC datedas of October 10, 2006.

Exhibit No. 2(b)* Termination and Release Agreement, dated October 24, 2006, by and among Constellation Energy Group, Inc.,FPL Group, Inc. and CF Merger Corporation (Designated as Exhibit 2.1 to the Current Report on Form 8−K datedOctober 25, 2006, File Nos. 1−12869 and 1−1910.)

Exhibit No. 3(a) Bylaws of Constellation Energy Group, Inc. as amended to October 20, 2006.Exhibit No. 4(a) First Supplemental Indenture between Baltimore Gas and Electric Company and Deutsche Bank Trust Company

Americas, as trustee, dated as of October 13, 2006.Exhibit No. 4(b) Registration Rights Agreement dated October 13, 2006 among Baltimore Gas and Electric Company and the

parties named therein relating to 5.90% Notes due 2016.Exhibit No. 4(c) Registration Rights Agreement dated October 13, 2006 among Baltimore Gas and Electric Company and the

parties named therein relating to 6.35% Notes due 2036.Exhibit No. 10(a) Constellation Energy Group, Inc. Deferred Compensation Plan for Non−Employee Directors, as amended and

restated.Exhibit No. 10(b) Constellation Energy Group, Inc. Executive Long−Term Incentive Plan, as amended and restated.Exhibit No. 10(c) Constellation Energy Group, Inc. 2002 Senior Management Long−Term Incentive Plan, as amended and restated.Exhibit No. 10(d) Constellation Energy Group, Inc. Management Long−Term Incentive Plan, as amended and restated.Exhibit No. 12(a) Constellation Energy Group, Inc. Computation of Ratio of Earnings to Fixed Charges.Exhibit No. 12(b) Baltimore Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges and Computation of

Ratio of Earnings to Combined Fixed Charges and Preferred and Preference Dividend Requirements.Exhibit No. 31(a) Certification of Chairman of the Board, President, and Chief Executive Officer of Constellation Energy

Group, Inc. as adopted pursuant to Section 302 of the Sarbanes−Oxley Act of 2002.Exhibit No. 31(b) Certification of Executive Vice President, Chief Financial Officer, and Chief Administrative Officer of

Constellation Energy Group, Inc. as adopted pursuant to Section 302 of the Sarbanes−Oxley Act of 2002.Exhibit No. 31(c) Certification of President and Chief Executive Officer of Baltimore Gas and Electric Company as adopted pursuant

to Section 302 of the Sarbanes−Oxley Act of 2002.Exhibit No. 31(d) Certification of Senior Vice President and Chief Financial Officer of Baltimore Gas and Electric Company as

adopted pursuant to Section 302 of the Sarbanes−Oxley Act of 2002.Exhibit No. 32(a) Certification of Chairman of the Board, President, and Chief Executive Officer of Constellation Energy

Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of2002.

Exhibit No. 32(b) Certification of Executive Vice President, Chief Financial Officer, and Chief Administrative Officer ofConstellation Energy Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes−Oxley Act of 2002.

Exhibit No. 32(c) Certification of President and Chief Executive Officer of Baltimore Gas and Electric Company pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002.

Exhibit No. 32(d) Certification of Senior Vice President and Chief Financial Officer of Baltimore Gas and Electric Companypursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002.

* Incorporated by Reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

CONSTELLATION ENERGY GROUP, INC.(Registrant)

BALTIMORE GAS AND ELECTRIC COMPANY(Registrant)

Date: November 9, 2006 /s/ E. Follin SmithE. Follin Smith,

Executive Vice President of Constellation EnergyGroup, Inc. and Senior Vice President of Baltimore Gas

and Electric Company, and as Principal Financial Officerof each Registrant

56


EXHIBIT 2(a)

PURCHASE AND SALE AGREEMENT

by and between

CONSTELLATION POWER, INC.

as Seller,

and

TPF GENERATION HOLDINGS, LLC,

as Buyer

dated as of October 10, 2006


TABLE OF CONTENTS

Page

ARTICLE I DEFINITIONS AND CONSTRUCTION 1

Section 1.1 Definitions 1Section 1.2 Rules of Construction 11

ARTICLE II PURCHASE AND SALE AND CLOSING 12

Section 2.1 Purchase and Sale 12Section 2.2 Purchase Price 12Section 2.3 Closing 13Section 2.4 Aggregate Net Working Capital Adjustment Amount; Gas Inventory Amount 13Section 2.5 Allocation of Purchase Price 14

ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING SELLER AND PARENT COMPANIES 15

Section 3.1 Organization 15Section 3.2 Authority 15Section 3.3 No Conflicts; Consents and Approvals 15Section 3.4 Capitalization 16Section 3.5 Legal Proceedings 16Section 3.6 Business 16Section 3.7 Brokers 16Section 3.8 Taxes 17

ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING THE PROJECT COMPANIES 17

Section 4.1 Organization 17Section 4.2 No Conflicts; Consents and Approvals 17Section 4.3 Capitalization 18Section 4.4 Business 18Section 4.5 Bank Accounts 18Section 4.6 Subsidiaries 18Section 4.7 Legal Proceedings 18Section 4.8 Compliance with Laws and Orders 19Section 4.9 Liabilities 19Section 4.10 Taxes 19Section 4.11 Regulatory Status 20Section 4.12 Contracts 20Section 4.13 Real Property 21Section 4.14 Permits 21Section 4.15 Environmental Matters 22Section 4.16 Insurance 23Section 4.17 Intellectual Property 23Section 4.18 Brokers 23Section 4.19 Employees and Labor Matters 23

i


Page

Section 4.20 Employee Benefits 24Section 4.21 Absence of Certain Changes 24

ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER 24

Section 5.1 Organization 24Section 5.2 Authority 25Section 5.3 No Conflicts 25Section 5.4 Legal Proceedings 25Section 5.5 Compliance with Laws and Orders 25Section 5.6 Brokers 25Section 5.7 Acquisition as Investment 25Section 5.8 Financial Resources 26Section 5.9 No Conflicting Contracts 26Section 5.10 Opportunity for Independent Investigation 26Section 5.11 Bankruptcy 26

ARTICLE VI COVENANTS 27

Section 6.1 Regulatory and Other Approvals 27Section 6.2 Access of Buyer 27Section 6.3 Certain Restrictions 28Section 6.4 Use of Certain Names 30Section 6.5 Support Obligations 30Section 6.6 Excluded Items 32Section 6.7 Employee and Benefit Matters 32Section 6.8 Termination of Certain Services, Contracts and Other Affiliate Transactions 36Section 6.9 Spare Parts; Distributions 36Section 6.10 Insurance 37Section 6.11 Casualty 37Section 6.12 Condemnation 38Section 6.13 Transfer Taxes 38Section 6.14 Tax Matters 39Section 6.15 Affiliate Contracts 42Section 6.16 Appointment of Representatives 42Section 6.17 Updating 42Section 6.18 Announcements 43Section 6.19 Buyer Financing 43Section 6.20 Further Assurances 43

ARTICLE VII BUYER’S CONDITIONS TO CLOSING 44

Section 7.1 Representations and Warranties 44Section 7.2 Performance 44Section 7.3 Officer’s Certificate 44Section 7.4 Orders and Laws 44

ii


Page

Section 7.5 Consents and Approvals 44Section 7.6 Resignation of Members, Managers, Officers and Directors 44Section 7.7 Seller Deliverables 44Section 7.8 Financing 45

ARTICLE VIII SELLER’S CONDITIONS TO CLOSING 45

Section 8.1 Representations and Warranties 46Section 8.2 Performance 46Section 8.3 Officer’s Certificate 46Section 8.4 Orders and Laws 46Section 8.5 Consents and Approvals 46Section 8.6 Release of Support Obligations 46Section 8.7 Buyer Deliverables 46

ARTICLE IX TERMINATION 47

Section 9.1 Termination 47Section 9.2 Effect of Termination 47Section 9.3 Break−up Fee 47

ARTICLE X INDEMNIFICATION, LIMITATIONS OF LIABILITY, WAIVERS AND ARBITRATION 48

Section 10.1 Indemnification 48Section 10.2 Limitations of Liability 49Section 10.3 Notice; Duty to Mitigate 50Section 10.4 Indirect Claims 50Section 10.5 Waiver of Other Representations 50Section 10.6 Waiver of Remedies 51Section 10.7 Procedure with Respect to Third−Party Claims 51Section 10.8 Access to Information 52

ARTICLE XI MISCELLANEOUS 53

Section 11.1 Notices 53Section 11.2 Entire Agreement 54Section 11.3 Expenses 54Section 11.4 Disclosure 54Section 11.5 Waiver 54Section 11.6 Amendment 55Section 11.7 No Third Party Beneficiary 55Section 11.8 Assignment; Binding Effect 55Section 11.9 Headings 55Section 11.10 Invalid Provisions 55Section 11.11 Counterparts; Facsimile 55Section 11.12 Governing Law; Jurisdiction; Waiver of Jury Trial 55Section 11.13 Attorneys’ Fees 56

iii


EXHIBITS

Exhibit A − Form of Membership Interests Assignment AgreementExhibit B − Form of Assignment and Assumption AgreementExhibit C − Transition Services Agreement Term Sheet

SCHEDULES

1.1−A Sample Aggregate Net Working Capital Calculation1.1−AC Affiliate Contracts1.1−D Designated Commodities Contracts1.1−K(i) Knowledge of Seller1.1−K(ii) Knowledge of Buyer1.1−PL Permitted Liens3.3(c) Seller Approvals3.4 Capitalization3.8(a) and (b) Taxes (Parent Companies) – Tax Returns Filed and Paid3.8(e) and (f) Taxes (Parent Companies) – Statute of Limitations and Audits4.2 Company Consents4.4 Sufficiency of Assets4.5 Bank Accounts4.7 Legal Proceedings4.9 Liabilities4.10(a) and (b) Taxes (Project Companies) – Tax Returns Filed and Paid4.10(e) and (f) Taxes (Project Companies) – Statute of Limitations, Audits and Legal Proceedings4.10(i) Taxes (Project Companies) – Projects Classified as Disregarded Entites for Federal

Income Tax Purposes4.10(j) Taxes (Project Companies) – Projects Classifed as Partnerships for Federal Income Tax

Purposes4.12 Material Contracts4.13 Real Property4.14(a) Permits4.14(b) Alleged Violations4.15(a) Environmental Matters – Material Environmental Site Assessments and Material

Compliance Audits4.15(b) Material Environmental Permits4.15(c) Environmental Laws and Permits Material Compliance4.15(d) Material Environmental Claims, Actions, Proceedings or Investigations4.15(e) Release of any Hazardous Materials at or from Project Properties that would result in a

material Environmental Claim4.15(f) Emissions Allowances and Credits

iv


4.16 Insurance4.19 Employee and Labor Matters5.3 Buyer Approvals5.9 Conflicts6.3 Exceptions to Conduct of Business6.5(a) Support Obligations6.6 Excluded Items6.7(a) Plant Employees6.7(b) Plant Employees to Receive Unvested Pension Payments6.8 Terminated Contracts

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PURCHASE AND SALE AGREEMENT

This PURCHASE AND SALE AGREEMENT dated as of October 10, 2006 (this “Agreement”), by and betweenCONSTELLATION POWER, INC., a Maryland corporation (“Seller”), and a TPF GENERATION HOLDINGS, LLC, a Delawarelimited liability company (“Buyer”).

RECITALS

Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, 100% of the stock of and membership interests inthe direct or indirect owners of six natural gas−fired power plants, together with certain related companies, all on the terms and subjectto the conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the agreements in this Agreement, and for other good andvaluable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agreeas follows:

ARTICLE IDEFINITIONS AND CONSTRUCTION

Section 1.1 Definitions. As used in this Agreement, the following capitalized terms have the meanings set forth below:

“1933 Act” has the meaning set forth in Section 5.7.

“Actual Aggregate Net Working Capital Adjustment Amount” has the meaning set forth in Section 2.4(b).

“Actual Gas Inventory Amount” has the meaning set forth in Section 2.4(b).

“Affiliate” means any Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or isunder common control with the Person specified. For purposes of this definition, control of a Person means the power, direct orindirect, to direct or cause the direction of the management and policies of such Person whether through ownership of voting securitiesor ownership interests, by contract or otherwise, and specifically with respect to a corporation, partnership or limited liabilitycompany, means direct or indirect ownership of more than 50% of the voting securities in such corporation or of the voting interest ina partnership or limited liability company.

“Affiliate Contracts” means, collectively, those contracts listed on Schedule 1.1−AC.

“Aggregate Net Working Capital” means (without duplication) the sum of the net working capital of the Project Companiesas determined in accordance with the methodology used in the preparation of the sample calculation of Aggregate Net WorkingCapital set forth on Schedule 1.1−A, and otherwise in accordance with GAAP as of 12:01 A.M. (Eastern time) on the Closing Date. In the event the Closing does not occur on the last day of a month, then each item


included in the calculation of Aggregate Net Working Capital shall be prorated to the extent applicable as of the Closing Date bymultiplying the amount of each such item for the full calendar month by a fraction, the numerator of which is the number of dayselapsed from and including the first day of the month in which the Closing Date occurs to but excluding the Closing Date, and thedenominator of which is the total number of days in such month, provided that to the extent items may be determined on a daily basis,such amounts will be allocated on a daily basis.

“Aggregate Net Working Capital Adjustment Amount” means the amount by which the Aggregate Net Working Capital,expressed as a positive or negative number, is greater than or less than zero as of the Closing Date.

“Agreement” has the meaning set forth in the introductory paragraph to this Agreement.

“Assets” of any Person means all assets and properties of every kind, nature, character and description (whether real, personalor mixed, whether tangible or intangible and wherever situated), including the goodwill related thereto, operated, owned or leased bysuch Person.

“Assigned Contracts” means, collectively, each Affiliate Contract in respect of which the Counterparty thereto has consentedto (or for which no consent is required for) the assignment thereof by the Assignor to the Assignee as contemplated by Section 7.7(b).

“Assignee” has the meaning set forth in Section 7.7(b).

“Assignment and Assumption Agreement” has the meaning set forth in Section 7.7(b).

“Assignor” has the meaning set forth in Section 7.7(b).

“Base Purchase Price” has the meaning set forth in Section2.2(a).

“Benefit Plan” means (a) each “employee benefit plan,” as such term is defined in Section 3(3) of ERISA, (b) each plan thatwould be an “employee benefit plan”, as such term is defined in Section 3(3) of ERISA, if it was subject to ERISA, such as foreignplans and plans for directors, (c) each stock bonus, stock ownership, stock option, stock purchase, stock appreciation rights, phantomstock, or other stock plan (whether qualified or nonqualified), and (d) each bonus or incentive compensation plan.

“Big Sandy Peaker” means Big Sandy Peaker Plant, LLC, a Maryland limited liability company.

“Big Sandy Project” means the approximately 300 megawatt (nominal) natural gas−fired simple−cycle electric generatingplant located in Kenova, West Virginia, together with all auxiliary equipment, ancillary and associated facilities and equipment,electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased by Big Sandy Peaker)used for the receipt of fuel and water and the delivery of the electrical output of

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said generating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant andassociated equipment.

“Break−up Fee Security” means, at the option of Buyer, (a) cash delivered into escrow pursuant to an escrow agreement andwith an escrow agent, in each case reasonably satisfactory to Seller or (b) an irrevocable stand−by letter of credit for the benefit ofSeller that is in a form and issued by a bank, in each case reasonably satisfactory to Seller.

“Business” as to any Project Company, means the ownership, lease and/or operation, as applicable, of the respective Project,including the generation and sale of electricity and capacity by such Project Company at or from the Project, the receipt by suchProject Company of natural gas and the conduct of other activities by such Project Company related or incidental to the foregoing.

“Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of Maryland or theState of New York are authorized or required to close.

“Buyer” has the meaning set forth in the introductory paragraph to this Agreement.

“Buyer Approvals” has the meaning set forth in Section 5.3(c).

“Buyer Commitment Letter” means the financing commitment letter from Credit Suisse and Credit Suisse Securities (USA)LLC, dated September 29, 2006, or any other financing commitment reasonably satisfactory to Seller, to provide financing for thePurchase Price.

“Buyer Service Companies” has the meaning set forth in Section 6.7(a).

“CDWR” has the meaning set forth in Section 6.5(b)(ii).

“CDWR Agreement” has the meaning set forth in Section 6.5(b)(ii).

“CEG” means Constellation Energy Group, Inc., a Maryland corporation.

“Charter Documents” means with respect to any Person, the certificate or articles of incorporation or organization andby−laws, the limited partnership agreement, the partnership agreement, the limited liability company agreement or the trustagreement, or such other organizational documents of such Person, including those that are required to be registered or kept in thejurisdiction of incorporation, organization or formation of such Person and which establish the legal personality of such Person.

“Claim” means any demand, claim, action, investigation, legal proceeding (whether at law or in equity) or arbitration.

“Claiming Party” has the meaning set forth in Section 10.7(a).

“Closing” means the consummation of the transactions contemplated by this Agreement.

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“Closing Date” means the date on which Closing occurs.

“Code” means the Internal Revenue Code of 1986.

“Companies” means, collectively, each of the Project Companies, CP High Desert I, CP High Desert II, CP High Desert LP,Rio Nogales I, Rio Nogales II, HE Supply and UP Supply.

“Company Consents” has the meaning set forth in Section 4.2(b).

“Confidentiality Agreement” means that certain Confidentiality Agreement between Buyer and CEG effective June 16, 2006.

“Continued Employee” has the meaning set forth in Section 6.7(b).

“Continuing Support Letter of Credit” has the meaning set forth in Section 6.5(d).

“Continuing Support Obligation” has the meaning set forth in Section 6.5(d).

“Contract” means any written contract, lease, license, evidence of indebtedness, mortgage, indenture, purchase order,binding bid, letter of credit, security agreement or other legally binding arrangement.

“Counterparty” has the meaning set forth in Section 6.15.

“CP High Desert I” means CP High Desert I, Inc., a Maryland corporation.

“CP High Desert II” means CP High Desert II, Inc., a Maryland corporation.

“CP High Desert LP” means CP High Desert Limited Partnership, a Maryland limited partnership.

“Credit Rating” means, with respect to any Person, each rating given to such Person’s long−term unsecured debt obligationsby Standard & Poor’s Ratings Group (a division of McGraw Hill, Inc.), Moody’s Investors Services, Inc. or Fitch Ratings, asapplicable, and any successors thereto.

“Deductible Amount” has the meaning set forth in Section 10.2(c).

“Designated Commodities Contracts” means each of the contracts listed on Schedule 1.1−D.

“Dollars” and “$” mean United States dollars.

“Environmental Claim” means any claim, loss, cost, expense, liability, fine, penalty or damage arising out of or related toany violation of, or liability under, Environmental Law.

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“Environmental Law” means all applicable Law relating to pollution or protection of public heath and the environment,including, but not limited to the Federal Water Pollution Control Act (33 U.S.C. §1251 et seq.), Resources Conservation and RecoveryAct (42 U.S.C. §6901 et. seq.), Safe Drinking Water Act (42 U.S.C. §3000(f) et. seq.), Toxic Substances Control Act (15 U.S.C.§2601 et seq.), Clean Air Act (42 U.S.C. §7401 et. seq.), Comprehensive Environmental Response, Compensation and Liability Act(42 U.S.C. §9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. §1801, et seq.), the Clean Water Act (33 U.S.C.§1311, et seq.), the Emergency Planning and Community Right−to−Know Act of 1986 (42 U.S.C. §11001, et seq.) and theOccupational Safety and Health Act of 1970 (29 U.S.C. §651, et seq.).

“ERISA” means the Employee Retirement Income Security Act of 1974.

“ERISA Affiliate” means any entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o)of the Code or Section 4001(b)(1) of ERISA that includes Seller, or that is a member of the same “controlled group” as Sellerpursuant to Section 4001(a)(14) of ERISA; provided, however, that the Project Companies shall not be considered to be ERISAAffiliates from and after the Closing Date.

“Estimated Aggregate Net Working Capital Adjustment Amount” has the meaning set forth in Section 2.4(a).

“Estimated Gas Inventory Amount” has the meaning set forth in Section 2.4(a).

“Excluded Contracts” has the meaning set forth in Section 6.8.

“Excluded Items” has the meaning set forth in Section 6.6.

“FERC” means the Federal Energy Regulatory Commission.

“GAAP” means generally accepted accounting principles in the United States of America, applied on a consistent basis.

“Gas Inventory Amount” means the value of the physical gas inventory as of the Closing Date determined in accordancewith Schedule 1.1−A.

“GE LTSA” means the Long Term Service Agreement between General Electric International, Inc. and Seller, to the extentthe same relates to a Project.

“Governmental Authority” means any court, tribunal, arbitrator, authority, agency, commission, legislative body, official orother instrumentality of the United States or any state, county, city or other political subdivision or similar governing entity, andincluding any governmental, quasi–governmental or non−governmental body administering, regulating or having general oversightover gas, electricity, power or other markets.

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“Hazardous Material” means and includes each substance designated as a hazardous waste, hazardous substance, hazardousmaterial, pollutant, contaminant or toxic substance under any Environmental Law and any petroleum or petroleum products that havebeen released into the environment in concentrations or locations for which remedial action is required under any applicableEnvironmental Law.

“HE Supply” means HE Supply Company, LLC, a Maryland limited liability company.

“High Desert Power” means High Desert Power Project, LLC, a California limited liability company.

“High Desert Power Trust” means High Desert Power Trust, a Delaware trust.

“High Desert Project” means the approximately 830 megawatt (nominal) natural gas−fired combined−cycle electricgenerating plant located in Victorville, California, together with all auxiliary equipment, ancillary and associated facilities andequipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased by HighDesert Power or High Desert Power Trust) used for the receipt of fuel and water and the delivery of the electrical output of saidgenerating plant, and all other improvements related to the ownership, operation and maintenance of said generating plant andassociated equipment.

“Holland Energy” means Holland Energy, LLC, a Maryland limited liability company.

“Holland Project” means the approximately 665 megawatt (nominal) natural gas−fired combined−cycle electric generatingplant located in Beecher City, Illinois, together with all auxiliary equipment, ancillary and associated facilities and equipment,electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased by Holland Energy)used for the receipt of fuel and water and the delivery of the electrical output of said generating plant, and all other improvementsrelated to the ownership, operation and maintenance of said generating plant and associated equipment.

“HSR Act” means the Hart−Scott−Rodino Antitrust Improvements Act of 1976.

“Intellectual Property” means the following intellectual property rights, both statutory and common law rights, if applicable:(a) copyrights, registrations and applications for registration thereof, (b) trademarks, service marks, trade names, slogans, domainnames, business names, logos, trade dress, and registrations and applications for registrations thereof, (c) patents, as well as anyreissued and reexamined patents and extensions corresponding to the patents, and any patent applications, as well as any relatedcontinuation, continuation in part and divisional applications and patents issuing therefrom and (d) trade secrets and confidentialinformation, including ideas, designs, concepts, compilations of information, methods, techniques, procedures, processes and otherknow−how, whether or not patentable.

“Interim Period” has the meaning set forth in Section 6.1.

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“Investment Grade” means a Credit Rating of at least “BBB−” from Standard & Poor’s Ratings Group (a division ofMcGraw Hill, Inc.), at least “Baa3” from Moody’s Investors Services, Inc., and at least “BBB−” from Fitch Ratings.

“Knowledge” when used (i) in a particular representation and warranty in this Agreement with respect to Seller, means theactual knowledge (as opposed to any constructive or imputed knowledge) of the individuals listed on Schedule 1.1−K(i), without anyduty of inquiry, and (ii) in Section 6.17 with respect to Buyer, means the actual knowledge (as opposed to any constructive or imputedknowledge) of the individuals listed on Schedule 1.1−K(ii), without any duty of inquiry.

“Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of anyGovernmental Authority.

“Lien” means any mortgage, pledge, assessment, security interest, lien or other encumbrance on property.

“Loss” means any and all judgments, losses, liabilities, amounts paid in settlement, damages, fines, penalties, deficiencies,losses and expenses (including interest, court costs, reasonable fees of attorneys, accountants and other experts or other reasonableexpenses of litigation or other proceedings or of any claim, default or assessment), but only to the extent such losses are not coveredby a payment from some third party or by insurance or otherwise recoverable from third parties and are net of any associated benefitsarising in connection with such loss, including any associated tax benefits. For all purposes in this Agreement the term “Losses” doesnot include any Non−reimbursable Damages.

“Material Adverse Effect” means a material adverse effect on (i) the business, operations, properties or condition (financialor otherwise) of any of the Companies or (ii) the ability of Seller to consummate the transactions contemplated by this Agreement;provided, however, that in determining whether a Material Adverse Effect has occurred, there shall not be taken into account anyeffect resulting from (a) any change in economic conditions generally or in the industry in which a Project Company operates, (b) anychange in general regulatory or political conditions, including any acts of war or terrorist activities, in each case, excluding any suchchange to the extent that it only or disproportionately affects a specific Project Company, (c) any change in any Laws (includingEnvironmental Laws), (d) the failure of Seller or any Non−Company Affiliate to effect the assignment of any Contract to Buyer, anyProject Company, or any Affiliate of Buyer, (e) any increases in the costs of commodities or supplies, including fuel, or decreases inthe price of electricity, (f) any change in the financial condition or results of operation of a Project Company caused by the pendingsale of such Project Company to Buyer, including changes due to the Credit Rating of Buyer, (g) any actions to be taken pursuant to orin accordance with this Agreement, and (h) the announcement or pendency of the transactions contemplated hereby.

“Material Contracts” has the meaning set forth in Section 4.12 (a).

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“Membership Interests” means 100% of the membership interests of each of Holland Energy, HE Supply, Big Sandy Peaker,University Park Energy, UP Supply and Wolf Hills Energy.

“Membership Interests Assignment Agreement” has the meaning set forth in Section 7.7(a).

“Non−Company Affiliate” means any Affiliate of Seller, except for the Companies.

“Non−reimbursable Damages” has the meaning set forth in Section 10.6(b).

“Parent Company” means each Company that is not a Project Company.

“Parties” means each of Buyer and Seller.

“Permits” means all licenses, permits, certificates of authority, authorizations, approvals, registrations, franchises and similarconsents granted by a Governmental Authority.

“Permitted Lien” means (a) any Lien for Taxes not yet due or delinquent or being contested in good faith by appropriateproceedings, (b) any Lien arising in the ordinary course of business by operation of Law with respect to a liability that is not yet due ordelinquent or which is being contested in good faith by Seller or a Project Company, (c) all matters that are disclosed (whether or notsubsequently deleted or endorsed over) on any survey or in the title policies insuring a Property or any commitments therefor that havebeen made available to Buyer if copies of the underlying exception documents have been made available to Buyer, (d) imperfectionsor irregularities of title that would not, individually or in the aggregate, reasonably be expected to adversely affect operations of any ofthe Projects, (e) zoning, planning, and other similar limitations and restrictions, and all rights of any Governmental Authority toregulate a Property, (f) the terms and conditions of the Material Contracts or the Contracts listed on Schedule 4.12, (g) any Lien to bereleased on or prior to Closing and (h) the matters identified on Schedule 1.1−PL.

“Person” means any natural person, corporation, general partnership, limited partnership, limited liability company,proprietorship, other business organization, trust, union, association or Governmental Authority.

“Plant Employees” has the meaning set forth in Section 6.7(a).

“Pre−Closing Taxable Period” has the meaning set forth in Section 6.14(a).

“Project” or “Projects” means one or more of the High Desert Project, the Rio Nogales Project, the Holland Project, theBig Sandy Project, the University Park Project and the Wolf Hills Project.

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“Project Company” means each of High Desert Power and High Desert Power Trust, Rio Nogales Power, Holland Energy,Big Sandy Peaker, University Park Energy and Wolf Hills Energy.

“Property” means the real property on which a Project is located, including leasehold interests, easements and rights−of−wayappertaining or related thereto.

“Property Taxes” has the meaning set forth in Section 6.14(b).

“Purchase Price” has the meaning set forth in Section 2.2.

“Purchase Price Allocation Schedule” has the meaning set forth in Section 2.5.

“Purchased Assets” means all of the Assets of the Companies.

“Purchased Interests” means, collectively, the Membership Interests and the Shares.

“Release” means any release, spill, emission, migration, leaking, pumping, injection, deposit, disposal or discharge of anyHazardous Materials into the environment, to the extent giving rise to liability under applicable Environmental Laws.

“Representatives” means, as to any Person, its officers, directors, employees, counsel, accountants, financial advisers,insurers, financing sources and consultants.

“Responding Party” has the meaning set forth in Section 10.7(a).

“Rio Nogales I” means Rio Nogales I, Inc., a Maryland corporation.

“Rio Nogales II” means Rio Nogales II, Inc., a Maryland corporation.

“Rio Nogales Power” means Rio Nogales Power Project L.P., a Delaware limited partnership.

“Rio Nogales Project” means the approximately 800 megawatt (nominal) natural gas−fired combined−cycle electricgenerating plant located in Seguin, Texas, together with all auxiliary equipment, ancillary and associated facilities and equipment,electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased by Rio NogalesPower) used for the receipt of fuel and water and the delivery of the electrical output of said generating plant, and all otherimprovements related to the ownership, operation and maintenance of said generating plant and associated equipment.

“Schedules” means the disclosure schedules attached to this Agreement.

“Seller” has the meaning set forth in the introductory paragraph to this Agreement.

“Seller Approvals” has the meaning set forth in Section 3.3(c).

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“Seller Marks” has the meaning set forth in Section 6.4.

“Seller Plans” has the meaning set forth in Section 6.7(d).

“Shares” means all of the shares of capital stock of each of CP High Desert I, CP High Desert II, Rio Nogales I and RioNogales II.

“Siemens LTMP” means the Program Parts, Shop Repairs, Miscellaneous Hardware and Scheduled Outages ServicesContract between High Desert Power and Siemens Power Generation, Inc.

“Straddle Taxable Period” has the meaning set forth in Section 6.14(a).

“Support Obligations” has the meaning set forth in Section 6.5(a).

“Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, ad valorem, sales and use, employment,social security, disability, occupation, property, severance, value added, transfer, capital stock, excise or other taxes imposed by or onbehalf of any Governmental Authority, including any interest, penalty or addition thereto.

“Taxing Authority” means, with respect to any Tax, the Governmental Authority or that imposes such Tax, and theGovernmental Authority charged with the collection of such Tax for such entity or subdivision.

“Terminated Contracts” has the meaning set forth in Section 6.8.

“Transfer Taxes” means all transfer, sales, use, goods and services, value added, documentary, stamp duty, gross receipts,excise, transfer and conveyance Taxes and other similar Taxes, duties, fees or charges.

“Transition Services Agreement” means a Transition Services Agreement in a form reasonably acceptable to Seller andBuyer that incorporates the terms set forth in the term sheet attached hereto as Exhibit C.

“University Park Energy” means University Park Energy, LLC, a Maryland limited liability company.

“University Park Project” means the approximately 300 megawatt (nominal) natural gas−fired simple−cycle electricgenerating plant located in suburban Chicago, Illinois, together with all auxiliary equipment, ancillary and associated facilities andequipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased byUniversity Park Energy) used for the receipt of fuel and water and the delivery of the electrical output of said generating plant, and allother improvements related to the ownership, operation and maintenance of said generating plant and associated equipment.

“UP Supply” means UP Supply, LLC, a Maryland limited liability company.

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“Welfare Benefits” has the meaning set forth in Section 6.7(g).

“Wolf Hills Energy” means Wolf Hills Energy, LLC, a Maryland limited liability company.

“Wolf Hills Project” means the approximately 250 megawatt (nominal) natural gas−fired simple−cycle electric generatingplant located in Bristol, Virginia, together with all auxiliary equipment, ancillary and associated facilities and equipment, electricaltransformers, pipeline and electrical interconnection and metering facilities (whether owned or leased by Wolf Hills Energy) used forthe receipt of fuel and water and the delivery of the electrical output of said generating plant, and all other improvements related to theownership, operation and maintenance of said generating plant and associated equipment.

Section 1.2 Rules of Construction.

(a) All article, section, paragraph, schedules and exhibit references used in this Agreement are to articles,sections, paragraphs, schedules and exhibits to this Agreement unless otherwise specified. The exhibits and schedules attached to thisAgreement constitute a part of this Agreement and are incorporated herein for all purposes.

(b) A term defined as one part of speech (such as a noun) shall have a corresponding meaning when used asanother part of speech (such as a verb). Unless the context of this Agreement clearly requires otherwise words importing themasculine gender shall include the feminine and neutral genders and vice versa. A term defined in the singular number shall includethe correlative plural and vice versa. The words “includes” or “including” shall mean “including without limitation,” the words“hereof,” “hereby,” “herein,” “hereunder” and similar terms in this Agreement shall refer to this Agreement as a whole and not anyparticular section or article in which such words appear and unless otherwise specified, any reference to a Law shall include anyamendment thereof or any successor thereto and any rules and regulations promulgated thereunder.

(c) Time is of the essence in this Agreement. Whenever this Agreement refers to a number of days, suchnumber shall refer to calendar days unless Business Days are specified. Whenever any action must be taken hereunder on or by a daythat is not a Business Day, then such action may be validly taken on or by the next day that is a Business Day.

(d) All accounting terms used herein and not expressly defined herein shall have the meanings given to themunder, and all accounting determinations hereunder shall be made in accordance with, GAAP.

(e) Each Party acknowledges that this Agreement was negotiated by it with the benefit of representation bylegal counsel, and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted againstany Party shall not apply to any construction or interpretation hereof.

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ARTICLE IIPURCHASE AND SALE AND CLOSING

Section 2.1 Purchase and Sale. On the terms and subject to the conditions set forth in this Agreement:

(a) Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase and accept from Seller, all of thePurchased Interests.

(b) Buyer agrees to assume, or cause an Affiliate of Buyer designated by Buyer to assume, at Closing fromeach of the Non−Company Affiliates who are party to an Assigned Contract, and Seller agrees to cause such Non−Company Affiliatesto assign to Buyer, or to an Affiliate of Buyer designated by Buyer, all of the rights and obligations of such Non−Company Affiliates,as applicable, arising from and after Closing under the Assigned Contracts, in each case, to the extent that such Assigned Contractmay be assigned either without the consent of another Person or with the consent of another Person which consent is in full force andeffect.

Section 2.2 Purchase Price. The purchase price (the “Purchase Price”) for the Purchased Interests shall be an amountequal to:

(a) $1,635,000,000 (the “Base Purchase Price”); plus

(b) the Aggregate Net Working Capital Adjustment Amount (whether a positive or a negative amount); plus

(c) the Gas Inventory Amount; plus

(d) $15,000,000, if prior to the Closing Date, Seller demonstrates to the reasonable satisfaction of Buyer thatthe net capacity and net heat rate information for the Holland Project provided in the table “Performance Data” on page 36 of theConfidential Information Memorandum, dated June 2006, and relating to the transactions contemplated by this Agreement, includingfootnote and other explanatory information, is an accurate representation of actual Holland Project net performance; provided that ifsuch demonstration by Seller is not satisfactory to Buyer, Buyer shall, prior to the Closing Date, provide a reasonably detailed writtenexplanation to Seller as to the basis for such demonstration not being satisfactory to Buyer; minus

(e) the amount, if applicable, by which (i) the value of expensed stock parts and capitalized stock parts in theinventory of the Companies as reflected in the books and records of the Companies on the Closing Date (and, at Buyer’s option, theexistence of the inventory (as reflected in the books and records of the Company) may be verified by a physical inventory conductedimmediately prior to the Closing Date) plus (ii) the value of any such stock parts used in scheduled outages under the GE LTSA andthe Siemens LTMP after August 29, 2006 and prior to the Closing Date, is less than $29,200,000; plus

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(f) if applicable, the amount of any lump sum payments made for planned outages under the GE LTSAsubsequent to January 1, 2007 and prior to the Closing.

Section 2.3 Closing. The Closing shall take place at the offices of Paul, Hastings, Janofsky & Walker LLP, 75 East55th Street, New York, New York at 10:00 A.M. local time, on the third Business Day after the conditions to Closing set forth inArticles VII and VIII (other than actions to be taken or items to be delivered at Closing) have been satisfied or waived, or on suchother date and at such other time and place as Buyer and Seller mutually agree in writing. All actions listed in Section 7.7 or 8.7 thatoccur on the Closing Date shall be deemed to occur simultaneously at the Closing. The Closing shall be deemed effective as of 12:01A.M. (Eastern time) on the Closing Date.

Section 2.4 Aggregate Net Working Capital Adjustment Amount; Gas Inventory Amount.

(a) At least five Business Days prior to the Closing Date, Seller will deliver to Buyer a worksheet setting forthSeller’s good faith reasonable estimate of the Aggregate Net Working Capital Adjustment Amount as of the Closing Date (the“Estimated Aggregate Net Working Capital Adjustment Amount”), as well as a computation thereof. If the Estimated Aggregate NetWorking Capital Adjustment Amount is a positive number, the Base Purchase Price payable at Closing will be increased by an amountequal to such Estimated Aggregate Net Working Capital Adjustment Amount. If the Estimated Aggregate Net Working CapitalAdjustment Amount is a negative number, the Base Purchase Price payable at Closing will be decreased by an amount equal to suchEstimated Aggregate Net Working Capital Adjustment Amount. At the same time that Seller delivers the Estimated Aggregate NetWorking Capital Adjustment Amount to Buyer, Seller shall also deliver to Buyer Seller’s good faith reasonable estimate of the GasInventory Amount as of the Closing Date determined in accordance with Schedule 1.1−A (the “Estimated Gas Inventory Amount”)and the Base Purchase Price payable at Closing will be increased by such Estimated Gas Inventory Amount.

(b) Within 60 days after the Closing, Buyer will prepare and deliver to Seller a computation of the actualAggregate Net Working Capital Adjustment Amount as of the Closing Date (the “Actual Aggregate Net Working Capital AdjustmentAmount”). If within 60 days following delivery of such computation Seller does not object in writing thereto to Buyer, then theActual Aggregate Net Working Capital Adjustment Amount shall be as reflected on the computation provided by Buyer pursuant tothe immediately preceding sentence. If within such 60 days Seller objects to Buyer in writing to such computation, then Buyer andSeller shall negotiate in good faith and attempt to resolve their disagreement. Should such negotiations not result in an agreementwithin 20 days after receipt by Buyer of such written objection from Seller, then the matter shall be submitted to Grant Thornton LLP(the “Neutral Auditor”). All fees and expenses relating to the work, if any, to be performed by the Neutral Auditor will be borneequally by Buyer and Seller. The Neutral Auditor will deliver to Buyer and Seller a written determination of the Actual AggregateNet Working Capital Adjustment Amount (such determination to include a worksheet setting forth all material calculations used inarriving at such determination and to be based solely on information provided to the Neutral Auditor by

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Buyer and Seller) within 30 days of the submission of the dispute to the Neutral Auditor, which determination will be final, bindingand conclusive on the Parties. If, following the determination of the Actual Aggregate Net Working Capital Adjustment Amount (asagreed between the Parties or as determined by the Neutral Auditor), the Estimated Aggregate Net Working Capital AdjustmentAmount less the Actual Aggregate Net Working Capital Adjustment Amount is a positive number, then Seller shall be obligated topay Buyer a cash payment equal to such excess. If the Estimated Aggregate Net Working Capital Adjustment Amount less the ActualAggregate Net Working Capital Adjustment Amount is a negative number, then Buyer shall be obligated to pay Seller a cash paymentequal to such deficit. At the same time that Buyer delivers the Actual Aggregate Net Working Capital Adjustment Amount to Seller,Buyer shall also deliver to Seller a determination of the actual Gas Inventory Amount as of the Closing Date determined in accordancewith Schedule 1.1−A (the “Actual Gas Inventory Amount”), together with a computation supporting such determination. Anyobjection that Seller may have to Buyer’s determination of the Actual Gas Inventory Amount shall be raised and resolved as providedin this Section 2.4(b) with respect to the Actual Aggregate Net Working Capital Adjustment Amount. If following the determinationof the Actual Gas Inventory Amount (as agreed between the Parties or as determined by the Neutral Auditor), the Estimated GasInventory Amount less the Actual Gas Inventory Amount is a positive number, then Seller shall be obligated to pay Buyer a cashpayment equal to such excess. If the Estimated Gas Inventory Amount less the Actual Gas Inventory Amount is a negative number,then Buyer shall be obligated to pay Seller a cash payment equal to such deficit. Any such net excess or deficit payment in respect ofthe Actual Aggregate Net Working Capital Adjustment Amount and the Actual Gas Inventory Amount, together with interest thereonat the rate of five percent (5%) per annum from the date of determination through the date of payment, will be due and payable within15 days after the Actual Aggregate Net Working Capital Adjustment Amount and the Actual Gas Inventory Amount are finallydetermined as provided in this Section 2.4(b) and will be payable by wire transfer of immediately available funds to such account oraccounts as shall be specified by Buyer or Seller, as applicable.

(c) Following the Closing, Seller and Buyer shall cooperate and provide each other and, if applicable theNeutral Auditor, reasonable access to such books, records and employees (including those of the Project Companies) as are reasonablyrequested in connection with the matters addressed in Section 2.4 (b).

Section 2.5 Allocation of Purchase Price. Buyer shall prepare and provide to the Seller within 60 days after theClosing, a schedule allocating the Purchase Price among the Purchased Assets (the “Purchase Price Allocation Schedule”). Suchschedule shall be prepared in good faith and in accordance with applicable provisions of the Code. Unless Seller objects to theBuyer’s allocation schedule within 15 days after receipt thereof, such schedule shall become final. If Seller objects to the Buyer’sallocation within 15 days of receipt, then the parties agree to meet and resolve the dispute in good faith. Seller and Buyer each shallprepare a mutually acceptable and substantially identical IRS Form 8594 “Asset Acquisition Statement Under Section 1060”consistent with the Purchase Price Allocation Schedule which the Parties shall use to report the transactions contemplated by thisAgreement to the applicable Taxing Authorities.

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Each of Seller and Buyer agrees to provide the other promptly with any other information required to complete Forms 8594. ThePurchase Price Allocation Schedule shall be revised to take into account subsequent adjustments to the Purchase Price, including anyindemnification payments (which shall be treated for Tax purposes as adjustments to the Purchase Price), in accordance with theprovisions of section 1060 of the Code and the Treasury Regulations thereunder.

ARTICLE IIIREPRESENTATIONS AND WARRANTIES REGARDING SELLER AND PARENT COMPANIES

Except as disclosed in the Schedules (with any disclosure in a Schedule being deemed and understood to be disclosure ineach other Schedule to which the applicability of the disclosure is apparent on its face, notwithstanding reference to a specific sectionor paragraph), Seller hereby represents and warrants to Buyer as follows:

Section 3.1 Organization. Each of Seller and each Parent Company is a corporation, limited liability company orlimited partnership, as applicable, duly formed, validly existing and in good standing under the Laws of its jurisdiction ofincorporation or formation, as applicable. Seller is duly qualified or licensed to do business in each other jurisdiction where theobligations to be performed by it hereunder makes such qualification or licensing necessary, except in those jurisdictions where thefailure to be so qualified or licensed would not reasonably be expected to result in a material adverse effect on Seller’s ability toperform such obligations hereunder.

Section 3.2 Authority. Seller has all requisite corporate power and authority to execute and deliver this Agreement, toperform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery by Seller ofthis Agreement, and the performance by Seller of its obligations hereunder, have been duly and validly authorized by all necessarycorporate action. This Agreement has been duly and validly executed and delivered by Seller and constitutes the legal, valid andbinding obligation of Seller enforceable against Seller in accordance with its terms, except as the same may be limited by bankruptcy,insolvency, reorganization, fraudulent conveyance, arrangement, moratorium or other similar Laws relating to or affecting the rightsof creditors generally, or by general equitable principles.

Section 3.3 No Conflicts; Consents and Approvals. The execution and delivery by Seller of this Agreement do not,and the performance by Seller of its obligations under this Agreement will not:

(a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the CharterDocuments of Seller or of any Parent Company;

(b) be in violation of or result in a default (or give rise to any right of termination, cancellation or acceleration)under any material Contract to which Seller or any Parent Company is a party, except for any such violations or defaults (or rights oftermination, cancellation or acceleration) which would not, in the aggregate, reasonably be expected to result

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in a material adverse effect on Seller’s ability to perform its obligations hereunder or on the consummation of the transactionscontemplated hereby; and

(c) assuming all required filings, waivers, approvals, consents, authorizations and notices set forth on Schedule3.3(c) (collectively, the “Seller Approvals”), the Company Consents and other notifications provided in the ordinary course ofbusiness have been made, obtained or given, (i) conflict with, violate or breach any material term or provision of any Law applicableto Seller, the Parent Companies or any of its or their material Assets or (ii) require any material consent or approval of anyGovernmental Authority under any applicable Law.

Section 3.4 Capitalization. Schedule 3.4 accurately sets forth the ownership structure of Seller, the Parent Companiesand the Project Companies. Each of Seller and each of the Parent Companies owns, holds of record and is the beneficial owner of theownership interests shown as being owned by it on Schedule 3.4 free and clear of all Liens, restrictions on transfer or otherencumbrances other than those arising pursuant to this Agreement, the Material Contracts (including the limited liability companyagreements of the Project Companies) or applicable securities Laws, and, without limiting the generality of the foregoing, none of thePurchased Interests are subject to any voting trust, shareholder agreement or voting agreement other than, as applicable, thelimited liability company agreements and limited partnership agreements of the Companies.

Section 3.5 Legal Proceedings. There is no Claim pending or, to Seller’s Knowledge threatened against, Seller, anyParent Company or any Project Company, which seeks a writ, judgment, order or decree restraining, enjoining or otherwiseprohibiting or making illegal any of the transactions contemplated by this Agreement.

Section 3.6 Business. No Parent Company (other than HE Supply and UP Supply) conducts or has conducted anybusiness or activity other than its direct or indirect ownership interest of the applicable Project Company, and no Parent Company(other than HE Supply and UP Supply) has any liability that would be required to be reflected as of the date of this Agreement on abalance sheet of such Parent Company prepared in accordance with GAAP. No Parent Company (other than HE Supply and UPSupply) owns any Assets other than its direct or indirect ownership interest of the applicable Project Company. The sole business oractivity conducted by HE Supply is and has been the purchase of all spare parts for Holland Project and the resale thereof to HollandEnergy or Rio Nogales Power. The sole business or activity of UP Supply is and has been the purchase for resale to University ParkEnergy of all materials for the construction of the University Park Project. Neither HE Supply nor UP Supply has any liability, thatwould be required to be reflected as of the date of this Agreement on a balance sheet of such Company prepared in accordance withGAAP, other than liabilities owed to Affiliates which will be satisfied or eliminated prior to Closing in accordance with Section 6.8. The Parent Companies do not have and never have had employees or any Benefit Plans.

Section 3.7 Brokers. None of Seller or any Parent Company has any liability or obligation to pay any fees orcommissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Buyer couldbecome liable or obligated.

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Section 3.8 Taxes. Except as set forth on Schedule 3.8 or as would not, in the aggregate, reasonably be expected toresult in a Material Adverse Effect: (a) all Tax returns that are required to be filed on or before the Closing Date by each ParentCompany have been or will have been duly and timely filed, (b) all such Tax returns are true, correct and complete, (c) all Taxes thatare shown to be due on such Tax returns and all other Taxes whether or not shown as due on such Tax returns (including estimated taxpayments) that are due and owing have been or will have been timely paid in full or have been or will be adequately reserved, (d) allwithholding Tax requirements imposed on the Parent Companies have been satisfied in full in all respects, except for amounts that arebeing contested in good faith, (e) no Parent Company has in force any waiver of any statute of limitations in respect of Taxes or anyextension of time with respect to a Tax assessment or deficiency, (f) there are no pending or active audits or legal proceedingsinvolving Tax matters or, to Seller’s Knowledge, threatened audits or proposed deficiencies or other claims for unpaid Taxes of theParent Companies, (g) there are no liens for Taxes upon any of the assets of the Parent Companies except liens for current Taxes notyet due and payable, (h) none of the Parent Companies is a party to or has any liability under any tax sharing or tax indemnificationagreement, (i) each of HE Supply and UP Supply is, and always has been, classified as an entity disregarded as separate from itsowner for federal income tax purposes, (j) CP High Desert LP and Rio Nogales Power are, and always have been, classified as apartnership for federal income tax purposes, and (k) no claim has been made by any Taxing Authority (domestic or foreign) in anyjurisdiction where the Parent Companies do not file Tax returns that any such entity (or its owner for Tax purposes in the case of adisregarded entity) may be subject to Tax by that jurisdiction.

ARTICLE IVREPRESENTATIONS AND WARRANTIES REGARDING

THE PROJECT COMPANIES

Except as disclosed in the Schedules (with any disclosure in a Schedule being deemed and understood to be disclosure ineach other Schedule to which the applicability of the disclosure is apparent on its face, notwithstanding reference to a specific sectionor paragraph), Seller hereby represents and warrants to Buyer as follows:

Section 4.1 Organization. Each Project Company is a limited liability company, limited partnership or statutory trust,as applicable, duly formed, validly existing and in good standing under the Laws of its jurisdiction of formation, and has all requisitelimited liability company, trust or limited partnership, as applicable, power and authority to conduct its business as it is now beingconducted and to own, lease and operate its Assets. Each Project Company is duly qualified or licensed to do business in eachjurisdiction in which the ownership or operation of its Assets make such qualification or licensing necessary, except in thosejurisdictions where the failure to be so duly qualified or licensed would not reasonably be expected to result in a Material AdverseEffect.

Section 4.2 No Conflicts; Consents and Approvals. The execution and delivery by Seller of this Agreement do not,and the performance by Seller of its obligations hereunder do not and the consummation of the transactions contemplated hereby willnot:

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(a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the CharterDocuments of any Project Company;

(b) assuming the consents set forth on Schedule 4.2 (the “Company Consents”) have been obtained, be inviolation of or result in a default (or give rise to any right of termination, cancellation or acceleration) under any Material Contract,except for any such violations or defaults (or rights of termination, cancellation or acceleration) which would not, in the aggregate,reasonably be expected to result in a Material Adverse Effect; and

(c) assuming the Seller Approvals, the Company Consents and other notifications provided in the ordinarycourse of business have been made, obtained or given, (i) conflict with or result in a violation or breach of any material term orprovision of any Law applicable to any Project Company or any of its material Purchased Assets or (ii) require any material consent orapproval of any Governmental Authority under any applicable Law.

Section 4.3 Capitalization. No Project Company is a party to any written or oral agreement, and no Project Companyhas granted to any Person any option or any right or privilege capable of becoming an agreement or option, for the purchase,subscription, allotment or issue of any unissued interests, units or other securities (including convertible securities, warrants orconvertible obligations of any nature) of any Project Company other than those arising pursuant to the Material Contracts (includingthe limited liability company agreement, limited partnership agreement or trust agreement, as applicable, of the Project Companies).

Section 4.4 Business. The Business of each Project Company is the only business operation carried on by each suchProject Company. Except as disclosed in Schedule 4.4, the Purchased Assets owned, leased or licensed by each Project Company andthe Purchased Assets that each Project Company otherwise has the right to use constitute the tangible Assets that are sufficient tooperate its Business as currently operated, except for (a) the Excluded Items and (b) matters that would not, in the aggregate,reasonably be expected to result in a Material Adverse Effect. Each Project Company has good and marketable title to the PurchasedAssets it purports to own, free and clear of any Lien (other than Permitted Liens) and has valid leases, licenses or other rights to usethe other Purchased Assets referred to in the prior sentence, subject to the exceptions referred to in the prior sentence.

Section 4.5 Bank Accounts. Schedule 4.5 sets forth an accurate and complete list of the names and locations of banks,trust companies and other financial institutions at which each Project Company maintains accounts of any nature or safe deposit boxesand the names of all Persons authorized to draw thereon, make withdrawals therefrom or have access thereto.

Section 4.6 Subsidiaries. None of the Project Companies have subsidiaries or own equity interests in any Personexcept as disclosed on Schedule 3.4.

Section 4.7 Legal Proceedings. Except as set forth on Schedule 4.7, there is no Claim pending, or to Seller’sKnowledge threatened against, any Company that (a) affects any Company or the Purchased Assets and would, in the aggregate,reasonably be expected to result

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in a Material Adverse Effect or would reasonably be expected to result in (x) liabilities in excess of $1,000,000 for any Company or(y) other relief that would adversely affect the ability of any Company after the Closing to conduct its operations in the ordinarycourse consistent with past practice or (b) seeks a writ, judgment, order or decree restraining, enjoining or otherwise prohibiting ormaking illegal any of the transactions contemplated by this Agreement. Except as set forth on Schedule 4.7, there are nocondemnation or similar proceedings affecting any of the Purchased Assets that are currently pending or, to the Knowledge of Seller,threatened.

Section 4.8 Compliance with Laws and Orders. Each Project Company is in compliance with all Laws and ordersapplicable to it except where any such non−compliance would not, in the aggregate, reasonably be expected to result in a MaterialAdverse Effect; provided, however, that this Section 4.8 does not address Taxes, which are exclusively addressed by Section 4.10;Employees and Labor Matters, which are exclusively addressed by Sections 4.19 and 4.20; or Environmental Laws, which areexclusively addressed by Section 4.15.

Section 4.9 Liabilities. As of the date of this Agreement, except for current liabilities or as disclosed in Schedule 4.9,no Project Company has any liability in excess of $100,000 individually (or $1,000,000 in the aggregate as to all Project Companies)that would be required to be reflected as of the date of this Agreement on a balance sheet of such Project Company prepared inaccordance with GAAP.

Section 4.10 Taxes. Except as set forth on Schedule 4.10 or as would not, in the aggregate, reasonably be expected toresult in a Material Adverse Effect: (a) all Tax returns that are required to be filed on or before the Closing Date by each ProjectCompany have been or will have been duly and timely filed, (b) all such Tax returns are true, correct and complete, (c) all Taxes thatare shown to be due on such Tax returns and all other Taxes whether or not shown as due on such Tax returns (including estimated taxpayments) that are due and owing have been or will have been timely paid in full or have been or will be adequately reserved, (d) allwithholding Tax requirements imposed on the Project Companies have been satisfied in full in all respects, except for amounts that arebeing contested in good faith, (e) no Project Company has in force any waiver of any statute of limitations in respect of Taxes or anyextension of time with respect to a Tax assessment or deficiency, (f) there are no pending or active audits or legal proceedingsinvolving Tax matters or, to Seller’s Knowledge, threatened audits or proposed deficiencies or other claims for unpaid Taxes of theProject Companies, (g) there are no liens for Taxes upon any of the assets of the Project Companies except liens for current Taxes notyet due and payable, (h) none of the Project Companies (A) is a party to or has any liability under any tax sharing or taxindemnification agreement, or (B) has any tax liability for Taxes of any other Person, (i) each of the Project Companies set forth onSchedule 4.10(i) is, and always has been, classified as an entity disregarded as separate from its owner for federal income taxpurposes, (j) each of the Project Companies set forth on Schedule 4.10(j) is, and always has been, classified as a partnership for federalincome tax purposes, (k) no claim has been made by any Taxing Authority (domestic or foreign) in any jurisdiction where the ProjectCompanies do not file Tax returns that any such entity (or its owner for Tax purposes in the case of a disregarded entity) may besubject to Tax by that jurisdiction, and (l) to Seller’s Knowledge, no claim has been

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made by any Taxing Authority for any Tax purpose that a Project Company should be subject to an entity classification that isdifferent from its entity classification under federal tax laws.

Section 4.11 Regulatory Status. Each Project Company meets the requirements for, and has been determined by FERCto be, an “Exempt Wholesale Generator” within the meaning of the Public Utility Holding Company Act of 2005, as amended. EachProject Company (other than Rio Nogales Power) has received authorization from FERC to charge market−based rates under a filedtariff in a final and nonappealable order, and each such filed tariff is in compliance in all material respects with FERC regulations andorders.

Section 4.12 Contracts. (a) Excluding the Terminated Contracts and the Excluded Items, Schedule 4.12 sets forth a listof the following Contracts to which a Project Company is a party or by which the Purchased Assets may be bound (the “MaterialContracts”):

(i) Contracts for the future purchase, exchange or sale of gas;

(ii) Contracts for the future purchase, exchange or sale of electric power or ancillary services;

(iii) Contracts for the future transportation of gas;

(iv) Contracts for the future transmission of electric power;

(v) interconnection Contracts;

(vi) other than Contracts of the nature addressed by Section 4.12(a)(i) − (iv), Contracts (A) for the saleof any Asset or (B) that grant a right or option to purchase or sell any Asset, other than in each case Contracts entered into inthe ordinary course of business relating to Assets with a value of less than $500,000 individually or $5,000,000 in theaggregate;

(vii) other than Contracts of the nature addressed by Section 4.12(a)(i) − (iv), Contracts for the futurereceipt of any Assets or services requiring payments in excess of $500,000 for each individual Contract;

(viii) Contracts under which it has created, incurred, assumed or guaranteed any outstandingindebtedness for borrowed money or any capitalized lease obligation, or under which it has imposed a security interest on anyof its Assets, tangible or intangible, which security interest secures outstanding indebtedness for borrowed money;

(ix) outstanding agreements of guaranty, surety or indemnification, direct or indirect, by such ProjectCompany;

(x) Contracts with Seller or any Non−Company Affiliate relating to the future provision of goods orservices;

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(xi) Contracts for consulting services providing annual compensation in excess of $100,000 and whichare not cancelable by such Project Company on notice of 90 days or less;

(xii) outstanding futures, swap, collar, put, call, floor, cap, option or other Contracts that are intendedto benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, including electric power, gas orsecurities;

(xiii) Contracts that purport to limit such Project Company’s freedom to compete in any line ofbusiness or in any geographic area;

(xiv) partnership, joint venture or limited liability company agreements; and

(xv) Contracts relating to any material Intellectual Property (other than Excluded Items) or any lease,easement or other use of Property (other than owned Property).

(b) Seller has provided Buyer with, or access to, accurate and complete copies of all Material Contracts and allAssigned Contracts.

(c) Each of the Material Contracts and the Assigned Contracts is in full force and effect in all material respectsand constitutes a valid and binding obligation of the Project Company party thereto (or, as to the Assigned Contracts, theNon−Company Affiliate that is a party thereto) and, to Seller’s Knowledge, of the other parties thereto except in each case where thefailure to be in full force and effect or constitute a binding obligation would not reasonably be expected to result in a Material AdverseEffect.

(d) (i) No Project Company is in breach or default in any material respect under any Material Contract, (ii)none of the Non−Company Affiliates that is a party to an Assigned Contract is in breach or default in any material respect under suchAssigned Contract, and (iii) to Seller’s Knowledge, no other party to any of the Material Contracts or Assigned Contracts is in breachor default in any material respect thereunder.

Section 4.13 Real Property. Each Project Company owns or leases all Property described in the Contracts listed onSchedule 4.13 as being owned or leased by such Project Company, in each case, free and clear of all Liens (except for PermittedLiens) created by, through or under such Project Company, except pursuant to this Agreement and the Contracts listed, and asotherwise noted, on Schedule 4.13. No other Property that is material to the business or operations of any Project Company is owned,leased or used by any Project Company.

Section 4.14 Permits. (a) Except as to Environmental Law, which is addressed in Section 4.15, Schedule 4.14(a) setsforth all material Permits held by any of the Project Companies. The Project Companies hold, and have timely applied for renewal of,all material

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Permits that are required for the ownership, use or operation of the Projects by the Project Companies in the manner in which they are currently owned andoperated, and consistent with each Project’s design capacity, except any such Permits relating exclusively to the construction (and not operation) of a Project andany such Permits, the absence of which would not, in the aggregate, reasonably be expected to result in a Material Adverse Effect. All such Permits are in fullforce and effect. There are no proceedings pending or, to Seller’s Knowledge, threatened which might reasonably result in the revocation, suspension, or adversemodification of any such Permits. Seller has provided Buyer with accurate and complete copies of all Permits set forth in Schedule 4.14(a).

(b) Each Project Company is in compliance with all Permits set forth on Schedule 4.14 as being held by suchProject Company, except where any such non−compliance would not, in the aggregate, reasonably be expected to result in a MaterialAdverse Effect, and neither Seller nor any Company has received any written notification from any Governmental Authority allegingthat any Project Company is in material violation of any of such Permits, other than in respect of any allegation that no longer remainspending.

Section 4.15 Environmental Matters. (a) Schedule 4.15(a) sets forth all material environmental site assessment reportsand facility compliance audit reports for the past two years in the possession of Seller or a Project Company that are not subject to aclaim of legal privilege by Seller or a Project Company and that relate to environmental matters concerning the operation of a Projector Property.

(b) The Project Companies hold, and have timely applied for renewal of, all material Permits underEnvironmental Law that are required for the ownership, use or operation of the Projects by the Project Companies in the manner inwhich they are currently owned and operated and consistent with each Project’s design capacity, except any such Permits relatingexclusively to the construction (and not operation) of a Project and any such Permits, the absence of which would not, in theaggregate, reasonably be expected to result in a Material Adverse Effect. All such Permits under Environmental Law are in full forceand effect and are set forth in Schedule 4.15(b). Seller has provided Buyer with accurate and complete copies of all Permits underEnvironmental Law set forth in Schedule 4.15(b).

(c) Except as set forth in Schedule 4.15(c), each Project Company and Facility is in compliance in all materialrespects with all Environmental Laws and Permits under Environmental Law and to Seller’s Knowledge, there are no existing events,conditions, or circumstances that would reasonably be expected to adversely affect the Project Companies ability to comply withEnvironmental Laws or Permits in the future or increase the cost of such compliance, except as would not reasonably be expected tohave a Material Adverse Effect.

(d) Except as set forth in Schedule 4.15(d), no Project Company has been served with notice of any materialEnvironmental Claims, actions, proceedings or investigations that are currently outstanding, and to the Knowledge of Seller, noEnvironmental Claims are threatened, against a Project Company by any Person under any Environmental Laws.

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(e) Except as set forth in Schedule 4.15(e), since the initial ownership date of each Project by Seller or itsAffiliates, there has been no Release of any Hazardous Material at, adjacent to or from a Project to any other location in connectionwith a Project Company’s operations at such Project that would result in a material Environmental Claim.

(f) Schedule 4.15(f) lists all air pollutant emissions allowances and credits currently allocated for the Projects’use, and neither Seller nor any of the Project Companies has entered into any contracts or commitments to transfer or sell any suchallowances.

Section 4.16 Insurance. Schedule 4.16 sets forth a list of all insurance policies and fidelity bonds covering the ProjectCompanies, the tangible Assets of the Project Companies, the Business of each Project Company and the Plant Employees, other thanany such insurance policies and fidelity bonds related to Benefit Plans. Schedule 4.16 sets forth a list of all pending claims of$500,000 or more under any such policies, and, with respect to such pending claims, coverage has not been denied by the underwritersof such policies and bonds. All premiums due and payable under such policies and bonds have been paid, and each Project Companyis otherwise in material compliance with the terms and conditions of all such policies and bonds. To the Knowledge of Seller, there isno threatened termination of any of such policies and bonds.

Section 4.17 Intellectual Property.

(a) The Project Companies own, or have the licenses or rights to use for their respective Businesses, allmaterial Intellectual Property (other than the Excluded Items) currently used in their respective Businesses.

(b) Neither Seller nor any Company has received from any Person a claim in writing that any Project Companyis infringing in any material respect the Intellectual Property of such Person.

Section 4.18 Brokers. The Project Companies have no liability or obligation to pay fees or commissions to any broker,finder or agent with respect to the transactions contemplated by this Agreement.

Section 4.19 Employees and Labor Matters. The Project Companies do not have and have never had anyemployees. With respect to Plant Employees and except as described on Schedule 4.19:

(a) no Plant Employees are represented by a union or other collective bargaining entity;

(b) in the past three years, there has not occurred, nor, to Seller’s Knowledge has there been threatened, a laborstrike, request for representation, work stoppage or lockout by Plant Employees;

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(c) in the past three years, Seller has not received written notice of any charges before any GovernmentalAuthority responsible for the prevention of unlawful employment practices; and

(d) in the past three years, Seller has not received written notice of any investigation by a GovernmentalAuthority responsible for the enforcement of labor or employment regulations and, to the Knowledge of Seller, no such investigationis threatened.

Section 4.20 Employee Benefits. The Project Companies do not sponsor, maintain or contribute to any BenefitPlan. With respect to any “employee benefit plan,” within the meaning of Section 3(3) of ERISA, that is sponsored, maintained orcontributed to, or has been sponsored, maintained or contributed to within six years prior to the date of this Agreement, by any ProjectCompany, Seller or any ERISA Affiliate, (a) no withdrawal liability, within the meaning of Section 4201 of ERISA, has beenincurred, which withdrawal liability has not been satisfied, (b) no liability to the Pension Benefit Guaranty Corporation has beenincurred by any such entity, which liability has not been satisfied, (c) no accumulated funding deficiency, whether or not waived,within the meaning of Section 302 of ERISA or Section 412 of the Code has been incurred, (d) all contributions (includinginstallments) to such plan required by Section 302 of ERISA and Section 412 of the Code have been timely made and (e) no conditionexists or event or transaction has occurred with respect to any such plan which would reasonably be expected to result in any ProjectCompany incurring any material liability, fine or penalty for which a reserve or accrual has not been established.

Section 4.21 Absence of Certain Changes. From June 30, 2006 to the date of this Agreement, each Company hasoperated in the ordinary course of business, consistent with past practices. From June 30, 2006 to the date of this Agreement, therehas not been any (a) Material Adverse Effect or (b) event or condition that would reasonably be expected to result in a MaterialAdverse Effect or prevent or delay Seller from consummating the transactions contemplated by this Agreement.

ARTICLE VREPRESENTATIONS AND WARRANTIES OF BUYER

Except as disclosed in the Schedules provided by Buyer (with any disclosure in such a Schedule being deemed andunderstood to be disclosure in each other such Schedule to which the applicability of the disclosure is apparent on its face,notwithstanding reference to a specific section or paragraph), Buyer hereby represents and warrants to Seller as follows:

Section 5.1 Organization. Buyer is a limited liability company duly formed, validly existing and in good standingunder the Laws of Delaware. Buyer is duly qualified or licensed to do business in each other jurisdiction where the obligations to beperformed by it hereunder makes such qualification or licensing necessary, except in those jurisdictions where the failure to be soqualified or licensed would not reasonably be expected to result in a material adverse effect on Buyer’s ability to perform suchobligations hereunder.

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Section 5.2 Authority. Buyer has all requisite limited liability company power and authority to enter into thisAgreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution anddelivery by Buyer of this Agreement and the performance by Buyer of its obligations hereunder have been duly and validly authorizedby all necessary limited liability company action on behalf of Buyer. This Agreement has been duly and validly executed anddelivered by Buyer and constitutes the legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with itsterms except as the same may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, arrangement, moratoriumor other similar Laws relating to or affecting the rights of creditors generally or by general equitable principles.

Section 5.3 No Conflicts. The execution and delivery by Buyer of this Agreement do not, and the performance byBuyer of its obligations hereunder and the consummation of the transactions contemplated hereby will not:

(a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of its CharterDocuments;

(b) be in violation of or result in a default (or give rise to any right of termination, cancellation or acceleration)under any material Contract to which Buyer is a party, except for any such violations or defaults (or rights of termination, cancellationor acceleration) which would not, in the aggregate, reasonably be expected to result in a material adverse effect on Buyer’s ability toperform its obligations hereunder; or

(c) assuming all required filings, waivers, approvals, consents, authorizations and notices set forth in Schedule5.3 (collectively, the “Buyer Approvals”) have been made, obtained or given, (i) conflict with or result in a violation or breach of anymaterial term or provision of any Law applicable to Buyer or any of its material Assets or (ii) require any material consent or approvalof any Governmental Authority under any applicable Law.

Section 5.4 Legal Proceedings. There is no Claim pending or, to Buyer’s knowledge, threatened against, Buyer whichseeks a writ, judgment, order or decree restraining, enjoining or otherwise prohibiting or making illegal any of the transactionscontemplated by this Agreement.

Section 5.5 Compliance with Laws and Orders. Buyer is not in violation of or in default under any Law or orderapplicable to Buyer or its Assets the effect of which, in the aggregate, would reasonably be expected to hinder, prevent or delay Buyerfrom performing its obligations hereunder.

Section 5.6 Brokers. Buyer does not have any liability or obligation to pay fees or commissions to any broker, finderor agent with respect to the transactions contemplated by this Agreement for which Seller could become liable or obligated.

Section 5.7 Acquisition as Investment. Buyer is acquiring the Purchased Interests for its own account as an investmentwithout the present intent to sell, transfer or otherwise

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distribute the same to any other Person. Buyer has made, independently and without reliance on Seller (except to the extent that Buyerhas relied on the express representations and warranties of Seller in this Agreement), its own analysis of the Purchased Interests, theProject Companies, the Projects, the Assigned Contracts and the Purchased Assets for the purpose of acquiring the PurchasedInterests, and Buyer has had reasonable and sufficient access to documents, other information and materials as it considers appropriateto make its evaluations. Buyer acknowledges that the Purchased Interests are not registered pursuant to the Securities Act of 1933 (the“1933 Act”) and that none of the Purchased Interests may be transferred, except pursuant to an applicable exemption under the 1933Act. Buyer is an “accredited investor” as defined in Rule 501 promulgated under the 1933 Act.

Section 5.8 Financial Resources. Buyer has commitments for financing so that it will have sufficient cash at Closingto permit it to purchase the Purchased Interests on the terms hereof. Buyer has furnished to Seller accurate and complete copies ofeach such commitment, including the Buyer Commitment Letter.

Section 5.9 No Conflicting Contracts. Except as set forth in Schedule 5.9, neither Buyer nor any of its Affiliates is aparty to any Contract to build, develop, acquire or operate any power facility, or otherwise owns Assets or is engaged in a business,that would reasonably be expected to hinder or cause a delay in any Governmental Authority’s granting of a Buyer Approval or aSeller Approval, and neither Buyer nor any of its Affiliates has any plans to enter into any such Contract, acquire any such Assets orengage in any such business prior to the Closing Date.

Section 5.10 Opportunity for Independent Investigation. Prior to its execution of this Agreement, Buyer has conductedto its satisfaction an independent investigation and verification of the current condition and affairs of the Project Companies, theAssigned Contracts, the Purchased Assets and the Projects. In making its decision to execute this Agreement and to purchase thePurchased Interests and assume the Assigned Contracts, Buyer has relied and will rely solely upon the results of such independentinvestigation and verification and the express representations, warranties, terms and conditions of this Agreement.

Section 5.11 Bankruptcy. There are no bankruptcy, reorganization, or arrangement proceedings pending against, beingcontemplated by, or to the knowledge of Buyer, threatened against, it.

Section 5.12 Buyer Benefits Plans. As of the date hereof, the Benefit Plans which Buyer Affiliates and Buyer ServiceCompanies sponsor, maintain or provide for employees of Buyer Affiliates and Buyer Service Companies with positions andresponsibilities similar to the Plant Employees are, taken as a whole, comparable in all material respects to the Benefit Plans whichSeller has advised Buyer are provided by Seller and its Affiliates to the Plant Employees.

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ARTICLE VICOVENANTS

The Parties hereby covenant and agree as follows:

Section 6.1 Regulatory and Other Approvals. From the date of this Agreement until Closing (the “Interim Period”):

(a) The Parties will, in order to consummate the transactions contemplated hereby, (i) take all commerciallyreasonable steps necessary, and proceed diligently and in good faith and use all commercially reasonable efforts, as promptly aspracticable, to obtain the Seller Approvals, Company Consents and Buyer Approvals in form and substance reasonably satisfactory toSeller and Buyer, and to make all required filings with, and to give all required notices to, the applicable Governmental Authoritiesand (ii) cooperate in good faith with the applicable Governmental Authorities and provide promptly such other information andcommunications to such Governmental Authorities or other Persons as such Governmental Authorities or other Persons mayreasonably request in connection therewith.

(b) The Parties will provide prompt notification to each other when any such approval referred to in Section6.1(a) is obtained, taken, made, given or denied, as applicable, and will advise each other of any material communications with anyGovernmental Authority or other Person regarding any of the transactions contemplated by this Agreement.

(c) In furtherance of the foregoing covenants:

(i) Each Party shall prepare, as soon as is practical following the execution of this Agreement, allnecessary filings in connection with the transactions contemplated by this Agreement that may be required by FERC or underthe HSR Act or any other federal, state or local Laws. Each Party shall submit such filings as soon as practicable, but in noevent later than 20 days after the execution hereof for filings with the FERC and under the HSR Act. The Parties shallrequest expedited treatment of any such filings, shall promptly make any appropriate or necessary subsequent orsupplemental filings, and shall cooperate with each other in the preparation of such filings in such manner as is reasonablynecessary and appropriate. The Parties shall consult with each and shall agree in good faith upon the timing of such filings.

(ii) Neither Party shall, and each Party shall cause its Affiliates not to, take any action that couldreasonably be expected to adversely affect the approval of any Governmental Authority of any of the aforementioned filings.

Section 6.2 Access of Buyer. (a) During the Interim Period, Seller will provide, and will cause the Project Companiesto provide, Buyer and its Representatives with reasonable access, upon reasonable prior notice (but in no event less than five BusinessDays’ prior written notice) and during normal business hours, to the Projects and the officers and employees of Seller and its Affiliateswho have significant responsibility for one or more Project Companies, but only to the extent that such access does not unreasonablyinterfere with the business of Seller and its Affiliates or the Businesses of the Project Companies, and that such access is reasonablyrelated to the requesting Party’s obligations and rights hereunder, and subject to compliance with

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applicable Laws; provided, however, that Seller shall have the right to (i) have a Representative present for any communication withemployees or officers of Seller or its Affiliates and (ii) impose reasonable restrictions and requirements for safety purposes. Buyershall be entitled, at its sole cost and expense, to have the Property surveyed and to conduct non−invasive physical inspections;provided, however, that Buyer shall not be entitled to collect any air, soil, surface water or ground water samples nor to perform anyinvasive or destructive sampling on the Property. Promptly upon completion of any such entry, Buyer shall repair any damage causedby such entry. Any disclosure to Buyer pursuant to the foregoing shall be subject to such disclosure (w) not violating any applicableLaws, (x) not resulting in the waiver of any attorney/client, work product, or like privilege, (y) not being of confidential informationconcerning the activities of Seller or its Affiliates (other than the Companies) that is unrelated to the Companies, the Business of anyProject Company, or the Projects, or (z) not being of proprietary models of Seller or any of its Affiliates pertaining to energy projectevaluation, energy or natural gas price curves or projections, or other economic predictive models.

(b) During the Interim Period, in no event shall Buyer or any of Buyer’s Affiliates hold any meetings with, orotherwise communicate with, any suppliers, other vendors or customers of any Company, or any representatives of any GovernmentalAuthority, regarding any Project or Company without the prior consent of Seller (which consent will not be unreasonably withheld ordelayed). At any such meeting consented to by Seller, a Representative of Seller shall be entitled to participate therein.

(c) Buyer agrees to indemnify and hold harmless Seller, its Affiliates and their Representatives for any and allliabilities, losses, costs or expenses incurred by Seller, its Affiliates or their Representatives, or by any of Buyer’s Representatives forany injuries or property damage arising out of the access and other rights under this Section 6.2, caused by any of Buyer’sRepresentatives while present on the Property.

Section 6.3 Certain Restrictions. Except as required or permitted hereby, or as otherwise set forth in Schedule 6.3,during the Interim Period, Seller will cause the Companies and the Projects to operate in the ordinary course of business. Withoutlimiting the foregoing, except as otherwise required or permitted hereby or required by applicable Laws or any Material Contract or asconsented to by Buyer, which consent shall not be unreasonably withheld, conditioned or delayed (except that this Section 6.3 shallnot apply to Excluded Items, Terminated Contracts or services terminated pursuant to Section 6.8), Seller will, during the InterimPeriod, cause the Companies not to:

(a) permit or allow any Lien (other than a Permitted Lien or any Lien the release of which Seller is pursuing bycommercially reasonable efforts) to be imposed on or against any of the Purchased Assets or permit or allow any Lien to be imposedon or against any of the Purchased Interests;

(b) grant any waiver of any material term under, exercise any material option under, or give any materialconsent with respect to, any Material Contract;

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(c) sell, transfer, convey or otherwise dispose of any material Purchased Assets outside the ordinary course ofbusiness;

(d) other than accounts payable incurred in the ordinary course of business or otherwise incurred pursuant tothe Material Contracts, the Terminated Contracts or the Excluded Items, incur, create, assume or otherwise become liable forindebtedness for borrowed money or issue any debt securities or assume or guarantee the obligations of any other Person; or incur,assume, create, guarantee or otherwise become liable for any indebtedness for borrowed money or obligations of any other Person, orissue debt securities, under any existing Material Contracts in excess of $500,000, other than short term, unsecured borrowings orintercompany loans or guarantees that are paid in full and discharged prior to the Closing;

(e) except as may be required to meet the requirements of applicable Laws or GAAP, change any accountingmethod or practice in a manner that is inconsistent with past practice in a way that would reasonably be expected to result in aMaterial Adverse Effect;

(f) fail to maintain its existence or consolidate or merge with any other Person or acquire all or substantially allof the Assets of any other Person;

(g) issue or sell any equity ownership interests;

(h) liquidate, dissolve, recapitalize, reorganize or otherwise wind up its business or operations;

(i) purchase any securities of any Person, except for short−term investments made in the ordinary course ofbusiness;

(j) enter into, terminate or amend (i) any material Permit, (ii) any Material Contract or (iii) any Contractinvolving total consideration throughout its term in excess of $500,000 (other than Contracts entered into in the ordinary course whichwill be fully performed prior to Closing), or enter into any new Contract for future transportation of gas, transmission orinterconnection of power, or purchase, exchange or sale of electric power or gas that can not be terminated without penalty on orbefore the Closing Date;

(k) cancel any debts or waive any claims or rights having a value in excess of $1,000,000, individually or inthe aggregate;

(l) make any material election with respect to Taxes;

(m) amend or modify its Charter Documents;

(n) purchase any individual item of equipment involving total consideration in excess of $5,000,000;

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(o) enter into any Support Obligations or Affiliate Contracts subject to Section 6.15 if the effect thereof wouldbe to increase Buyer’s obligations under Sections 6.5 or 6.15 by more than $1,000,000;

(p) except for regularly scheduled changes in compensation to employees made in the ordinary course ofbusiness consistent with past practice, make any change in the rate of compensation, commission, bonus or other direct or indirectremuneration payable or to become payable to any Plant Employee; or

(q) agree or commit to do any of the foregoing.

Notwithstanding the foregoing, Seller may permit the Project Companies to take commercially reasonable actions withrespect to emergency situations so long as Seller shall, upon receipt of notice of any such actions, promptly inform Buyer of any suchactions taken outside the ordinary course of business.

Section 6.4 Use of Certain Names. Within 30 days following Closing, Buyer shall cause the Companies to cease usingthe word “Constellation” and any word or expression similar thereto or constituting an abbreviation or extension thereof, and the CEGlogo (the “Seller Marks”), including eliminating or covering the Seller Marks from the Property and Purchased Assets and disposingof any unused stationery and literature of the Companies bearing the Seller Marks, and thereafter, Buyer shall not, and shall cause theCompanies and their Affiliates not to, use the Seller Marks or any logos, trademarks, trade names, patents or other IntellectualProperty rights belonging to Seller or any Affiliate thereof, and Buyer acknowledges that it, its Affiliates and the Companies have norights whatsoever to use such Intellectual Property. Without limiting the foregoing:

(a) Within 10 days after the Closing Date, Buyer shall cause any Company whose name contains any of theSeller Marks to change its name to a name that does not contain any of the Seller Marks.

(b) Within 30 days after the Closing Date, Buyer shall provide evidence that is reasonably acceptable to Seller,that Buyer has made all filings required pursuant to paragraph (a) above with, and has provided notice to, all applicable GovernmentalAuthorities and all counterparties to the Material Contracts regarding the sale of the Project Companies and the Purchased Assets toBuyer and the new addresses for notice purposes.

Section 6.5 Support Obligations. (a) Buyer recognizes that certain of the Non−Company Affiliates have providedcredit support to certain of the Project Companies with respect to the Projects pursuant to certain credit support obligations, all ofwhich that are outstanding as of the date hereof are set forth on Schedule 6.5(a) (the “Support Obligations”).

(b) Prior to Closing, Buyer shall use commercially reasonable efforts to effect the full and unconditionalrelease, effective as of the Closing Date, of the Non−Company Affiliates from all Support Obligations (provided, that with respect toany Support Obligations

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posted or maintained in connection with an Affiliate Contract, the terms of this Section 6.5 shall apply only to such SupportObligations posted or maintained in connection with those Affiliate Contracts that become Assigned Contracts) including by:

(i) subject to Schedule 6.5(a), furnishing a letter of credit to replace each existing letter of credit thatis a Support Obligation containing terms and conditions that are substantially identical to the terms and conditions of suchexisting letter of credit and from lending institutions that have a Credit Rating commensurate with or better than that oflending institutions for such existing letter of credit; and

(ii) in the case of the Amended and Restated High Desert Power Master Power Purchase and SalesAgreement dated April 22, 2002 (the “CDWR Agreement”), between High Desert and the California Department of WaterResources (“CDWR”), if required, (x) furnishing a subordinated mortgage and security agreement as contemplated bySpecial Condition 9(ii) thereof or (y) as provided in Schedule 6.5(a)(2).

(c) Buyer shall use commercially reasonable efforts to cause the beneficiary or beneficiaries of the SupportObligations to terminate and redeliver to Seller or one of its Affiliates each original copy of each original guaranty, letter of credit orother instrument constituting or evidencing such Support Obligations released or replaced pursuant to Section 6.5(b).

(d) If Buyer is not successful in obtaining the complete and unconditional release of the Non−CompanyAffiliates from any Support Obligations prior to Closing (each such Support Obligation, until such time as such Support Obligation isreleased in accordance with this Section 6.5, a “Continuing Support Obligation”), then, subject to Section 6.5(e) and Schedule 6.5(a),Seller or its Affiliates, as applicable, shall keep in place such guaranty, letter of credit or other instrument as is necessary to maintaineach Continuing Support Obligations, and Buyer shall deliver to Seller at the Closing in accordance with this Section 6.5 and Schedule6.5(a) support for Buyer’s obligations pursuant to clause (ii) below (the “Continuing Support Letter of Credit”); provided, however,that notwithstanding the foregoing:

(i) from and after the Closing, Buyer shall continue to use commercially reasonable efforts to obtainthe full and unconditional release of the Non−Company Affiliates from each Continuing Support Obligation; and

(ii) Buyer shall not, and shall cause the Project Companies not to, effect any amendments ormodifications or any other changes to the contracts or obligations to which any of the Continuing Support Obligations relate,or to otherwise take any action that could increase the liability of the Non−Company Affiliates under any Continuing SupportObligation or extend the stated maturity of any Continuing Support Obligation, without Seller’s prior written consent, whichconsent shall not be unreasonably withheld or delayed.

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(e) During the Interim Period, Buyer shall have the right to contact and have discussions with each beneficiaryof a Support Obligation in order to satisfy its obligations under this Section 6.5; provided, however, that Buyer shall give Seller notless than five Business Days’ prior notice before making any such contact, Seller shall have the right to have one of itsRepresentatives present via telephone or in person, as applicable, during any such contact or discussion, Buyer shall only contact andhold discussions with such beneficiaries through Representatives of Buyer previously approved by Seller, and Buyer shall cause suchRepresentatives to comply with all reasonable procedures and protocols regarding such contacts and discussions that may beestablished by Seller.

Section 6.6 Excluded Items. Notwithstanding anything in this Agreement to the contrary, Buyer and Seller agreethat the Purchased Assets shall exclude those items listed on Schedule 6.6 (the “Excluded Items”), Seller shall retain all benefitsand liabilities with respect to the Excluded Items, and Seller shall, prior to the Closing Date, use commercially reasonableefforts to cause the Project Companies to distribute, transfer or assign each Excluded Item to Seller or a Non−CompanyAffiliate. Buyer acknowledges that the inability of Seller to have any Excluded Item distributed, transferred or assigned from anyProject Company for any reason shall not delay Closing and any Excluded Item that Seller is unable to so distribute, transfer or assignby the Closing shall be referred to as a “Non−Transferred Excluded Item.” After the Closing Date with respect to eachNon−Transferred Excluded Item, Buyer shall permit Seller to exclusively direct and manage each Project Company’s participation inall negotiations, arbitrations, litigation, claims, and/or bankruptcy or other proceedings involving such Non−Transferred ExcludedItem, whether existing on the Closing Date or arising thereafter. Buyer shall also permit Seller to settle or compromise on behalf ofany Project Company any Non−Transferred Excluded Item in Seller’s sole discretion, and shall promptly pay Seller any proceeds orrecoveries received in connection with any Non−Transferred Excluded Item. Buyer shall, at Seller’s expense: use commerciallyreasonable efforts to (a) cause any Person under its control with knowledge of relevant facts pertaining to any Non−TransferredExcluded Item to provide assistance to Seller as reasonably requested by Seller; and (b) provide any relevant books, records, or otherinformation concerning any Non Transferred Excluded Item and access to each Project site where any Non Transferred Excluded Itemis located, as reasonably requested by Seller, in connection with any Non−Transferred Excluded Item; provided in each case thatBuyer shall have no obligation to make available information or access without reasonable prior notice, during normal business hoursand subject to compliance with normal security and safety rules applicable to the Project site.

Section 6.7 Employee and Benefit Matters. (a) Schedule 6.7(a) sets forth a list of certain employees of Seller or itsAffiliates (the “Plant Employees”) who are providing or have provided services relating to the Projects and that Seller and suchAffiliates will make available to Buyer to discuss potential employment with Affiliates of Buyer or other Persons engaged by Buyer tooperate any Project (“Buyer Service Companies”) (which discussions the Parties agree shall not violate Section 6.7(c)). Prior to theexecution of this Agreement, Seller has provided to Buyer (i) certain employee information relating to employee compensation andbenefits of the Plant Employees (including each Plant Employee’s current base salary or wage), and (ii) specific

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information relating to each Plant Employee and as of a specified date regarding such employee’s name, job title and work location. As soon as administratively practicable after Buyer provides Seller with a list of the Plant Employees who have accepted anemployment offer from Buyer Service Companies in accordance with Section 6.7(b), Seller shall provide to Buyer, with respect toeach Plant Employee on such list and subject to the consent of any such employee that Seller determines is required by Law,information as of a specified date regarding such employee’s hire date, vacation and sick leave accrual rates and severance benefits.

(b) Within 30 days after the execution of this Agreement, Buyer shall cause Buyer Service Companies to makeoffers of employment to each Plant Employee, and such offer shall include terms and provisions determined by Buyer that areconsistent with the provisions of this Section 6.7; provided, however, that the base salary/wage rate that Buyer extends to an PlantEmployee for the initial 18 consecutive month period of employment with Buyer Service Companies shall not be less than the PlantEmployee’s base salary/wage rate that was in effect for the Plant Employee immediately prior to the Closing Date for employmentwith Seller or an Affiliate of Seller. Within 45 days after the execution of this Agreement, Buyer shall notify Seller as to each PlantEmployee who has accepted employment with Buyer or any of its Affiliates (each, a “Continued Employee”), which acceptance maybe conditioned upon the occurrence of the Closing, and each Plant Employee who has rejected Buyer’s offer of employment. Promptly following the Closing, Buyer shall pay to each of the Plant Employees listed on Schedule 6.7(b), whether or not a ContinuedEmployee, an amount equal to such Plant Employee’s lump sum accrued benefit as of the Closing Date in CEG’s Pension Equity Plan,calculated as if the Plant Employee was fully vested as of the Closing Date. Buyer shall indemnify and hold harmless Seller and itsAffiliates with respect to all claims and liabilities relating to or arising out of Buyer’s employee selection and employment offerprocess described in this Section 6.7(b) (including any claim of discrimination or other illegality in such selection, offer, and lay−offprocess, and including any liability or loss that Seller or any Affiliates may incur either pursuant to this Section 6.7 or under the U.S.Worker Adjustment and Retraining Notification Act and the regulations promulgated thereunder, or any similar state or other Law). The employment with Buyer Service Companies of each Plant Employee who accepts such employment shall be effective as of theClosing Date; provided, however, that on such date such Plant Employee is actively at work or is on a previously scheduled andapproved (by Seller or an Affiliate of Seller) paid time−off or other paid or unpaid leave of absence (other than a leave pursuant towhich the individual is eligible to receive long−term disability benefits under a Seller Plan). Notwithstanding the foregoing, withrespect to each Plant Employee who fails to become a Continued Employee as of the Closing Date because he or she did not satisfythe requirements of the preceding sentence as of the Closing Date (whether due to a previously scheduled or approved paid time−offor other paid or unpaid leave of absence), Buyer shall, or shall cause Buyer Service Companies to, at the time such Plant Employee isready and available to return to active employment status, provide such Plant Employee with employment in a position comparable tothat which the individual had prior to the commencement of his or her absence from active employment. Each Plant Employee whobecomes employed by a Buyer Service Company pursuant to the preceding sentence shall be considered a Continued Employee forpurposes of this Agreement, except that transitional matters addressed in this Section 6.7 shall

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apply with respect to such employee as of the date of his or her commencement of employment with a Buyer Service Company (ratherthan as of the Closing Date). Nothing in the foregoing shall affect the right of Seller, or any Affiliate of Seller, or any Buyer ServiceCompany to terminate the employment of a Plant Employee for any reason or at any time.

(c) Buyer agrees, if the Closing has not occurred, until the date that is two years from and after the date oftermination of this Agreement pursuant to Section 9.1, not to employ, and to use commercially reasonable efforts to cause itscontrolled Affiliates not to employ, any Plant Employees without Seller’s prior written consent. Whether or not the Closing occurs,unless Seller should otherwise consent, Buyer agrees that neither it nor any of its controlled Affiliates will, directly or indirectly, inany manner whatsoever, solicit for hire or employment any officer or employee of the Seller or any of its Affiliates which Buyer or itsAffiliates learned of in connection with the acquisition contemplated hereby for a period of one year after the date of this Agreement;provided, however, that this sentence shall not apply to any solicitation (or any hiring as a result of any solicitation) that consists ofadvertising in a newspaper or periodical of general circulation or through the Internet.

(d) Effective as of the Closing Date, the Continued Employees shall cease to participate in all “employeebenefit plans” within the meaning of Section 3(3) of ERISA of Seller or its Affiliates providing benefits to any Continued Employees(the “Seller Plans”). Buyer shall not assume any of the Seller Plans.

(e) From and after the Closing Date and subject to the provisions set forth in the proviso to the first sentence ofSection 6.7(b), Buyer shall cause each Buyer Service Company to provide each Continued Employee with benefits on a basissubstantially similar to those provided to similarly situated employees of Buyer and its Affiliates. Notwithstanding the foregoing,Buyer shall cause each Continued Employee and his or her eligible dependents (including all such Continued Employee’s dependents)covered immediately prior to the Closing Date by a group health plan maintained by Seller or an Affiliate of Seller to be coveredunder a group health plan maintained by Buyer or an Affiliate of Buyer that (1) provides major medical and dental benefits coveragesto the Continued Employee and such eligible dependents effective immediately upon the Closing Date and (2) credits such ContinuedEmployee, for the year during which such coverage under such group health plan begins, with any deductibles and co−paymentsalready incurred during such year under a group health plan maintained by Seller or an Affiliate of Seller; provided, however, that forpurposes of applying this clause (2) with respect to any Continued Employee, the Continued Employee shall be responsible forproviding the necessary information to Buyer based on explanation of benefit forms received by the Continued Employee from thegroup health plan maintained by Seller or an Affiliate of Seller. From and after the Closing Date, Buyer shall cause a Buyer ServiceCompany to recognize each Continued Employee’s years of company service prior to the Closing Date with Seller and its Affiliatesand any other Person that was acquired by Seller or an Affiliate of Seller (whether through purchase, merger or other combination) forpurposes of terms of employment, compensation and eligibility, vesting or other benefit/coverage eligibility (including eligibility forretiree benefits/coverages), benefit accrual and benefit determination under all employee benefit and

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compensation plans and programs maintained after the Closing by a Buyer Service Company in which such Continued Employee ispermitted to participate, including paid vacation, paid sick time and severance benefits. Buyer shall cause each employee welfarebenefit plan or program sponsored by Buyer or a Buyer Service Company that the Continued Employees may be eligible to participatein on or after the Closing Date to waive any preexisting condition exclusion or restriction with respect to participation and coveragerequirements applicable to Continued Employees. From and after the Closing Date, Buyer shall cause a Buyer Service Company torecognize and give each Continued Employee credit for his or her accumulated sick leave balance as of the Closing Date under thesick leave program maintained by Seller and its Affiliates. For purposes of this Section 6.7, the phrase “from and after the ClosingDate” means the period commencing with the Closing Date and ending 18 months thereafter.

(f) If the employment of any Continued Employee is terminated by Buyer or an Affiliate of Buyer for a reasonother than cause within 18 months following the Closing Date, then Buyer shall provide such Continued Employee with severancebenefits equal to the greater of (i) the severance benefits described in the severance plan that a Buyer Service Company makesavailable to its similarly situated employees and that would have been provided to such employee if his or her employment had beenterminated under circumstances entitling such employee to benefits under such severance plan, or (ii) the following severancebenefits: (A) a lump sum payment in cash equal to the base salary or other regular hourly compensation that the Continued Employeewould have collected had he or she remained employed from the date of terminating employment through the date 18 months after theClosing Date, plus (B) a lump sum payment in cash equal to a Buyer Service Company’s portion of the premium for medical anddental coverage charged with respect to active employees under the medical and dental plan such Continued Employee is actuallyenrolled in at the time of his or her termination of employment, if any, for the period beginning when employment terminates andending on the date 18 months after the Closing Date, plus (C) in the case of a Continued Employee who is so terminated more than 15months following the Closing Date, a lump sum in cash equal to (1) the equivalent of two weeks’ base salary or other regular hourlycompensation of such Continued Employee as of such date of termination multiplied by (2) the number of years of service of suchContinued Employee with Seller and its Affiliates and any other Person that was acquired by Seller or an Affiliate of Seller (whetherthrough purchase, merger or other combination). Buyer shall also offer continuation coverage to Continued Employees under theConsolidated Omnibus Budget Reconciliation Act of 1985. Any Continued Employee whose employment terminates within 18months following the Closing Date due to such Continued Employee’s rejection of Buyer’s offer of a position which would require theContinued Employee to relocate to a facility which is more than fifty (50) miles from the facility at which he or she is working on theday immediately prior to the Closing Date shall be entitled to severance benefits as provided in this Section 6.7(f). All obligationsunder this Section 6.7(f) shall terminate on the date 18 months after the Closing Date.

(g) Claims of Continued Employees and their eligible beneficiaries and dependents for medical, dental,prescription drug, life insurance or other welfare benefits (“Welfare Benefits”) (other than disability benefits) that are incurred beforethe Closing Date shall be the sole responsibility of Seller and the Seller Plans. Claims of Continued Employees

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and their eligible beneficiaries and dependents for Welfare Benefits (other than disability benefits) that are incurred from and after theClosing Date shall be the sole responsibility of Buyer and its Affiliates. For purposes of this paragraph, a medical/dental claim shallbe considered incurred on the date when the medical/dental services are rendered or medical/dental supplies are provided, and notwhen the condition arose or when the course of treatment began. Claims of individuals receiving long−term disability benefits under aSeller Plan as of the Closing Date shall be the sole responsibility of Seller and the Seller Plans. Except as provided in the precedingsentence, claims of Continued Employees and their eligible beneficiaries and dependents for short−term or long−term disabilitybenefits from and after the Closing Date shall be the sole responsibility of Buyer and its Affiliates (without regard to whether thecircumstances giving rise to such claim occurred before, on or after the Closing Date).

(h) All claims for health care and dependent care flexible spending account benefits submitted after the ClosingDate for expenses incurred prior to the Closing Date by Continued Employees shall be paid by Seller’s or its Affiliates’ health careand dependent care flexible spending account plan to the extent permitted in accordance with the terms of such plan.

(i) Claims for workers’ compensation benefits arising out of occurrences prior to the Closing Date shall be theresponsibility of Seller. Claims for workers’ compensation benefits for Continued Employees arising out of occurrences on or afterthe Closing Date shall be the responsibility of Buyer.

Section 6.8 Termination of Certain Services, Contracts and Other Affiliate Transactions. Notwithstanding anythingin this Agreement to the contrary, prior to the Closing, Seller shall, or shall cause an Affiliate of Seller, as applicable, to (i) terminate,sever, or assign to Seller or a Non−Company Affiliate effective upon or before the Closing any services provided to any of the ProjectCompanies by Seller or a Non−Company Affiliate, including the termination or severance of insurance policies (including thosepolicies referred to in Section 6.10), Tax services, legal services and banking services (to include the severance of any centralizedclearance accounts) and (ii) use commercially reasonable efforts to terminate or assign to Seller or a Non−Company Affiliate eachContract listed on Schedule 6.8 (collectively such Contracts listed, the “Terminated Contracts”), in each case without any liability ofany kind on the part of any Company arising from any such termination, severance, assignment or otherwise. Effective as of theClosing, all Contracts between any Company and the Seller or any Non−Company Affiliate of the Seller (“Excluded Contracts”) shallterminate and be of no further force and effect unless the Buyer has expressly agreed to have such Contract remain in effect (includingthe Assigned Contracts), and neither Buyer nor any Company shall have any liabilities or obligations of any kind with respect to anyExcluded Contract. In addition to the foregoing, prior to the Closing, any liability of a Company to Seller or an Affiliate of Seller, orany receivable from a Company to Seller or an Affiliate of Seller, shall be satisfied or otherwise eliminated in full.

Section 6.9 Spare Parts; Distributions. Notwithstanding anything in this Agreement to the contrary:

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(a) Subject to Section 4.4, Seller shall have the right to use items of spare parts and equipment in the ordinarycourse of business of the Project Companies, consistent with past practice.

(b) Subject to Section 6.3 and Section 10.1(a)(v), Seller shall have the right to cause the Project Companies topay cash dividends, make cash distributions and assign accounts receivable to Seller or its Affiliates at any time prior to the Closing.

Section 6.10 Insurance. Seller shall maintain or cause to be maintained in full force and effect the insurance policiesdescribed on Schedule 4.16 until the Closing. All such insurance coverage shall be terminated as of the Closing. Buyer shall be solelyresponsible for providing insurance to the Project Companies for any claims made after the Closing. If any claims are actually madeprior to the Closing Date under any liability insurance policy for any of the Companies, then Seller shall use commercially reasonableefforts to ensure that the applicable Company can file, notice and otherwise continue to pursue such claims and recover proceedsunder the terms of such policies, and Seller will pay over to the applicable Company any proceeds of any insurance recovery underany such policy by Seller or any Non−Company Affiliate. If any casualty loss occurs prior to the Closing which is insured under anyproperty or casualty insurance policy for any of the Companies and claims associated with such losses, have been made prior to theClosing, then Seller shall use commercially reasonable efforts to ensure that the applicable Company can file, notice and otherwisecontinue to pursue such claims and recover proceeds under the terms of such policies, and Seller will pay over to the applicableCompany any proceeds of any insurance recovery under any such policy by Seller or any Non−Company Affiliate, other than anysuch proceeds that have been or will be applied to repair or replace the property subject to such claim.

Section 6.11 Casualty. If any of the Purchased Assets is damaged or destroyed by casualty loss during the InterimPeriod, and the sum of (x) the cost of restoring such damaged or destroyed Purchased Assets to a condition reasonably comparable totheir prior condition (as estimated by a qualified firm reasonably acceptable to Buyer and Seller), and (y) the amount of any lostprofits reasonably expected to accrue after the Closing as a result of such damage or destruction to such Purchased Assets (net of andafter giving effect to any insurance proceeds available to the Project Companies for such restoration and lost profits and any Taxbenefits to the Companies related thereto) (such sum, the “Restoration Cost”) is greater than $2,500,000 but does not exceed 10% ofthe Base Purchase Price, Seller may elect to reduce the amount of the Purchase Price by such Restoration Cost, by notice to Buyer,and such casualty loss shall not affect the Closing. If Seller does not make such an election within 45 days after the date of suchcasualty loss (but in any event at least 20 days prior to the Closing Date), Buyer may elect to terminate this Agreement within 10Business Days after the end of such 45 day period by written notice to Seller. If the Restoration Cost is in excess of 10% of the BasePurchase Price, Seller may, by notice to Buyer within 45 days after the date of such casualty loss (but in any event at least 20 daysprior to the Closing Date), elect to (a) reduce the Purchase Price by the estimated Restoration Cost or (b) terminate this Agreement, ineach case by providing written notice to Buyer; provided, however, that if Seller does not elect to terminate this Agreement asprovided in

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this sentence, then Buyer may, by written notice to Seller, terminate this Agreement within 10 Business Days of receipt by Buyer ofSeller’s notice regarding its election. If the Restoration Cost is $2,500,000 or less, (i) neither Buyer nor Seller shall have the right oroption to terminate this Agreement and (ii) there shall be no reduction in the amount of the Purchase Price.

Section 6.12 Condemnation. If any of the Purchased Assets is taken by condemnation during the Interim Period and thesum of (x) the condemnation value of such Purchased Assets (as determined by a qualified firm reasonably acceptable to Buyer andSeller) and (y) to the extent not included in the preceding clause (x), the amount of any lost profits reasonably expected to accrue afterthe Closing as a result of such condemnation of such Purchased Assets (net of and after giving effect to any condemnation awardproceeds to be paid to the Companies and any Tax benefits to the Companies related thereto) (such sum, the “Condemnation Value”)is greater than $2,500,000 but do not have a Condemnation Value in excess of 10% of the Base Purchase Price, Seller may elect toreduce the Purchase Price by such Condemnation Value (less the amount of any condemnation award proceeds to be paid to theCompanies and any Tax benefits to the Companies related thereto) by notice to Buyer, and such condemnation shall not affect theClosing. If Seller does not make such an election within 45 days after the award of the condemnation proceeds (but in any event atleast 20 days prior to the Closing Date), Buyer may elect to terminate this Agreement within 10 Business Days after such 45 dayperiod by written notice to Seller. If the Condemnation Value is in excess of 10% of the Base Purchase Price, Seller may, by notice toBuyer within 45 days after the award of the condemnation proceeds (but in any event at least 20 days prior to the Closing Date), electto (a) reduce the Purchase Price by such Condemnation Value (less the amount of any condemnation award proceeds to be paid to theCompanies and any Tax benefits to the Companies related thereto) or (b) terminate this Agreement, in each case by providing writtennotice to Buyer; provided, however, that if Seller does not elect to terminate this Agreement as provided in this sentence, then Buyermay, by written notice to Seller, terminate this Agreement within 10 Business Days of receipt by Buyer of Seller’s notice regarding itselection. If the Condemnation Value is $2,500,000 or less, (A) neither Buyer nor Seller shall have the right or option to terminate thisAgreement and (B) there shall be no reduction in the amount of the Purchase Price.

Section 6.13 Transfer Taxes. Seller and Buyer shall each pay any Transfer Taxes imposed on it by Law as a result ofthe transactions contemplated by this Agreement, but, notwithstanding any such requirement of Law, each of Seller and Buyer shallbear half of the total of all such Transfer Taxes. Accordingly, if either Party is required at Law to pay more than its half of any suchTransfer Taxes, the other Party shall promptly reimburse such first Party for amounts in excess of such half. Seller and Buyer shalltimely file their own Transfer Tax returns as required by Law and shall notify the other Party when such filings have been made. Seller and Buyer shall cooperate and consult with each other prior to filing such Transfer Tax returns to ensure that all such returns arefiled in a consistent manner. Without limiting the foregoing, Buyer shall be solely responsible for any Transfer Taxes arising fromany action to dissolve, terminate or restructure any Project Company or to convey, distribute or transfer any assets, properties or otherrights by deed, bill of sale or otherwise to or from any Project Company on or after the Closing.

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Section 6.14 Tax Matters. Except as provided in Section 6.13 relating to Transfer Taxes:

(a) With respect to any Tax return covering a taxable period ending on or before the Closing Date (a“Pre−Closing Taxable Period”) that is required to be filed after the Closing Date with respect to any Company, (i) Seller shall causesuch Tax return to be prepared and shall deliver such Tax return as so prepared to Buyer not later than 14 days prior to the due date forfiling such Tax return, and (ii) Buyer shall cause such Tax return to be executed and duly and timely filed with the appropriate TaxingAuthority and shall pay all Taxes due with respect to the period covered by such Tax return. With respect to any Tax return coveringa taxable period beginning on or before the Closing Date and ending after the Closing Date (a “Straddle Taxable Period”) that isrequired to be filed after the Closing Date with respect to a Project Company, (i) Buyer shall cause such Tax return to be prepared (ina manner consistent with practices followed in prior taxable periods except as required by a change in Law or fact) and shall deliver adraft of such Tax return to Seller for Seller’s review and approval at least 14 days prior to the due date for filing such Tax return, (ii)Seller and Buyer shall cooperate and consult with each other in order to finalize such Tax return, and (iii) thereafter Buyer shall causesuch Tax return to be executed and duly and timely filed with the appropriate Taxing Authority and shall pay all Taxes due withrespect to the period covered by such Tax return.

(b) As between Seller and Buyer, Seller shall be responsible for and indemnify Buyer against, and Seller shallbe entitled to all refunds or credits of, any Tax with respect to a Project Company that is attributable to a Pre−Closing Taxable Periodor to that portion of a Straddle Taxable Period that ends on the Closing Date, in each case to the extent that such Tax exceeds theamount (if any) reflected as a current liability for such Tax in a balance sheet of such Project Company prepared in accordance withGAAP as of the Closing Date. Within five days prior to the due date for the payment of any such Tax, if (i) the amount of such Taxfor which Seller is responsible exceeds (ii) the amount reflected as a current liability for such Tax in a balance sheet of such ProjectCompany prepared in accordance with GAAP as of the Closing Date, Seller shall pay to Buyer an amount equal to such excess; if theamount described in clause (ii) exceeds the amount described in clause (i), Buyer shall pay to Seller the amount of such excess. Withrespect to a Straddle Taxable Period, Seller shall determine the Tax attributable to the portion of the Straddle Taxable Period that endson the Closing Date by an interim closing of the books of the relevant Company as of the Closing Date, except for ad valorem orproperty Taxes (“Property Taxes”) and franchise Taxes based solely on capital which shall be prorated on a daily basis to the ClosingDate. For this purpose, any franchise Tax paid or payable not based solely on capital with respect to such Company shall be allocatedto the taxable period for which the income, operations, assets or capital comprising the base of such Tax is measured, regardless ofwhether the right to do business for another period is obtained by the payment of such Tax. In determining whether a Property Tax isattributable to a Pre−Closing Taxable Period or a Straddle Taxable Period, any Property Tax that is based on the assessed value of anyassets, property or other rights as of any lien date or other specified valuation date shall be deemed a Property Tax attributable to thetaxable period (whether a fiscal year or other

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tax year) specified on the relevant Property Tax bill that is issued with respect to that lien date or other valuation date.

(c) Buyer shall be responsible for and indemnify Seller against, and Buyer shall be entitled to all refunds(including, but not limited to, property tax refunds) and credits of, all Taxes of the Project Companies that are not the responsibility ofSeller pursuant to Section 6.14(b).

(d) With respect to any Tax for which Seller is responsible, Seller shall have the right, at its sole cost andexpense, to initiate any claim for refund and to control (in the case of a Pre−Closing Taxable Period) or participate in (in the case of aStraddle Taxable Period) the prosecution, settlement or compromise of any proceeding involving such Tax, including thedetermination of the value of property for purposes of real and personal property ad valorem Taxes. Buyer shall (and shall cause therelevant Company to) take such action in connection with any such proceeding as Seller shall reasonably request from time to time toimplement the preceding sentence, including the selection of counsel and experts and the execution of powers of attorney. Buyer shall(and shall cause the relevant Company to) give written notice to Seller of its receipt of any notice of any audit, examination, claim orassessment for any Tax for which Seller is responsible within 30 days after its receipt of such notice; failure to give any such writtennotice within such 30−day period shall cause Buyer to forfeit any rights it may have by reason of Section 4.10 or this Section 6.14 tothe extent Seller is actually prejudiced by such failure.

(e) Seller shall grant to Buyer (or its designees) access at all reasonable times to all of the information, booksand records relating to the Companies within the possession of Seller (including workpapers and correspondence with TaxingAuthorities), and shall afford Buyer (or its designees) the right (at Buyer’s expense) to take extracts therefrom and to make copiesthereof, to the extent reasonably necessary to permit Buyer (or its designees) to prepare Tax returns, respond to Tax audits andinvestigations, prosecute Tax protests, appeals and refund claims and to conduct negotiations with Taxing Authorities. Buyer shallgrant or cause the Companies to grant to Seller (or its designees) access at all reasonable times to all of the information, books andrecords relating to the Companies within the possession of Buyer (including workpapers and correspondence with Taxing Authorities)and to the employees of the Companies, and shall afford Seller (or its designees) the right (at Seller’s expense) to take extractstherefrom and to make copies thereof, to the extent reasonably necessary to permit Seller (or its designees) to prepare Tax returns,respond to Tax audits and investigations, prosecute Tax protests, appeals and refund claims and to conduct negotiations with TaxingAuthorities. After the Closing Date, Seller and Buyer will preserve all information, records or documents in their respectivepossessions relating to liabilities for Taxes of the Project Companies until six months after the expiration of any applicable statute oflimitations (including extensions thereof) with respect to the assessment of such Taxes; provided, that neither Party shall dispose ofany of the foregoing items without first offering such items to the other Party.

(f) If after the Closing Buyer or any Company receives a refund or utilizes a credit of any Tax of any Companyattributable to a Pre−Closing Taxable Period or that portion of

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a Straddle Taxable Period ending on the Closing Date, Buyer shall pay to Seller within 10 Business Days after such receipt orutilization an amount equal to such refund received or credit utilized, together with any interest received or credited thereon. Buyershall, and shall cause the relevant Company to, take such action to obtain a refund or credit of any Tax of such Company attributableto a Pre−Closing Taxable Period or that portion of a Straddle Taxable Period ending on the Closing Date or to mitigate, reduce oreliminate any such Tax that could be imposed for a Pre−Closing Taxable Period or that portion of a Straddle Taxable Period ending onthe Closing Date (including with respect to the transactions contemplated hereby) as is reasonably requested by Seller.

(g) In the event that Seller initiates a claim for refund from a Taxing Authority with regard to any Tax of anyCompany attributable to a Pre−Closing Taxable Period or that portion of a Straddle Taxable Period ending on the Closing Date,whether the initiation of such claim begins prior to or after the Closing, Seller shall have all rights to and interest in such refund. Buyer shall, upon request, provide Seller a limited power of attorney allowing Seller to pursue such claim for refund with and collectsuch refund from such Taxing Authority. If after the Closing Buyer or any Company receives a refund or utilizes a credit of any suchTax with regard to a claim so initiated by Seller, Buyer shall pay to Seller within 10 Business Days after such receipt or utilization anamount equal to such refund received or credit utilized, together with any interest received or credited thereon, less any expensesBuyer has incurred as a result of such action.

(h) In the event that Seller initiates a claim for refund from a third party who improperly withheld sales and useTax, or withheld excessive sales and use Tax, with regard to a Project Company attributable to a Pre−Closing Taxable Period or thatportion of a Straddle Taxable Period ending on the Closing Date, whether the initiation of such claim begins prior to or after theClosing, Seller shall have all rights to and interest in such refund. Buyer shall, upon request, provide Seller a limited power ofattorney allowing Seller to pursue such claim for refund with and collect such refund from such third party. If after the Closing Buyeror the Project Company receives a refund of any such Tax with regard to a claim so initiated by Seller, Buyer shall pay to Seller within10 Business Days after such receipt an amount equal to such refund received, together with any interest received or credited thereon,less any expenses Buyer has incurred as a result of such action.

(i) Not later than the Business Day immediately preceding the Closing Date, Seller shall cause each of CPHigh Desert I, CP High Desert II, Rio Nogales I and Rio Nogales II to be converted to, or merged with and into, limited liabilitycompanies, the sole member of which is Seller. In the event that any such conversion or merger results in Seller or its Affiliates beingliable for an amount of Federal or state Taxes as a result of such conversion or merger that exceeds the Taxes that would have beenpaid by Seller or its Affiliates (assuming an election would be made under Section 338(h)(10) of the Code) had the sale and purchaseof the Purchased Interests contemplated hereby not required such conversion or merger, Buyer shall pay to Seller an additional amountequal to one−half of such excess Federal or state Taxes; provided, however, that if such amount that Buyer would be obligated to payto Seller shall be in

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excess of $2,000,000, Buyer shall not be obligated to make such payment, and if Buyer does not make such payment, Seller shall haveno obligation to consummate any such conversion or merger. At the option of Buyer, the Parties shall cooperate with one another andmakes such filings as shall be required in order to make a timely election under Section 338(h)(10) of the Code and Seller shall haveno obligation to consummate any such conversion or merger. In addition, if any such excess Federal or state Taxes would be payableas a result of such conversion or merger, the Parties will cooperate in good faith and use their commercially reasonable efforts to makesuch modifications to this Agreement and the transactions contemplated hereby as may be required in order to avoid the applicabilityof any such excess Federal or state Taxes as a result of such conversion or merger.

Section 6.15 Affiliate Contracts. From and after the date hereof, Buyer and Seller shall use commercially reasonableefforts to obtain the written consent from each party (other than Seller and its Affiliates) (each a “Counterparty”) to each AffiliateContract to the assignment and assumption of such Affiliate Contract by each Assignor to each Assignee as contemplated by Section7.7(b) to occur at Closing, provided, however, that with respect to those Affiliate Contracts not marked with an asterisk on Schedule1.1−AC, the failure to obtain such consent shall not delay or prevent Closing, and any obligation to seek such consent by Buyer orSeller shall terminate as of the Closing, except that Seller shall have a continuing obligation after the Closing to seek all counterpartyconsents with respect to the Waiver and Option Agreement dated June 24, 2005 for the High Desert Project set forth on Schedule1.1−AC (notwithstanding that such contract is not marked with an asterisk therein). Without limiting the foregoing, Buyer’s effortsshall include offering to replace any credit support posted or maintained by Seller or a Non−Company Affiliate in favor of anyCounterparty to any Affiliate Contract in accordance with the requirements of Section 6.5, and in the case of Affiliate Contracts withrespect to which none of Seller or any Non−Company Affiliate has posted or maintains any credit support, Buyer shall comply withall commercially reasonable requests from any Counterparty under such Affiliate Contracts to post or maintain credit support assecurity for the performance of the obligations of the Assignee thereof, in each case to the extent and in the manner set forth in Section6.5.

Section 6.16 Appointment of Representatives. In order to facilitate the consummation of the transactions contemplatedby this Agreement, each Party shall designate a representative to act as the primary point of contact to coordinate communications andother interaction between the Parties during the Interim Period.

Section 6.17 Updating. Seller shall promptly notify Buyer of any changes or additions to any of the Schedules of whichit has Knowledge that may be necessary to correct any matter that would otherwise constitute a breach of any representation orwarranty of Seller in Articles III or IV. No such updates made pursuant to this Section 6.17 shall be deemed to cure any inaccuracy ofany representation or warranty made in this Agreement as of the date hereof or for purposes of Section 7.1 unless Buyer specificallyagrees thereto in writing; provided, however, that if the Closing shall occur, then no matters disclosed by Seller pursuant to any suchchange or addition at or prior to the Closing shall be the basis for any indemnification by Seller pursuant to

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Section 10.1(a) to the extent any such update relates solely to events, conditions or other matters first occurring or arising after thedate of this Agreement. Seller agrees to advise the Buyer promptly in writing of any matter or occurrence of which it has or obtainsKnowledge, and Buyer agrees to advise Seller promptly in writing of any matter of which Buyer has Knowledge, which, in eithercase, may constitute a breach by either Party of any representation, warranty or covenant contained in this Agreement.

Section 6.18 Announcements. Prior to the Closing Date no press release or other public announcement, or publicstatement or comment in response to any inquiry, relating to this Agreement or the transactions contemplated hereby shall be issued ormade by either Buyer or Seller, or any of their Affiliates, without the approval of Buyer or Seller, as the case may be;such consent notto be unreasonably withheld, delayed or conditioned provided, however, that a press release or other public announcement, regulatoryfiling, statement or comment made without such approval, including in furtherance of the requirements of Section 6.1, shall not be inviolation of this Section 6.18 if it is made in order to comply with applicable Laws or stock exchange rules and in the reasonablejudgment of the Party or Affiliate making such release or announcement, based upon advice of counsel, prior review and jointapproval, despite reasonable efforts to obtain the same, would prevent dissemination of such release or announcement in a sufficientlytimely fashion to comply with such applicable Laws or rules; provided, further, that in all instances the Buyer or Seller, as the casemay be, shall provide prompt notice of any such release, announcement, statement or comment to the other Party.

Section 6.19 Buyer Financing. Buyer shall use commercially reasonable efforts to consummate the financingcontemplated by the Buyer Commitment Letter and the other commitments referred to in Section 5.8 so as to enable Buyer to havesufficient cash at Closing to purchase the Purchased Interests in accordance with the terms of this Agreement. Prior to the ClosingDate, at Buyer’s sole cost and expense, Seller will, and will cause the Companies to, use commercially reasonable efforts to cooperatewith Buyer in obtaining its financing under the Buyer Commitment Letter including furnishing to representatives of Buyer’s financingsources such information, access to Project sites (including for purposes of surveys and insurance inspections), Company books andrecords and other documentation, and taking such other actions as may be reasonably requested from time to time by Buyer. Anyassistance provided by Seller and any Company pursuant to this Section 6.19 shall be subject to the same conditions as are set forth inSection 6.2.

Section 6.20 Further Assurances. Subject to the terms and conditions of this Agreement, at any time and from time totime after the Closing, at either Party’s request and without further consideration, the other Party shall execute and deliver to suchrequesting Party such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials andinformation and take such other actions as such Party may reasonably request in order to consummate the transactions contemplatedby this Agreement.

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ARTICLE VIIBUYER’S CONDITIONS TO CLOSING

The obligation of Buyer to consummate the Closing is subject to the fulfillment of each of the following conditions (except tothe extent waived in writing by Buyer in its sole discretion):

Section 7.1 Representations and Warranties. The representations and warranties made by Seller in Articles III and IVshall be true in all material respects (except for representations and warranties that are qualified by materiality, including by referenceto Material Adverse Effect, which shall be true in all respects) on and as of the Closing Date as though made on and as of the ClosingDate.

Section 7.2 Performance. Seller shall have performed and complied, in all material respects, with the agreements,covenants and obligations required by this Agreement to be performed or complied with by Seller at or before the Closing.

Section 7.3 Officer’s Certificate. Seller shall have delivered to Buyer at the Closing a certificate of an officer of Seller,dated as of the Closing Date, as to the matters set forth in Sections 7.1 and 7.2.

Section 7.4 Orders and Laws. There shall not be any litigation or proceedings (filed by a Person other than Buyer orits Affiliates) or Law or order restraining, enjoining or otherwise prohibiting or making illegal or threatening to restrain, enjoin orotherwise prohibit or make illegal the consummation of the transactions contemplated by this Agreement.

Section 7.5 Consents and Approvals. The Buyer Approvals, the Seller Approvals and those Company Consentsmarked with an asterisk on Schedule 4.2 shall have been duly obtained, made or given and shall be in full force and effect, in form andsubstance reasonably satisfactory to Buyer, and all terminations or expirations of waiting periods imposed by any GovernmentalAuthority shall have occurred; provided, however, that the absence of any appeals and the expiration of any appeal period with respectto any of the foregoing shall not constitute a condition to Closing hereunder.

Section 7.6 Resignation of Members, Managers, Officers and Directors. Seller shall have caused the resignation orremoval of all members, managers, officers and directors, as applicable, nominated or appointed by Seller or its Affiliates to any boardor operating, management or other committee relating to the Projects or established under the Companies’ Charter Documents, andshall have delivered to Buyer at the Closing evidence of such resignations or removals, together with releases in favor of theCompanies of any and all claims which any such members, managers, officers and directors may have against any of the Companiesor their Subsidiaries.

Section 7.7 Seller Deliverables. Seller shall have delivered, or caused to have been delivered, to Buyer each of thefollowing:

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(a) a counterpart, executed by Seller, of an assignment of membership interests evidencing the assignment andtransfer to Buyer of all of the Membership Interests, substantially in the form of Exhibit A (the “Membership Interests AssignmentAgreement”);

(b) an executed counterpart of one or more assignment and assumption agreements, each substantially in theform of Exhibit B (each an “Assignment and Assumption Agreement”) which shall effect the assignment to Buyer, one of the ProjectCompanies or an Affiliate of Buyer (as applicable, the “Assignee”) of each Assigned Contract by the Non−Company Affiliate that isparty thereto (the “Assignor”), subject to the assumption by the Assignee of all obligations of the Assignor under each AssignedContract arising from and after the Closing Date; provided, however that, in the case of those Assigned Contracts relating to naturalgas transportation on a pipeline regulated by the FERC, Seller’s obligations under this paragraph (c) are conditioned upon theNon−Company Affiliate successfully releasing its capacity permanently to Buyer or an Affiliate of Buyer and being relieved of allpayment obligations under each such Assigned Contract pursuant to the terms of the applicable FERC Gas Tariff, each of Seller andBuyer agreeing to use commercially reasonable efforts to achieve such permanent releases of capacity;

(c) an executed counterpart of the Transition Services Agreement;

(d) a certification of non−foreign status in the form prescribed by Treasury Regulation Section 1.1445−2(c)with respect to Seller:

(e) originals of all documentation related to the bonds issued with respect to the Big Sandy Project, includingall outstanding bonds;

(f) evidence reasonably satisfactory to Buyer of the satisfaction or release of any liabilities owed by anyCompany to Seller or any Non−Company Affiliate; and

(g) evidence reasonably satisfactory to Buyer of the conversion or merger of CP High Desert I, CP High DesertII, Rio Nogales I and Rio Nogales II as contemplated by Section 6.14(i).

Section 7.8 Financing. Buyer shall have obtained the proceeds of the financing contemplated by the BuyerCommitment Letter.

ARTICLE VIIISELLER’S CONDITIONS TO CLOSING

The obligation of Seller to consummate the Closing is subject to the fulfillment of each of the following conditions (except tothe extent waived in writing by Seller in its sole discretion):

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Section 8.1 Representations and Warranties. The representations and warranties made by Buyer in Article V shall betrue in all material respects (except for representations and warranties that are qualified by materially, including by reference toMaterial Adverse Effect, which shall be true in all respects) on and as of the Closing Date as though made on and as of the ClosingDate.

Section 8.2 Performance. Buyer shall have performed and complied, in all material respects, with the agreements,covenants and obligations required by this Agreement to be so performed or complied with by Buyer at or before the Closing.

Section 8.3 Officer’s Certificate. Buyer shall have delivered to Seller at the Closing a certificate of an officer ofBuyer, dated as of the Closing Date, as to the matters set forth in Sections 8.1 and 8.2.

Section 8.4 Orders and Laws. There shall not be any litigation or proceedings (filed by a Person other than Seller or itsAffiliates) or Law or order restraining, enjoining or otherwise prohibiting or making illegal or threatening to restrain, enjoin orotherwise prohibit or make illegal the consummation of the transactions contemplated by this Agreement.

Section 8.5 Consents and Approvals. The Seller Approvals and those Company Consents marked with an asterisk onSchedule 4.2 shall have been duly obtained, made or given and shall be in full force and effect, and all terminations or expirations ofwaiting periods imposed by any Governmental Authority shall have occurred; provided, however, that the absence of any appeals andthe expiration of any appeal period with respect to any of the foregoing shall not constitute a condition to Closing hereunder.

Section 8.6 Release of Support Obligations. To the extent required by Schedule 6.5(a)(2), Buyer shall either have (i)effected the full and unconditional release of Seller and the Non−Company Affiliates from all Support Obligations or (ii) provided toSeller the replacement guarantee referenced in Schedule 6.5(a)(2).

Section 8.7 Buyer Deliverables. Buyer shall have delivered, or caused to have been delivered, to Seller each of thefollowing:

(a) a wire transfer of immediately available funds (to such account as Seller shall have given notice to Buyernot less than two Business Days prior to the Closing Date) in an amount equal to the sum of (i) the Base Purchase Price plus (ii) theEstimated Aggregate Net Working Capital Adjustment Amount (whether a positive or a negative amount) plus (iii) the Estimated GasInventory Amount, and as adjusted further as provided in Section 2.2(d) & (e) ;

(b) an executed counterpart of the Membership Interests Assignment Agreement;

(c) an executed counterpart of each Assignment and Assumption Agreement by the respective Assignee;

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(d) evidence reasonably satisfactory to Seller that Buyer or an Affiliate of Buyer has entered into each of theDesignated Commodities Contracts with the counterparty thereto; and

(e) the duly issued Continuing Support Letter of Credit.

ARTICLE IXTERMINATION

Section 9.1 Termination. This Agreement may be terminated, and the transactions contemplated hereby may beabandoned, as follows:

(a) at any time before the Closing, by Seller or Buyer, by written notice to the other, in the event that any Lawor final order restrains, enjoins or otherwise prohibits or makes illegal the sale of the Purchased Interests pursuant to this Agreement;

(b) at any time before the Closing, by Seller or Buyer, by notice to the other, if the other has materiallybreached its obligations hereunder and such breach (other than a breach of Buyer’s obligation to pay the Purchase Price in accordancewith the terms of Article II) has not been cured within 30 days following written notification thereof; provided, however, that if, at theend of such 30 day period, the breaching Party is endeavoring in good faith, and proceeding diligently, to cure such breach, thebreaching Party shall have an additional 30 days in which to effect such cure;

(c) at any time before the Closing, by Buyer or Seller, by notice to the other, on or after the date that is 120days after the date of this Agreement;

(d) by Buyer or Seller pursuant to Section 6.11 or 6.12, by notice to the other Party in accordance with suchSections;

(e) by Seller if Buyer shall fail to satisfy all or any of its obligations pursuant to Section 9.3(b); or

(f) by mutual written consent of Buyer and Seller.

Section 9.2 Effect of Termination. If this Agreement is validly terminated pursuant to Section 9.1, there will be noliability or obligation on the part of Seller or Buyer (or any of their respective Representatives or Affiliates), provided that (a) Sections6.2(b), 6.18, 9.2, 9.3, 10.5, 11.3, 11.4 and 11.12 will survive any such termination and (b) each Party shall continue to be liable for anybreach of this Agreement by it occurring prior to such termination.

Section 9.3 Break−up Fee. (a) If this Agreement is terminated (i) by Seller pursuant to Section 9.1(b) or (e) or (ii) bySeller and/or Buyer pursuant to Section 9.1(c) or (f) solely because the condition in Section 7.8 or Section 8.6 has not been or cannotbe satisfied, then, in any such case, in lieu of all other Claims and remedies that might otherwise be available to Seller

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with respect thereto, including elsewhere hereunder and notwithstanding any other provision of this Agreement:

(i) (A) if Buyer has breached its obligation to pay the Purchase Price or its obligations under Section6.1(a) or 6.1(c), (B) if this Agreement is terminated pursuant to Section 9.1(e) or (C) if this Agreement is terminated pursuantto Section 9.1(c) or (f) solely because the condition in Section 7.8 or Section 8.6 has not been or cannot be satisfied, then inany such case. Buyer shall pay Seller, by wire transfer of immediately available funds within three Business Days followingthe date of termination, as liquidated damages, 5% of the Base Purchase Price; or

(ii) if Buyer has materially breached any representation, warranty, covenant, agreement or obligationhereunder (other than those referred to in Section 9.3(a)(i)), then Buyer shall pay Seller, by wire transfer of immediatelyavailable funds within three Business Days following the date of termination, as liquidated damages, Seller’s actual andreasonable out−of−pocket fees (including reasonable attorney’s fees and regulatory filing fees) and expenses incurred inconnection with this Agreement, subject to a maximum of $5,000,000.

(b) As security for Buyer’s obligations pursuant to Section 9.3(a), (i) on October 11, 2006, Buyer shall provideBreak−up Fee Security in the amount of $25,000,000, (ii) on or before October 16, 2006, Buyer shall provide Break−up Fee Securityin the amount of $44,000,000 (reduced dollar for dollar by any amounts required to be paid to tolling counterparties to secure abreak−up fee on contingent hedges), and (iii) on or before October 31, 2006, Buyer shall provide Break−up Fee Security in an amountequal to the excess of (x) 5% of the Base Purchase Price over (y) the sum of the amounts actually provided pursuant to clauses (i) and(ii) of this Section 9.3(b).

(c) The provision for payment of liquidated damages in this Section 9.3 has been included because, in the eventof a breach by Buyer, the actual damages to be incurred by Seller can reasonably be expected to approximate the amount of liquidateddamages provided for herein and because the actual amount of such damages would be difficult if not impossible to measureaccurately.

ARTICLE XINDEMNIFICATION, LIMITATIONS OF LIABILITY, WAIVERS AND ARBITRATION

Section 10.1 Indemnification. (a) Subject to Section 10.2, from and after Closing, Seller shall indemnify, defend andhold harmless Buyer from and against all Losses incurred or suffered by Buyer resulting from:

(i) any breach of any representation or warranty of Seller contained in this Agreement;

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(ii) any breach of any covenant or agreement of Seller contained in this Agreement;

(iii) the Terminated Contracts and the Assigned Contracts, but only to the extent such Losses accruedprior to Closing;

(iv) the Excluded Items;

(v) any Claim, Loss, liability or other obligation of any kind related to any Benefit Plan or ExcludedContract; and

(vi) the matter marked with an asterisk on Schedule 4.7.

(b) Subject to Section 10.2, from and after Closing, Buyer shall indemnify, defend and hold Seller harmlessfrom and against all Losses incurred or suffered by Seller resulting from:

(i) any breach of any representation or warranty of Buyer contained in this Agreement;

(ii) any breach of any covenant or agreement of Buyer contained in this Agreement; and

(iii) the Assigned Contracts, but only to the extent such Losses accrue on or after Closing.

Section 10.2 Limitations of Liability. Notwithstanding anything in this Agreement to the contrary, except in the case ofany Claim based upon fraud or willful misconduct which shall not be subject to the following limitation:

(a) the representations, warranties, covenants, agreements and obligations in this Agreement shall survive theClosing; provided, however, that any Claim for liability pursuant to Section 10.1(a)(i) must be made in writing no later than 12 monthsfollowing the Closing Date, except that (i) any Claim relating to Section 3.8 or 4.10 may be brought until 60 days following theexpiration of the applicable statute of limitations, (ii) any Claim relating to Section 4.15 may be brought until 36 months following theClosing Date, and (iii) any Claim relating to Sections 3.2, 3.4 or 4.3 may be brought at any time;

(b) Seller shall have no liability for any breach of a representation or warranty in this Agreement in connectionwith any single item or group of related items that results in Losses of less than $500,000;

(c) Seller shall have no liability for breaches of representations and warranties in this Agreement until theaggregate amount of all Losses incurred by Buyer equals or exceeds 2% of the Base Purchase Price (the “Deductible Amount”), inwhich event Seller shall be liable for Losses only to the extent they are in excess of the Deductible Amount; and

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(d) in no event shall Seller’s aggregate liability arising out of or relating to this Agreement, whether relating toa breach of a representation and warranty, covenant, agreement or obligation in this Agreement and whether based on contract, tort,strict liability, other Laws or otherwise, exceed 10% of the Base Purchase Price (“Liability Cap”), except that the Liability Cap shallnot apply to Losses arising out of or related to (x) any breach of the representations and warranties in Section 3.4 or 4.3 (insofar assuch Sections relate to the Companies or the Purchased Interests) or the last sentence of Section 4.4 or (y) any breach of Section10.1(a)(iii), (iv), (v) or (vi) without giving effect to the phrase “Subject to Section 10.2” solely for purposes of this Section 10.2(d).

Section 10.3 Notice; Duty to Mitigate. Each Party shall give written notice to the other Party within a reasonable periodof time after becoming aware of any breach by such other Party of any representation, warranty, covenant, agreement or obligation inthis Agreement. Each Party shall have a duty to mitigate any Loss in connection with this Agreement.

Section 10.4 Indirect Claims. From and after the Closing, Buyer agrees to release, indemnify and hold harmless Seller,its Affiliates and the officers, directors and employees of the Project Companies (acting in their capacity as such) from and against anyLosses for controlling stockholder liability or breach of any fiduciary or other duty relating to any pre−Closing actions or failures toact (including negligence or gross negligence) in connection with the business of the Companies prior to the Closing

Section 10.5 Waiver of Other Representations. (a) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TOTHE CONTRARY, IT IS THE EXPLICIT INTENT OF EACH PARTY, AND THE PARTIES HEREBY AGREE, THAT NONE OFSELLER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES HAS MADE OR IS MAKING ANY REPRESENTATION ORWARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING ANY IMPLIEDREPRESENTATION OR WARRANTY AS TO THE CONDITION, MERCHANTABILITY, USAGE, SUITABILITY OR FITNESSFOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED INTERESTS, THE PROJECT COMPANIES ORANY OF THE PURCHASED ASSETS, OR ANY PART THEREOF, EXCEPT THOSE REPRESENTATIONS ANDWARRANTIES EXPRESSLY SET FORTH IN ARTICLES III AND IV. SELLER MAKES NO REPRESENTATION ORWARRANTY TO BUYER WITH RESPECT TO ANY FINANCIAL PROJECTIONS OR FORECASTS RELATING TO THEPROJECT COMPANIES OR THE PURCHASED ASSETS.

(b) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER’S INTERESTS IN THEPROJECT COMPANIES ARE BEING TRANSFERRED THROUGH THE SALE OF THE PURCHASED INTERESTS “AS IS,WHERE IS, WITH ALL FAULTS,” AND SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIESOF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO THE CONDITION, VALUE OR QUALITY OF THE PROJECTCOMPANIES AND THEIR ASSETS OR THE PROSPECTS (FINANCIAL OR OTHERWISE), RISKS AND OTHER INCIDENTSOF THE PROJECT COMPANIES AND THEIR ASSETS.

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Section 10.6 Waiver of Remedies. (a) Buyer and Seller acknowledge and agree that the foregoing indemnificationprovisions in this Article X shall be the exclusive remedy of Buyer and Seller with respect to the transactions contemplated by thisAgreement, except for fraud or willful misconduct; provided, however, that the foregoing shall not limit or restrict the availability ofspecific performance or other injunctive or equitable relief to the extent that specific performance or such other relief would otherwisebe available to the Parties hereunder.

(b) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, NO PARTYSHALL BE LIABLE FOR SPECIAL, PUNITIVE, EXEMPLARY, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGESOR LOST PROFITS, WHETHER BASED ON CONTRACT, TORT, STRICT LIABILITY, OTHER LAW OR OTHERWISE ANDWHETHER OR NOT ARISING FROM THE OTHER PARTY’S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICTLIABILITY OR OTHER FAULT (“Non−reimbursable Damages”).

(c) Notwithstanding anything in this Agreement to the contrary, no Representative or Affiliate of Seller shallhave any personal liability to Buyer or any other Person as a result of the breach of any representation, warranty, covenant, agreementor obligation of Seller in this Agreement and no Representative or Affiliate of Buyer shall have any personal liability to Seller or anyother Person as a result of the breach of any representation, warranty, covenant, agreement or obligation of Buyer in this Agreement.

Section 10.7 Procedure with Respect to Third−Party Claims. (a) If any Party (or as to Buyer after Closing, any ProjectCompany) becomes subject to a pending or threatened Claim of a third party and such Party (the “Claiming Party”) believes it has aclaim against the other Party (the “Responding Party”) as a result, then the Claiming Party shall notify the Responding Party inwriting of the basis for such Claim setting forth the nature of the Claim in reasonable detail. The failure of the Claiming Party to sonotify the Responding Party shall not relieve the Responding Party of liability hereunder except to the extent that the defense of suchClaim is prejudiced by the failure to give such notice.

(b) If any proceeding is brought by a third party against a Claiming Party and the Claiming Party gives noticeto the Responding Party pursuant to this Section 10.7 the Responding Party shall be entitled to participate in such proceeding and, tothe extent that it wishes, to assume the defense of such proceeding, if (i) the Responding Party provides written notice to the ClaimingParty that the Responding Party intends to undertake such defense, (ii) the Responding Party conducts the defense of the third−partyClaim actively and diligently with counsel reasonably satisfactory to the Claiming Party and (iii) if the Responding Party is a party tothe proceeding, the Responding Party has not determined in good faith that joint representation would be inappropriate because of aconflict in interest. The Claiming Party shall, in its sole discretion, have the right to employ separate counsel (who may be selected bythe Claiming Party in its sole discretion) in any such action and to participate in the defense thereof, and the fees and expenses of suchcounsel shall be paid by such Claiming Party. The Claiming Party shall fully cooperate with the Responding Party and its counsel inthe defense or compromise of such Claim. If the Responding Party assumes the defense of a proceeding, no

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compromise or settlement of such Claims may be effected by the Responding Party without the Claiming Party’s consent unless (A)there is no finding or admission of any violation of Law or any violation of the rights of any Person and no effect on any other Claimsthat may be made against the Claiming Party and (B) the sole relief provided is monetary damages that are paid in full by theResponding Party.

(c) If (i) notice is given to the Responding Party of the commencement of any third−party legal proceeding andthe Responding Party does not, within 30 days after the Claiming Party’s notice is given, give notice to the Claiming Party of itselection to assume the defense of such legal proceeding, (ii) any of the conditions set forth in clauses (i) through (iii) of Section10.7(b) above become unsatisfied or (iii) a Claiming Party determines in good faith that there is a reasonable probability that a legalproceeding may adversely affect it other than as a result of monetary damages for which it would be entitled to indemnification fromthe Responding Party under this Agreement, then the Claiming Party shall (upon notice to the Responding Party) have the right toundertake the defense, compromise or settlement of such claim; provided, however, that the Responding Party shall reimburse theClaiming Party for the costs of defending against such third−party claim (including reasonable attorneys’ fees and expenses) and shallremain otherwise responsible for any liability with respect to amounts arising from or related to such third−party claim, in both casesto the extent it is ultimately determined that such Responding Party is liable with respect to such third−party claim for a breach underthis Agreement. The Responding Party may elect to participate in such legal proceedings, negotiations or defense at any time at itsown expense.

Section 10.8 Access to Information. After the Closing Date, Seller and Buyer shall grant each other (or their respectivedesignees), and Buyer shall cause the Project Companies to grant to Seller (or its designees), access at all reasonable times uponreasonable notice to all of the information, books and records relating to the Project Companies in its possession, and shall afford suchparty the right (at such party’s expense) to take extracts therefrom and to make copies thereof, to the extent reasonably necessary toimplement the provisions of, or to investigate or defend any claims between the Parties arising under, this Agreement other than (w)information relating to post−closing periods that is commercially sensitive, trade secret or otherwise confidential or (x) in the case ofclaims between the Parties, any information that is subject to any attorney client, work product or other privilege or that otherwisewould not be required to be provided pursuant to a subpoena or other civil discovery procedure. At or promptly after the Closing,Seller shall deliver to Buyer all books, records, correspondence, files, and other information of or relating to the Companies or theirproperties, business, operations or condition (other than Terminated Contracts and Excluded Items) to the extent such information isnot in the custody or possession of the Companies on the Closing Date other than (y) information relating to pre−closing periods inrespect of any Non−Company Affiliate that is commercially sensitive, trade secret or otherwise confidential or (z) in the case ofclaims between the Parties, any information that is subject to any attorney client, work product or other privilege or that otherwisewould not be required to be provided pursuant to a subpoena or other civil discovery procedure.

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ARTICLE XIMISCELLANEOUS

Section 11.1 Notices. (a) Unless this Agreement specifically requires otherwise, any notice, demand or request providedfor in this Agreement, or served, given or made in connection with it, shall be in writing and shall be deemed properly served, given ormade if delivered in person or sent by facsimile or sent by registered or certified mail, postage prepaid, or by a nationally recognizedovernight courier service that provides a receipt of delivery, in each case, to the Parties at the addresses specified below:

If to Buyer, to:TPF Generation Holdings, LLC1044 North 115th StreetSuite 400Omaha, NE 68154Attn: Paul SmithFacsimile: (402) 691−9727

with copies to:

TPF Generation Holdings, LLC.1044 North 115th StreetSuite 400Omaha, NE 68154Attn: Ryan SchroerFacsimile: (402) 691−9727

and

Chadbourne & Parke LLP30 Rockefeller CenterNew York, NY 10012Attn: Charles E. Hord, Esq.Facsimile: (646) 710−5353

If to Seller, to:

Constellation Power, Inc.c/o Constellation Energy Group, Inc.750 East Pratt StreetBaltimore, MD 21202Attn: John PaffenbargerFacsimile: (410) 783−2829

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with copies to:

Constellation Energy Group, Inc.750 East Pratt StreetBaltimore, MD 21202Attn: Charles A. Berardesco, Esq.Facsimile: (410) 783−3049

and

Paul, Hastings, Janofsky & Walker LLP75 East 55th StreetNew York, NY 10022Attn: Jonathan Birenbaum, Esq.Facsimile: (212) 319−4090

(b) Notice given by personal delivery, mail or overnight courier pursuant to this Section 11.1 shall be effectiveupon physical receipt. Notice given by facsimile pursuant to this Section 11.1 shall be effective as of the date of confirmed delivery ifdelivered before 5:00 p.m. Eastern Time on any Business Day or the next succeeding Business Day if confirmed delivery is after 5:00p.m. Eastern Time on any Business Day or during any non−Business Day.

Section 11.2 Entire Agreement. Except for the Confidentiality Agreement, this Agreement supersedes all priordiscussions and agreements between the Parties with respect to the subject matter hereof and contains the sole and entire agreementbetween the Parties hereto with respect to the subject matter hereof.

Section 11.3 Expenses. Except as otherwise expressly provided in this Agreement, whether or not the transactionscontemplated hereby are consummated, each Party will pay its own costs and expenses incurred in anticipation of, relating to and inconnection with the negotiation and execution of this Agreement and the transactions contemplated hereby.

Section 11.4 Disclosure. Seller may, at its option, include in the Schedules items that are not material in order to avoidany misunderstanding, and any such inclusion, or any references to dollar amounts, shall not be deemed to be an acknowledgment orrepresentation that such items are material, to establish any standard of materiality or to define further the meaning of such terms forpurposes of this Agreement.

Section 11.5 Waiver. Any term or condition of this Agreement may be waived at any time by the Party that is entitled tothe benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of theParty waiving such term or condition. No waiver by any Party of any term or condition of this Agreement, in any one or moreinstances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any futureoccasion.

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Section 11.6 Amendment. This Agreement may be amended, supplemented or modified only by a written instrumentduly executed by or on behalf of each Party.

Section 11.7 No Third Party Beneficiary. Except for the provisions of Sections 6.2(b), 6.4, 6.5, 6.7, 6.15, 9.2, 10.4, 10.5and 10.6(c) which are intended to be for the benefit of the Persons identified therein), the terms and provisions of this Agreement areintended solely for the benefit of the Parties and their respective successors or permitted assigns, and it is not the intention of theParties to confer third−party beneficiary rights upon any other Person.

Section 11.8 Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may beassigned by any Party without the prior written consent of the other Party, except that Buyer may (without the consent of any otherParty) assign this Agreement or any of its rights, interests or obligations hereunder to any Person providing financing to Buyer or itsAffiliates, but no such assignment shall release Buyer of its obligations under this Agreement. Subject to this Section 11.8, thisAgreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective successors and permittedassigns.

Section 11.9 Headings. The headings used in this Agreement have been inserted for convenience of reference only anddo not define or limit the provisions hereof.

Section 11.10 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable underany present or future Law, and if the rights or obligations of any Party under this Agreement will not be materially and adverselyaffected thereby, such provision will be fully severable, this Agreement will be construed and enforced as if such illegal, invalid orunenforceable provision had never comprised a part hereof, the remaining provisions of this Agreement will remain in full force andeffect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and in lieu of suchillegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceableprovision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

Section 11.11 Counterparts; Facsimile. This Agreement may be executed in any number of counterparts, each of whichwill be deemed an original, but all of which together will constitute one and the same instrument. Any facsimile or electronicallytransmitted copies hereof or signature hereon shall, for all purposes, be deemed originals.

Section 11.12 Governing Law; Jurisdiction; Waiver of Jury Trial.

(a) This Agreement shall be governed by and construed in accordance with the Law of the State of New York,without giving effect to any conflict or choice of law provision that would result in the application of another state’s Law.

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(b) Each of the Parties hereby submits to the exclusive jurisdiction of the State and Federal courts located inthe Borough of Manhattan in the City and State of New York with respect to any action or proceeding relating to this Agreement andthe transactions contemplated hereby.

(c) EACH OF THE PARTIES IRREVOCABLY WAIVE THEIR RIGHT TO A JURY TRIAL WITHRESPECT TO ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE TRANSACTIONSCONTEMPLATED HEREBY.

Section 11.13 Attorneys’ Fees. If either of the Parties shall bring an action to enforce the provisions of this Agreement,the prevailing Party shall be entitled to recover its reasonable attorneys’ fees and expenses incurred in such action from theunsuccessful Party.

[signature page follows]

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each Partyas of the date first above written.

SELLERCONSTELLATION POWER, INC.

By: /s/ Charles A. BerardescoName: Charles A. BerardescoTitle: Assistant Secretary

BUYERTPF GENERATION HOLDINGS, LLC

By: TPF Power, Inc.,its manager

By: /s/ Alan B. LevandeName: Alan B. LevandeTitle: Vice President


EXHIBIT A

ASSIGNMENT AND ASSUMPTION OF MEMBERSHIP INTERESTS

This ASSIGNMENT AND ASSUMPTION OF MEMBERSHIP INTERESTS (this “Assignment”), effective as of , 2006, between CONSTELLATION POWER, INC., a Maryland corporation (“Assignor”), and TPF GENERATIONHOLDINGS, LLC, a Delaware limited liability company (“Assignee”).

RECITALS

ARTICLE IAssignee and Assignor entered into a Purchase and Sale Agreement dated as of October 10, 2006 (the“Purchase Agreement”), pursuant to which Assignor has agreed to transfer to Assignee 100% of its membership interests (the“Membership Interests”) in Holland Energy, LLC (“Holland Energy”), HE Supply Company, LLC (“HE Supply”), Big Sandy PeakerPlant, LLC (“Big Sandy Peaker”), University Park Energy, LLC (“University Park Energy”), UP Supply, LLC (“UP Supply”) andWolf Hills Energy, LLC [include CP High Desert and Rio Nogales companies as appropriate] (together with Holland Energy, HESupply, Big Sandy Peaker, University Park Energy and UP Supply, the “Limited Liability Companies”);

B. To effect the sale and purchase of the Membership Interests, Assignor and Assignee are executing and deliveringthis Assignment.

NOW THEREFORE, in consideration of the premises, the mutual covenants and agreements contained herein and other goodand valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee hereby act andagree as follows:

AGREEMENTS

Definitions. Any capitalized term not otherwise defined herein shall have the meaning ascribed to such term in the PurchaseAgreement.

1. Transfer of Interests. Assignor hereby sells, assigns, transfers and delivers unto Assignee (i) all ofAssignor’s right, title and interest in and to the Membership Interests and (ii) all of Assignor’s rights under the limited liabilitycompany or operating agreement of each respective Limited Liability Company.

2. Assumption of Assignee. Assignee hereby accepts the sale, assignment, transfer and delivery of theMembership Interests, and assumes (i) the Membership Interests and (ii) all obligations and liabilities of the Assignor under thelimited liability company or operating agreement of each respective Limited Liability Company.

3. Withdrawal of Assignor. As of the date hereof, Assignor shall be deemed to have withdrawn as a memberof each Limited Liability Company. For purposes of the limited


liability company or operating agreement of each respective Limited Liability Company, the withdrawal of Assignor and theadmission of Assignee shall be deemed to have occurred simultaneously.

4. Counterparts. This Assignment may be executed in separate counterparts with separate signature pages, allof which when taken together shall constitute one instrument. Delivery by facsimile or other electronic transmission of an executedoriginal and/or the retransmission of any executed facsimile or other electronic transmission shall be deemed to be the same asdelivery of an executed original.

5. Further Assurances. The parties hereto agree to take all such further actions and execute, acknowledge anddeliver all such further documents that are necessary or useful in carrying out the purposes of this Assignment. Without limiting theforegoing, (i) Assignor agrees to execute, acknowledge and deliver to Assignee all such other additional instruments, notices, andother documents and to do all such other and further acts and things as may be reasonably necessary to more fully and effectively sell,assign, transfer and deliver to Assignee the Membership Interests and (ii) Assignee agrees to execute, acknowledge and deliver toAssignor all such other additional instruments, notices, and other documents and to do all such other and further acts and things asmay be reasonably necessary to more fully and effectively accept and assume the Membership Interests.

6. Governing Law. This Assignment shall be governed by and construed in accordance with the Laws of theState of New York, without giving effect to any conflict or choice of law provision that would result in the application of anotherstate’s Law.

7. Successors and Assigns. This Assignment shall be binding upon and inure to the benefit of Assignor andAssignee and their respective successors and permitted assigns.

[Signature Page Follows]

2


IN WITNESS WHEREOF, each party has caused this Assignment to be executed on its behalf by its duly authorized officer,as of the day and year first above written.

ASSIGNOR:

CONSTELLATION POWER, INC.

By:Name:Title:

ASSIGNEE:

TPF GENERATION HOLDINGS, LLC

By:Name:Title:


EXHIBIT B

ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of this , 2006 (this “Assignment”),is hereby made between [Non−Company Affiliate], a [state of incorporation/formation] [type of entity] (the “Assignor”) and [Buyer orProject Company], a [state of incorporation/formation] [type of entity] (the “Assignee”).

RECITALS

WHEREAS, Assignor is a party to the contract[s] set forth on Exhibit A (the “Assigned Contract[s]”), by and betweenAssignor and [Counterparty] (“Counterparty”).

WHEREAS, pursuant to the Purchase and Sale Agreement, dated as of October 10, 2006 (the “PurchaseAgreement”), between Constellation Power, Inc. and TPF Generation Holdings, LLC, Assignor desires to assign to Assignee andAssignee desires to assume from Assignor, all of Assignor’s right, title, interest in and to, and all liabilities and obligations ofAssignor under the Assigned Contract[s] arising from and after the Closing Date.

[WHEREAS, Counterparty has agreed to consent to the assignment and assumption set forth in this Assignment.]

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and upon the terms andsubject to the conditions set forth below, the parties agree as follows:

AGREEMENTS

Definitions. Any capitalized term not otherwise defined herein shall have the meaning ascribed to such term in the PurchaseAgreement.

1. Assignments. As of the date hereof, Assignor does hereby assign, transfer, sell and convey unto Assigneeall of its respective right, title and interest in and to the Assigned Contract[s].

2. Assumptions. As of the date hereof, Assignee hereby assumes all of the duties and obligations of Assignorrelating to the Assigned Contract[s] arising from and after the Closing Date.

3. Counterparts. This Assignment may be executed in separate counterparts with separate signature pages, allof which when taken together shall constitute one instrument. Delivery by facsimile or other electronic transmission of an executedoriginal and/or the retransmission of any executed facsimile or other electronic transmission shall be deemed to be the same asdelivery of an executed original.

4. Further Assurances. The parties hereto agree to take all such further actions and execute, acknowledge anddeliver all such further documents that are necessary or useful in carrying out the purposes of this Assignment. Without limiting theforegoing, (i) Assignor agrees to execute, acknowledge and deliver to Assignee all such other additional instruments, notices, andother documents and to do all such other and further acts and things as may be reasonably necessary to assign, transfer, sell andconvey unto Assignee all of its respective right, title, and interest in and to the Assigned Contract[s] and (ii) Assignee agrees toexecute, acknowledge and deliver to Assignor all such other additional


instruments, notices, and other documents and to do all such other and further acts and things as may be reasonably necessary to morefully and effectively accept and assume all of the duties and obligations of Assignor relating to the Assigned Contract[s] arising fromand after the Closing Date.

5. Governing Law. This Assignment shall be governed by and construed in accordance with the Laws of theState of New York, without giving effect to any conflict or choice of law provision that would result in the application of anotherstate’s Law.

6. Successors and Assigns. This Assignment shall be binding upon and inure to the benefit of Assignor andAssignee and their respective successors and permitted assigns.

[Signature Page Follows]

2


IN WITNESS WHEREOF, each party has caused this Assignment to be executed on its behalf by its duly authorized officer,as of the day and year first above written.

ASSIGNOR:

[NON−COMPANY AFFILIATE]

By:Name:Title:

ASSIGNEE:

[BUYER OR PROJECT COMPANY]

By:Name:Title:


EXHIBIT A

ASSIGNED CONTRACT[S]


TRANSITION SERVICES AGREEMENTTERM SHEET

Parties: Constellation, or an affiliate, and Buyer, or an affiliate.

Subject: An agreement (the “Transition Services Agreement”) for Constellation to provide Buyer with certainservices, as set forth in the attachment hereto (the “Services”). Terms not otherwise defined in this termsheet have the meanings given to them in that certain Purchase and Sale Agreement betweenConstellation and Buyer to which this term sheet is attached.

Term: Commencing on the Closing Date and continuing in effect until the date that is six months after theClosing Date. However, Buyer may earlier terminate any services, or services being provided for specificplants, for any reason, by giving Constellation at least five (5) days prior written notice.

Standard ofPerformance: Substantially the same degree of care, skill and diligence with which Constellation’s personnel have

performed similar services for the Project Companies prior to the date of the Transition ServicesAgreement and in accordance with the reasonable instructions provided by the authorized representativesof Buyer.

Payment: To be mutually agreed. Buyer would prefer a fixed monthly charge that would be reduced to the extentthat Buyer reduces the scope of transition services from time to time as discussed in Term above.

Scope ofTransitionServices: See Attachment 1. The services marked with an “X” under the column labeled “Constellation” are the

proposed services currently requested by Buyer.

Operation andMaintenance: Buyer would strongly prefer to hire Constellation’s plant employees effective on the later of the Closing

Date and January 1, 2007. Accordingly, if the Closing Date occurs prior to January 1, 2007, Buyer wouldlike Constellation to provide the plant operation and maintenance services customarily provided by theplant employees for the period from the Closing Date until January 1, 2007. Part 1 of the attached scopeof work is intended to cover these types of services and is not intended to cover any time period afterJanuary 1, 2007.


Pre−ClosingTransition: Buyer’s proposed scope of transition services in Attachment 1 assumes cooperation from Seller during

the period between PSA signing and the Closing Date (and, to the extent necessary, during the term of theTSA) to permit a smooth transition. Buyer would like to discuss with Seller the pre−closing transitionwork that will be required.

Personnel: Constellation will assign those personnel it deems necessary for performance of the Services inaccordance with the standard of performance set forth above. To the extent available, the same personnelwho performed those Services in the past will be used.

IndependentContractor: Constellation shall be an independent contractor with respect to the performance of the Services.

Items to beFurnished: Buyer shall furnish to Constellation, at Buyer’s expense, such information, documentation, materials,

supplies and third−party services (consistent with past practices) as Constellation may require to providethe Services.

Liability andIndemnity: Neither party will be liable for indirect, special or consequential damages. Constellation, its affiliates and

their directors, officers, employees and agents will not be liable for any act or omission unless a result ofbreach of contract, gross negligence, willful misconduct or fraud. Buyer will be required to indemnifyConstellation, its affiliates and their directors, officers, employees and agents against all losses, damages,expenses, liabilities, and claims of third parties arising from the performance of the Services.Constellation will indemnify Buyer from all losses, damages, expenses, liabilities and claims arising fromthe breach of contract, gross negligence, willful misconduct or fraud of Constellation in providing theServices.

Force Majeure: Neither party will be liable or considered to be in default of any obligation, other than paymentobligations, to the extent that performance of the obligation is prevented or delayed by an event of forcemajeure.

Governing Law: The governing law of the Purchase and Sale Agreement will apply.

Other: The Agreement will include other typical contractual provisions, including provisions addressing notice,confidentiality, waiver, severability, and counterparts.


Attachment 1 to Transition Services Agreement Term Sheet

CONSTELLATION POST CLOSING TRANSITIONAL SERVICES WORKSCOPE

TPF Constellation

1 Plant Operations Prior to January 1, 2007

1a Operate the plant X

1b Maintain the plant X

1c Procure goods and services required to operate and maintain the plant at TPF’s expense. X

1d Prepare and maintain the 2007 plant level O&M budget in a month by month format. X

1e Prepare plant payroll records and submit to CEG home office. X

1f Prepare and administer plant safety procedures and OSHA compliance documentation X

1g Prepare and submit monthly plant level accounting reports to TPF home office accounting group X

1h Perform accounts payable functions for purchases made at the plant level. X

1i Maintain facility environmental permits. Perform monitoring and testing as required. Submitfederal level permit reports to company responsible for submitting data to federal agencies.

X

1j Prepare and submit monthly plant operating records and reports X

1k Prepare and submit daily plant availability and generation reports X

1l Respond to emergencies X

1m Manage plant level third party contracts X

1n Maintain spare parts inventory X

2 Home Office Support – Plant Operations

2a Monitor plant operations with respect to compliance with tolling agreements for the High Desertplant.

X

2b Monitor plant operations with respect to compliance with tolling agreements and / or energyservices agreements for the Rio Nogales, Holland, University Park, Big Sandy and Wolf Hillsplants.

X


2c Provide technical and administrative support for turbines, HRSGs and balance of plant equipmentduring operation and outages

X

2d Administer GE long−term service agreement and Siemens long−term maintenance agreement X

2e Monitor plant compliance with environmental permit compliance, testing and reporting X

2f Prepare and submit plant monthly reports with respect to compliance with Tolling Agreements,Energy Services Agreements and Financing Agreements

X

2g Monitor plant environmental, health and safety requirements and compliance X

2h Prepare local, state and federal regulatory compliance reports X

2i Submit local, state and federal regulatory compliance reports X

2j Provide human resources services for plant employees including benefits and payroll oversight. X

2k Perform ERCOT QSE services for the Rio Nogales plant X

3 Home Office Support – Finance and Accounting

3a Prepare and keep project level finance, accounting, and tax documents. X

3b Perform project level accounts payable and receivable functions. NOTE: Consistent with ourproposal, we are still evaluating the best approach to handle this area.

X X

4 Home Office Support – Asset Management

4a Perform tolling agreement contract administration for High Desert plant X

Perform other project agreement contract administration for High Desert plant as necessary toadminister the tolling agreement

X

Perform tolling agreement / energy services agreement contract administration for the RioNogales, Holland, University Park, Big Sandy and Wolf Hills plants.

X

Perform other project agreement contract administration for Rio Nogales, Holland, UniversityPark, Big Sandy and Wolf Hills plants, including water supply and interconnection

X

4b Perform energy services agreement contract administration X

4c Manage portfolio insurance policies X


4d Provide capital project engineering services X

4e Community relations function X X

5 Home Office Support − IT & Telecommunications

5a Provide computer hardware and software support X

5b Provide telecommunications hardware and software support X

5c Provide project level and plant accounting software support X

5d Provide plant maintenance planning software support X

5e Provide high speed data communications service for plant telecommunications X

5f Continue to accept CAISO, PJM and MISO AGC signals and forward to the applicable plants X

5g Provide plant generation data to energy manager X


EXHIBIT NO. 3(a)

BY−LAWS

of

CONSTELLATION ENERGY GROUP, INC.

Amended as of October 20, 2006


ARTICLE I

OFFICES AND HEADQUARTERS

Section 1. − Name.

The name of the corporation is Constellation Energy Group, Inc. (the “Corporation”).

Section 2. − Offices.

The principal office of the Corporation is 750 East Pratt Street, Baltimore, Maryland 21202. The Corporation may also haveother offices at such other places, either within or without the State of Maryland, as the Board of Directors of the Corporation (the“Board”) may determine or as the activities of the Corporation may require.

ARTICLE IISTOCKHOLDERS

Section 1. − Place of Meetings.

Meetings of stockholders of the Corporation shall be held at such places, either within or without the State of Maryland as maybe fixed from time to time by the Board and stated in the notice of meeting or in a duly executed waiver of notice thereof.

Section 2. − Annual Meetings.

The Annual Meeting of the stockholders for the election of directors and for the transaction of general business shall be held onany date during the period of May 1 through May 31, as determined year to year by the Board; provided, that the Annual Meeting ofthe stockholders for the year 2006 shall be held on any date during the period December 1 through December 31, 2006, as determinedby the Board. The time and location of the meeting shall be determined by the Board. Failure to hold an Annual Meeting does notinvalidate the Corporation’s existence or affect any otherwise valid corporate acts.

The Chief Executive Officer of the Corporation shall prepare, or cause to be prepared, an annual report containing a full andcorrect statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the precedingfiscal year, which shall be submitted to the stockholders at or prior to the Annual Meeting.

Section 3. − Special Meetings.

Special meetings of the stockholders may be held in the City of Baltimore or in any county in which the Corporation providesservice or owns property upon call by the Chairman of the Board, President or a majority of the Board whenever they deem expedient,or by the Secretary upon the written request of the holders of shares entitled to not less than a majority of all the votes entitled to becast at such meeting. Such request of the stockholders shall state the purpose or purposes of the meeting and the matters proposed tobe acted on and shall be delivered to the Secretary, who shall inform such stockholders of the reasonably estimated cost of preparingand mailing such notice of the meeting, and upon payment to the Corporation of such costs the Secretary shall give notice stating thepurpose or purposes of the meeting to all stockholders entitled to vote at such meeting. The business at all special meetings shall beconfined to that specifically named in the notice thereof.

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Section 4. − Notice and Waiver; Organization of Meeting.

When stockholders are required or permitted to take any action at a meeting whether special or annual, written or printed noticeof every meeting shall be given to each stockholder entitled to vote at the meeting and each other stockholder entitled to notice of themeeting. The notice shall state the place, day, and hour of such meeting and, in the case of a special meeting, the purpose or purposesfor which the meeting is called. The written notice of any meeting shall be given, personally or by mail, not less than 10 or more than90 days before the date of the meeting. If mailed, such notice shall be deemed given when deposited with the United States PostalService, postage prepaid, addressed to the stockholder at his or her address as it appears on the records of the Corporation or itsregistrar. The business at all special meetings shall be confined to that specifically named in the notice thereof.

When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and placethereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than 120 days, or, if afterthe adjournment, a new record date is fixed for the adjourned meeting, in which circumstances a notice of the adjourned meeting shallbe given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact anybusiness which might have been transacted at the original meeting.

Notice of any meeting of stockholders may be waived in writing by any stockholders entitled to vote at such meeting. Attendance at a meeting by any stockholder, in person or by proxy, shall constitute a waiver of notice of such meeting, except whenthe person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any businessbecause the meeting is not lawfully called or convened.

All meetings of the stockholders shall be called to order by the Chairman of the Board, or in his or her absence by the Presidentor a Vice President; or in the case of the absence of such Officers, then by any stockholder. The party calling the meeting to ordershall be Chairman of the meeting. The Secretary of the Corporation, if present, shall act as secretary of the meeting, unless some otherperson shall be elected by the stockholders at the meeting to act as secretary. An accurate record of the meeting shall be kept by thesecretary thereof, and placed in the record books of the Corporation.

Section 5. − Order of Business.

(a) At any Annual Meeting, only such business shall be conducted as shall have been brought before the Annual Meeting (i) byor at the direction of the Board, or (ii) by any stockholder who complies with the procedures set forth in this Section 5.

(b) For nominations or other business to be brought properly before an Annual Meeting by a stockholder, the stockholder musthave given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder’snotice must be delivered to or mailed and received at the principal office of the Corporation not less than 75 days prior tothe anniversary of the date on which notice of the prior year’s Annual Meeting was given to stockholders in accordance withSection 4 of this Article II. Notices sent by facsimile or electronically will not be accepted by the Secretary of theCorporation. To be in proper written form, a stockholder’s notice to the Secretary shall set forth in writing as to each matterthe stockholder proposes to bring before the Annual Meeting:

(i) as to each person whom the stockholder proposes to nominate for election or re−election as a Director, all informationrelating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or isotherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the “ExchangeAct”) or any applicable successor

2


provisions thereto, including such person’s written consent to being named in the proxy statement as a nominee and toserving as a Director if elected; and as to the stockholder giving the notice, the name and address, as they appear on theCorporation’s books, of the stockholder proposing such nomination and the class and number of shares of stock of theCorporation which are beneficially owned by the stockholder.

(ii) as to any other business that the stockholder proposes to bring before the meeting:

(A) a brief description of the business desired to be brought before the Annual Meeting and the reasons forconducting such business at the Annual Meeting;

(B) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business;

(C) the class and number of shares of stock of the Corporation which are beneficially owned by the stockholder; and

(D) any material interest of the stockholder in such business.

(c) Notwithstanding anything in these by−laws to the contrary, no business shall be conducted at an Annual Meeting except inaccordance with the procedures set forth in this Section 5 of Article II. The Chairman of an Annual Meeting shall, if thefacts warrant, determine and declare at the Annual Meeting that business was not properly brought before the AnnualMeeting in accordance with the provisions of this Section 5 of Article II and, if the Chairman should so determine, he or sheshall so declare at the Annual Meeting and any such business not properly brought before the Annual Meeting shall not betransacted.

(d) Notwithstanding the foregoing provisions of this Section, a stockholder shall also comply with all applicable requirementsof the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section. Nothing inthis Section shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxystatement pursuant to Rule 14a−8 under the Exchange Act.

Section 6. − Quorum.

At any meeting of the stockholders the presence in person or by proxy of stockholders entitled to cast a majority of the votesthereat shall constitute a quorum for the transaction of business.

When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any stockholders.

The stockholders present, although less than a quorum, may adjourn the meeting to another time or place; provided that notice ofsuch adjourned meeting is given in accordance with the provisions of Section 4 of this Article II.

Section 7. − Voting; Proxies.

At all meetings of the stockholders each stockholder shall be entitled to one vote for each share of Common Stock standing inhis or her name and, when the Preferred Stock is entitled to vote, such number of votes as shall be provided in the Charter of theCorporation for each share of Preferred Stock standing in his or her name, and the votes shall be cast by stockholders in person or bylawful proxy. However, no proxy shall be voted 11 months after the date thereof, unless the proxy provides for a longer period.

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Section 8. − Control Shares.

Notwithstanding any other provision of the Charter of the Corporation or these by−laws, Title 3, Subtitle 7 of the Maryland GeneralCorporation Law (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon suchrepeal, may, to the extent provided by any successor by−law, apply to any prior or subsequent control share acquisition.

Section 9. − Method of Voting.All elections and all other questions shall be decided by a majority of the votes cast, at a meeting at which a quorum is present,

except as expressly provided otherwise by the general laws of the State of Maryland or the Charter and except that Directors shall beelected by a plurality of the votes cast.

Section 10. − Ownership of its Own Stock.

Shares of capital stock of the Corporation held by either (i) the Corporation or (ii) another corporation, if a majority of the sharesentitled to vote in the election of Directors of such other corporation is held, directly or indirectly, by the Corporation (a “ControlledCorporation”), shall neither be entitled to vote nor be counted for quorum purposes. Nothing in this Section 10 shall be construed aslimiting the right of the Corporation or any Controlled Corporation to vote stock of the Corporation held by it in a fiduciary capacity.

Section 11. − Inspectors.

The Board of Directors, in advance of any meeting, may, but need not, appoint one or more individual inspectors or one or moreentities that designate individuals as inspectors to act at the meeting or any adjournment thereof. If an inspector or inspectors are notappointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may beappointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advanceof the meeting or at the meeting by the chairman of the meeting. The inspectors, if any, shall determine the number of sharesoutstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect ofproxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with theright to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct theelection or vote with fairness to all stockholders. Each such report shall be in writing and signed by him or her or by a majority ofthem if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall bethe report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and theresults of the voting shall be prima facie evidence thereof.

Section 12. − Record Date for Stockholders; Closing of Transfer Books.

The Board may fix, in advance, a date as the record for the determination of the stockholders entitled to notice of, or to vote at,any meeting of stockholders, or entitled to receive payment of any dividend, or entitled to the allotment of any rights, or for any otherproper purpose. Such date in any case shall not be more than 90 days (and in the case of a meeting of stockholders not less than 10days) prior to the date on which the particular action requiring such determination of stockholders is to be taken. Only stockholders ofrecord on such date shall be entitled to notice of or to vote at such meeting or to receive such dividends or rights, as the case may be. In lieu of fixing a record date the Board may close the stock transfer books of the Corporation for a period not exceeding 20 nor lessthan 10 days preceding the date of any meeting of stockholders or not exceeding 20 days preceding any other of the above mentionedevents.

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ARTICLE III

BOARD OF DIRECTORS AND COMMITTEES

Section 1. − Powers of Directors

The business and affairs of the Corporation shall be managed under the direction of the Board which shall have and may exerciseall the powers of the Corporation, except such as are expressly conferred upon or reserved by the stockholders by law, by Charter, orby these by−laws. Except as otherwise provided herein, the Board shall appoint the Officers for the conduct of the business of theCorporation, determine their duties and responsibilities. The Board may remove any Officer.

Section 2. − Number and Election of Directors.

The Corporation shall have at least seven Directors; provided that the Board of Directors may alter the number of Directorsfrom time to time so long as such number does not exceed 20. Any alteration in the number of Directors will not affect the tenure ofoffice of any Director. The Directors shall be grouped into three classes, Class I, Class II and Class III. Directors in each class shallserve a term of three years and until their successors are elected and qualified, or until their earlier resignation or removal. A separateclass will be elected at each Annual Meeting of the stockholders.

Section 3. − Vacancies.

If for any reason any or all the Directors cease to be Directors, such event shall not terminate the Corporation or affect theseby−laws or the powers of the remaining Directors hereunder (even if fewer than three Directors remain). Except as may be providedby the Board in setting the terms of any class or series of preferred stock, any vacancy on the Board may be filled only by a majorityof the remaining Directors, even if the remaining Directors do not constitute a quorum. Any Director elected to fill a vacancy shallserve for the remainder of the full term of the class in which the vacancy occurred and until a successor is elected and qualified.

Section 4. − Resignations.

Any Director of the Corporation may resign at any time by giving written notice to the Corporation. Such resignation shall takeeffect at the time specified therein, if any, or if no time is specified therein, then upon receipt of such notice by the Corporation; and,unless otherwise provided therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5. − Meetings of the Board.

A regular meeting of the Board shall be held immediately after the Annual Meeting of stockholders or any special meeting of thestockholders at which the Board is elected, and thereafter regular meetings of the Board shall be held on such dates during the year asmay be designated from time to time by the Board. All meetings of the Board shall be held at the general offices of the Corporation inthe City of Baltimore or elsewhere, as ordered by the Board. Of all such meetings (except the regular meeting held immediately afterthe election of Directors) the Secretary shall give notice to each Director personally or by telephone, facsimile or electronicallydirected to, or by written notice deposited in the mails addressed to, his or her residence or business address at least 48 hours beforesuch meeting.

Special meetings may be held at any time or place upon the call of the Chairman of the Board, or the President, or in theirabsence, on order of the Executive Committee, if any, by notices as above. In the event all

5


of the Directors in office waive notice of any meeting in writing at or before the meeting, the meeting may be held without theaforesaid advance notices.

The Chairman shall preside at all meetings of the Board, or, in his or her absence, the President or one of the Vice Presidents (ifa member of the Board) shall preside. If at any meeting none of the foregoing persons is present, the Directors present shall designateone of their number to preside at such meeting.

Section 6. − Telephone Meetings Permitted.

Members of the Board, or any committee, may participate in a meeting thereof by means of conference telephone or similarcommunications equipment in which all persons participating in the meeting can hear each other, and such participation shallconstitute presence in person at such meeting.

Section 7. − Quorum.

A majority of the Directors in office shall constitute a quorum of the Board for the transaction of business. If a quorum is notpresent at any meeting, a majority of the Directors present may adjourn to any time and place they may see fit.

Section 8. − Committees.

The Board is authorized to appoint from among its members, an audit committee, a compensation committee, and a nominatingand corporate governance committee, and such other committees as it may, from time to time, deem advisable and to delegate to suchcommittee or committees any of the powers of the Board that it may lawfully delegate. Each such committee shall consist of at leastone Director, except for the audit committee which shall have, at a minimum, the number of members required by applicable law orstock exchange listing standards. The Directors shall annually elect from among their number members for each committeeestablished. The members of the committees shall hold their offices for one year and until their successors are elected and qualified,or until their earlier resignation or removal. All vacancies in said committees shall be filled by the Board. The purposes and authorityof each committee shall be as set forth in applicable law, board resolution or committee charter. Any such charter shall be approvedannually by the Board.

Section 9. − Fees and Expenses.

Each member of the Board, other than salaried Officers and employees, shall be paid an annual retainer fee, payable in suchamount as shall be specified from time to time by the Board. Each Committee Chair shall be paid an annual retainer fee, payable in such amount as shall be specified from time to time by the Board.

Each member of the Board, other than salaried Officers and employees, shall be paid such fee as shall be specified from time totime by the Board for attending each regular or special meeting of the Board and for attending, as a committee member, each meetingof any committee appointed by the Board. Each member shall be paid reasonable traveling expenses incident to attendance atmeetings.

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ARTICLE IV

OFFICERS

Section 1. − Officers.

The Corporation shall have a Chairman of the Board, a President, one or more Vice Presidents, a Treasurer, and a Secretary whoshall be elected by, and hold office at the will of, the Board. The Chairman of the Board shall be chosen from among the Directors. The Board shall designate either the Chairman of the Board or the President to be the Chief Executive Officer of the Corporation. TheBoard shall also elect from time to time such other Officers and Assistant Officers as they may deem necessary for the conduct of thebusiness and affairs of the Corporation, or the Board by resolution may authorize the Chief Executive Officer to designate and appointfrom time to time such other Officers and Assistant Officers as he or she may deem necessary for the conduct of the business andaffairs of the Corporation. Any two offices, except those of President and Vice President, may be held by the same person, but noperson shall sign checks, drafts and promissory notes, or execute, acknowledge or verify any other instrument in more than onecapacity, if such instrument is required by law, the Charter, these by−laws, a resolution of the Board or order of the Chief ExecutiveOfficer to be signed, executed, acknowledged or verified by two or more Officers. The President, any Vice President, or such otherpersons as may be designated by the Board, shall sign all special contracts of the Corporation, countersign checks, drafts andpromissory notes, and such other papers as may be directed by the Board. The President, or any Vice President, together with theTreasurer or an Assistant Treasurer (if any), shall have authority to sell, assign or transfer and deliver any bonds, stocks or othersecurities owned by the Corporation. The Board shall require a fidelity bond to be given by each Officer, or, in its discretion, theBoard may substitute a general blanket fidelity bond or insurance contract to cover all Officers and employees.

Section 2. − Duties of the Officers.

(a) Chairman of the Board

The Chairman of the Board shall preside at all meetings of the Board and of stockholders. The Chairman of the Board shallalso have such other powers and duties as from time to time may be assigned by the Board.

(b) President

The President shall have general executive powers, as well as specific powers conferred by these by−laws. The Presidentshall also have such other powers and duties as from time to time may be assigned by the Board. In the absence of theChairman of the Board, the President shall perform all the duties of the Chairman of the Board.

(c) Vice Presidents

Each Vice President shall have such powers and duties as may be assigned by the Board or the Chief Executive Officer, aswell as the specific powers assigned by these by−laws. A Vice President may be designated by the Board or the ChiefExecutive Officer to perform, in the absence of the President, all the duties of the President.

(d) Treasurer

The Treasurer shall have the care and the custody of the funds and valuable papers of the Corporation, and shall receive anddisburse all moneys in such a manner as may be prescribed by the Board or the Chief Executive Officer. The Treasurershall have such other powers and duties as may be assigned by the Board, or the Chief Executive Officer, as well as specificpowers assigned by these by−laws.

(e) Secretary

The Secretary shall attend all meetings of the stockholders and Directors and shall notify the stockholders and Directors ofsuch meetings in the manner provided in these by−laws. The Secretary shall record the proceedings of all such meetings inbooks kept for that purpose.

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The Secretary shall have such other powers and duties as may be assigned by the Board or the Chief Executive Officer, aswell as the specific powers assigned by these by−laws.

(f) Other Officers

Such other Officers and Assistant Officers as are appointed by the Board, or the Chief Executive Officer if authorized by theBoard pursuant to Section 1 above, shall exercise such duties and have such powers as by custom and applicable lawgenerally pertain to their respective offices as well as such duties and powers as the Board or the Chief Executive Officermay assign.

Section 3. − Terms of Office; Removals and Vacancies.

Any Officer or Assistant Officer elected by the Board may be removed by the Board in its sole judgment. Any Officer orAssistant Officer appointed by the Chief Executive Officer may be removed by the Chief Executive Officer in his or her solejudgment. In case of removal, the salary of such Officer or Assistant Officer shall cease. Removal shall be without prejudice to thecontractual rights, if any, of the person so removed, but election or appointment of an Officer or Assistant Officer shall not of itselfcreate contractual rights.

Each Officer or Assistant Officer shall hold office until his or her successor is elected and qualified or appointed, or until his orher earlier removal or resignation.

Any vacancy occurring in any office of the Corporation shall be filled by the Board, or by the Chief Executive Officer ifauthorized by the Board pursuant to Section 1 above, and the Officer or Assistant Officer so elected or appointed shall hold office forthe unexpired term in respect of which the vacancy occurred and until his or her successor shall be duly elected and qualified orappointed.

In any event of absence or temporary disability of any Officer or Assistant Officer of the Corporation, the Board, or the ChiefExecutive Officer if authorized by the Board pursuant to Section 1 above, may authorize another person to perform the duties of thatoffice.

Section 4. − Voting Securities Owned by the Corporation.

Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by theCorporation may be executed in the name of and on behalf of the Corporation by the Chairman, the President or any Vice Presidentand any such Officer may, in the name of and on behalf of the Corporation, take all such action as any such Officer may deemadvisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may ownsecurities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of suchsecurities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board may, byresolution, from time to time confer like powers upon any other person or persons.

ARTICLE V

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 1. − Procedure.

The Corporation shall indemnify all Directors, Officers and employees to the fullest extent permitted by the general laws of theState of Maryland and shall provide indemnification expenses in advance to the extent

8


permitted thereby. The Corporation will follow the procedures required by applicable law in determining persons eligible forindemnification and in making indemnification payments and advances.

Section 2. − Exclusivity, etc.

The indemnification and advance of expenses provided by the Charter and these by−laws shall not be deemed exclusive of anyother rights to which a person seeking indemnification or advance of expenses may be entitled under any law (common or statutory),or any agreement, vote of stockholders or disinterested Directors or other provision that is consistent with law, both as to action in hisor her official capacity and as to action in another capacity while holding office or while employed or acting as agent for thecorporation, shall continue in respect of all events occurring while a person was a Director or Officer after such person has ceased tobe a Director or Officer, and shall inure to the benefits of the estate, heirs, executors and administrators of such person. All rights toindemnification and advance of expenses under the Charter of the Corporation and hereunder shall be deemed to be a contract betweenthe Corporation and each Director or Officer of the Corporation who serves or served in such capacity at any time while this by−law isin effect. Nothing herein shall prevent the amendment of this by−law, provided that no such amendment shall diminish the rights ofany person hereunder with respect to events occurring or claims made before its adoption or as to claims made after its adoption inrespect of events occurring before its adoption. Any repeal or modification of this by−law shall not in any way diminish any rights toindemnification or advance of expenses of such Director or Officer or the obligations of the Corporation arising hereunder withrespect to events occurring, or claims made, while this by−law or any provision hereof is in force.

Section 3. − Severability; Definitions.

The invalidity or unenforceability of any provision of this Article V shall not affect the validity or enforceability of any otherprovision hereof. The phrase “this by−law” in this Article V means this Article V in its entirety.

ARTICLE VI

CAPITAL STOCK

Section 1. − Evidence of Stock Ownership.

Evidence of ownership of stock in the Corporation may be either pursuant to a certificate(s) or a statement in compliance withthe general laws of the State of Maryland, each of which shall represent the number of shares of stock owned by a stockholder in theCorporation. Stockholders may request that their stock ownership be represented by a certificate(s). In case any Officer who signedany certificate, in facsimile or otherwise, ceases to be such Officer of the Corporation before the certificate is issued, the certificatemay nevertheless be issued by the Corporation with the same effect as if the Officer had not ceased to be such Officer as of the date ofits issue.

For stock ownership evidenced by a statement, such statement shall be in such form, and executed, as required from time to timeby the general laws of the State of Maryland.

Section 2. − Transfer of Shares.

Stock shall be transferable only on the books of the Corporation by assignment in writing by the registered holder thereof, his orher legally constituted attorney, or his or her legal representative, either upon surrender and cancellation of the certificate(s) therefor,if such stock is represented by a certificate, or upon receipt of

9


such other documentation for stock not represented by a certificate as the Board and the general laws of the State of Maryland may,from time to time, require.

Section 3. − Lost, Stolen or Destroyed Certificates.

No certificate for shares of stock of the Corporation shall be issued in place of any other certificate alleged to have been lost,stolen, or destroyed, except upon production of such evidence of the loss, theft or destruction and upon indemnification of theCorporation to such extent and in such manner as the Board may prescribe.

Section 4. − Transfer Agents and Registrars.

The Board shall appoint a person or persons, the Corporation or any incorporated trust company or companies or any of them, astransfer agents and registrars and, if stock is represented by a certificate, may require that such certificate bear the signatures or thecounter−signatures of such transfer agents and registrars, or either of them.

Section 5. − Stock Ledger.

The Corporation shall maintain at its principal office, a stock record containing the names and addresses of all stockholders andthe numbers of shares of each class held by each stockholder.

ARTICLE VIIMISCELLANEOUS

Section 1. − Seal.

The Board shall provide, subject to change, a suitable corporate seal which may be used by causing it, or facsimile thereof, to beimpressed or affixed or reproduced on the Corporation’s stock certificates, bonds, or any other documents on which the seal may beappropriate.

Section 2. − Amendments.

These by−laws, or any of them, may be amended or repealed, and new by−laws may be made or adopted only at any meeting ofthe Board, by vote of a majority of the Directors or at a meeting of the shareholders, duly called, by a vote of two−thirds of theshareholders eligible to vote thereon. Pursuant to Articles Supplementary filed with the State Department of Assessments andTaxation of Maryland, the Corporation has elected, by resolution of the Board, to be subject to Sections 3−803, 3−804(b), 3−804(c)and 3−805 of the Maryland General Corporation Law and the following sections of these by−laws have been amended to conform tosuch elections, respectively: Article III, Section 2, third, fourth and last sentences; Article III, Section 2, first sentence; Article III,Section 3; and Article II, Section 3, first sentence, and therefore, such provisions may be amended, altered or repealed only byresolution of the Board.

Section 3. − Section Headings and Statutory References.

The headings of the Articles and Sections of these by−laws have been inserted for convenience of reference only and shall not bedeemed to be a part of these by−laws.

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EXHIBIT 4(a)

FIRST SUPPLEMENTAL INDENTURE, dated as of October 13, 2006 (this “First Supplemental Indenture”), betweenBALTIMORE GAS AND ELECTRIC COMPANY, a Maryland corporation (the “Issuer”) andDEUTSCHE BANK TRUSTCOMPANY AMERICAS, as trustee (the “Trustee”).

W I T N E S S E T H

WHEREAS, the Issuer and the Trustee have duly executed and delivered an Indenture, dated as of July 24, 2006 (the“Indenture”), providing for the authentication, issuance, delivery and administration of unsecured debentures, notes or other evidencesof indebtedness to be issued in one or more series by the Issuer (the “Securities”);

WHEREAS, pursuant to the terms of the Indenture, the Issuer desires to provide for the establishment of new series ofSecurities (the “Notes”) to be issued under the Indenture in an unlimited aggregate principal amount, which may be authenticated anddelivered as provided in the Indenture;

WHEREAS, the Issuer desires to amend the provisions of the Indenture to issue the Notes under the terms of the Indenture assupplemented hereby;

WHEREAS, Section 11.01 of the Indenture expressly permits the Issuer and the Trustee to enter into one or moresupplemental indentures for the purposes, inter alia, of establishing the forms and terms of Securities to be issued under the Indentureor making certain provisions in the Indenture which the Issuer deems necessary or desirable, and permits the execution of suchsupplemental indentures without the consent of the Holders of any Securities then outstanding;

WHEREAS, for the purposes hereinabove recited, and pursuant to due corporate action, the Issuer has duly determined toexecute and deliver to the Trustee this First Supplemental Indenture; and

WHEREAS, all conditions and requirements necessary to make this First Supplemental Indenture a valid, legal and bindinginstrument in accordance with its terms have been done and performed, and the execution and delivery hereof have been in all respectsduly authorized;

NOW, THEREFORE, in consideration of the premises, the Issuer and the Trustee mutually covenant and agree as follows:

SECTION 1. DEFINITIONS.

1.1 All terms contained in this First Supplemental Indenture shall, except as specifically provided herein or except as thecontext may otherwise require, have the meanings given to such terms in the Indenture.


1.2 Unless the context otherwise requires, the following terms shall have the following meanings:

“Affiliate” of any specified person means any other person directly or indirectly controlling or controlled by or under director indirect common control with such specified person. For the purposes of this definition, “control” when used with respect to anyspecified person means the power to direct or cause the direction of the management and policies of such person, directly or indirectly,whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” havemeanings correlative to the foregoing.

“Applicable Procedures” means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, therules and procedures of the Depositary that apply to such transfer or exchange.

“Depositary” means The Depository Trust Company or any other depositary from time to time specified pursuant to theIndenture.

“Definitive Note” means a certificated Note registered in the name of the Holder thereof and issued in accordance withSection 4 hereof, substantially in the form of Exhibit A or B hereto except that such Note shall not bear the Global Note Legend andshall not have the “Schedule of Exchanges of Interests in the Global Note” attached thereto.

“Exchange Notes” has the meaning set forth in the Registration Rights Agreement.

“Exchange Offer” has the meaning set forth in the Registration Rights Agreement.

“Exchange Offer Registration Statement” has the meaning set forth in the Registration Rights Agreement.

“Global Note Legend” means the legend set forth in Section 4.7(b) which is required to be placed on all Global Notes issuedunder this First Supplemental Indenture.

“Global Notes” means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes,substantially in the form of Exhibit A or B hereto that bears the Global Note Legend and that has the “Schedule of Exchanges ofInterests in the Global Note” attached thereto, issued in accordance with Section 4.2(d), 4.4(b) or 4.6 hereof.

“Indirect Participant” means a person who holds a beneficial interest in a Global Note through a Participant.

“Initial Purchasers” has the meaning set forth in the Purchase Agreement dated as of October 11, 2006, by and among theIssuer, Banc of America Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner &Smith Incorporated (as representatives of the several Initial Purchasers).

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“Letter of Transmittal” means the letter of transmittal to be prepared by the Issuer and sent to all Holders of the Notes for useby such Holders in connection with the Exchange Offer.

“Non−U.S. Person” means any person that is not a U.S. person as defined in Rule 902(o) under the Securities Act.

“Notes” means the 5.90% Notes due 2016 and the 6.35% Notes due 2036 as those notes are defined in Sections 2.1 and 2.2,respectively.

“Participant” means a person who has an account with the Depositary.

“Participating Broker−Dealer” has the meaning set forth in the Registration Rights Agreement.

“Private Exchange” has the meaning set forth in the Registration Rights Agreement.

“Private Exchange Notes” has the meaning set forth in the Registration Rights Agreement.

“Private Placement Legend” means the legend set forth in Section 4.7(a) to be placed on all Notes issued under this FirstSupplemental Indenture except where otherwise permitted by the provisions of this First Supplemental Indenture.

“QIB” means a “qualified institutional buyer” as defined in Rule l44A.

“Registrar” means the registrar specified from time to time pursuant to Section 3.04 of the Indenture.

“Registration Rights Agreement” means each of the Registration Rights Agreements for the 5.90% Notes and the 6.35%Notes, respectively, dated as of the date hereof, by and among the Issuer, Banc of America Securities LLC, Barclays Capital Inc.,Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as representatives of the several initialpurchasers listed therein), as such agreements may be amended, modified or supplemented from time to time.

“Regulation S” means Regulation S under the Securities Act.

“Restricted Definitive Note” means a Definitive Note bearing the Private Placement Legend.

“Restricted Global Note” means a Global Note bearing the Private Placement Legend.

“Ru1e 144” means Rule 144 promulgated under the Securities Act.

“Rule 144A” means Rule 144A promulgated under the Securities Act.

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“Securities Act” means the Securities Act of 1933, as amended.

“Shelf Registration Statement” has the meaning set forth in the Registration Rights Agreement.

“Unrestricted Definitive Note” means one or more Definitive Notes that do not bear and, pursuant to Section 4.7, are notrequired to bear the Private Placement Legend.

“Unrestricted Global Note” means one or more Global Notes that do not bear and, pursuant to Section 4.7, are not required tobear the Private Placement Legend.

SECTION 2. TERMS AND CONDITIONS OF THE SECURITIES.

There is hereby authorized the following series of Notes:

2.1 5.90% Notes due 2016.

(a) A single series consisting of two tranches of senior unsecured notes (collectively, the “5.90% Notes due2016”) are hereby authorized and designated as the “5.90% Series A Notes due 2016” and the “5.90% Series B Notes due 2016”.

(b) The 5.90% Notes due 2016 shall initially be limited in aggregate principal amount to $300,000,000, shallbear interest at a rate of 5.90% per annum (plus additional interest, if any, pursuant to the applicable Registration Rights Agreement),shall mature on October 1, 2016, shall be subject to optional redemption at any time by the Issuer pursuant to the terms set forth in theform of Note with respect thereto attached as Exhibit A and have such other terms set forth in such form of Note.

(c) The 5.90% Series A Notes due 2016 and the 5.90% Series B Notes due 2016 shall be identical in allmaterial respects except that the (i) 5.90% Series A Notes due 2016 and any 5.90% Series A Notes due 2016 issued in the PrivateExchange shall be issued bearing the Private Placement Legend and (ii) 5.90% Series B Notes due 2016 issued pursuant to theExchange Offer shall be issued without bearing the Private Placement Legend. It is intended that the 5.90% Series A Notes due 2016will be exchanged for the 5.90% Series B Notes due 2016 pursuant to Section 4.6 hereof.

2.2 6.35% Notes due 2036.

(a) A single series consisting of two tranches of senior unsecured notes (collectively, the “6.35% Notes due2036”) are hereby authorized and designated as the “6.35% Series A Notes due 2036” and the “6.35% Series B Notes due 2036”.

(b) The 6.35% Notes due 2036 shall initially be limited in aggregate principal amount to $400,000,000, shallbear interest at a rate of 6.35% per annum (plus additional interest, if any, pursuant to the applicable Registration Rights Agreement),shall mature on October 1, 2036, shall be subject to optional redemption at any time by the Issuer pursuant to the terms set forth in theform of Note with respect thereto attached as Exhibit B and have such other terms set forth in such form of Note.

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(c) The 6.35% Series A Notes due 2036 and the 6.35% Series B Notes due 2036 shall be identical in allmaterial respects except that the (i) 6.35% Series B Notes due 2036 and any 6.35% Series B Notes due 2036 issued in the PrivateExchange shall be issued bearing the Private Placement Legend and (ii) 6.35% Series B Notes due 2036 issued pursuant to theExchange Offer shall be issued without bearing the Private Placement Legend. It is intended that the 6.35% Series A Notes due 2036will be exchanged for the 6.35% Series B Notes due 2036 pursuant to Section 4.6 hereof.

2.3 Issuance of Additional Securities. The Issuer shall be permitted to amend this First Supplemental Indenture in orderto increase the aggregate principal amount of Notes that may be issued hereunder without the consent of the Holders of Notes soaffected.

SECTION 3. FORM OF NOTES.

3.1 Form of Global Notes. The Notes shall be issued in the form of Global Notes (including the Global Note Legendthereon and the “Schedule of Exchanges of Interests in the Global Note” attached thereto). Each Global Note shall represent such ofthe outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount ofoutstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes representedthereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of aGlobal Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes representedthereby shall be made by the Trustee, as custodian of the Global Notes, in accordance with instructions given by the Holder thereof asrequired by Section 4 hereof.

SECTION 4. TRANSFER AND EXCHANGE.

Notwithstanding any provisions to the contrary set forth in Article Two of the Indenture, the following terms and conditionsshall govern the transfer and exchange of the Notes.

4.1 Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositaryto a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, theDepositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will beexchanged by the Issuer for Definitive Notes if (i) the Issuer delivers to the Trustee notice from the Depositary that it is unwilling orunable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, asuccessor Depositary is not appointed by the Issuer within 90 days after the date of such notice from the Depositary, (ii) the Issuer inits sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for individual Notes and delivers awritten notice to such effect to the Trustee or (iii) an Event of Default shall have occurred and be continuing with respect to the Notes. Upon the occurrence of any of the preceding events in (i), (ii) or (iii) above, Definitive Notes shall be issued in such names as theDepositary shall instruct the Trustee. Every Note

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authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 4 hereof, shallbe authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Noteother than as provided in this Section 4, however, beneficial interests in a Global Note may be transferred and exchanged as providedin Section 4.2, 4.3 or 4.6 hereof.

4.2 Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interestsin the Global Notes shall be effected through the Depositary, in accordance with the provisions of the Indenture, as supplemented bythis First Supplemental Indenture, and the Applicable Procedures. Beneficial interests in any Restricted Global Note bearing thePrivate Placement Legend shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by theSecurities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (a) or (b)below, as applicable, as well as one or more of the other following subparagraphs, as applicable:

(a) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Notemay be transferred to persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note inaccordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Unrestricted GlobalNote may be transferred to persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. Nowritten orders or instructions shall be required to be delivered to the Registrar to register the transfers described in this Section 4.2(a).

(b) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfersand exchanges of beneficial interests that are not subject to Section 4.2(a) above, the transferor of such beneficial interest must deliverto the Depositary either (1) (A) a written order from a Participant or an Indirect Participant given to the Depositary in accordance withthe Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in the Global Note, or inanother Global Note in the case of an exchange, in an amount equal to the beneficial interest to be transferred or exchanged and (B)instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to becredited with such increase or (2) (A) a written order from a Participant or an Indirect Participant given to the Depositary inaccordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to thebeneficial interest to be transferred or exchanged and (B) instructions given by the Depositary to the Registrar containing informationregarding the person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (A)above. Upon consummation of an Exchange Offer by the Issuer in accordance with Section 4.6 hereof, the requirements of thisSection 4.2(b) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter ofTransmittal delivered by the holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of therequirements for transfer or exchange of beneficial interests in Global Notes contained in the Indenture, as supplemented by this FirstSupplemental Indenture, and the Notes or

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otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant toSection 4.8 hereof.

(c) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any RestrictedGlobal Note may be transferred to a person who takes delivery thereof in the form of a beneficial interest in another Restricted GlobalNote if the transfer complies with the requirements of Section 4.2(b) above and the transferor delivers a certificate in the form ofExhibit C hereto, including the certifications in item (1) thereof.

(d) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in theUnrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for abeneficial interest in an Unrestricted Global Note or transferred to a person who takes delivery thereof in the form of a beneficialinterest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 4.2(b) above and:

(i) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with theRegistration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or thetransferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary’s book−entry systemthat it is not (A) a broker−dealer, (B) a person participating in the distribution of the Exchange Notes or (C) a person who isan affiliate (as defined in Rule 144) of the Issuer; or

(ii) such transfer is effected pursuant to the Shelf Registration Statement in accordance with theRegistration Rights Agreement; or

(iii) such transfer is effected by a Participating Broker−Dealer pursuant to the Exchange OfferRegistration Statement in accordance with the Registration Rights Agreement; or

(iv) the Registrar receives the following:

(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchangesuch beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in theform of Exhibit D hereto, including the certifications in item (1 )(a) thereof; or

(B) if the holder of such beneficial interest in a Restricted Global Note proposes to transfersuch beneficial interest to a person who shall take delivery thereof in the form of a beneficial interest in anUnrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certificationsin item (4) thereof;

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and, in each such case set forth in this subparagraph (iv), if the Registrar so requests or if the Applicable Procedures so require, anOpinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance withthe Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required inorder to maintain compliance with the Securities Act.

If any such transfer is effected pursuant to subparagraph (ii) or (iv) above at a time when an Unrestricted Global Note has notyet been issued, the Issuer shall issue and, upon receipt of an Issuer Order in accordance with Section 2.4 of the Indenture, the Trusteeshall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount ofbeneficial interests transferred pursuant to subparagraph (ii) or (iv) above.

Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to persons who take deliverythereof in the form of, a beneficial interest in a Restricted Global Note.

4.3 Transfer or Exchange of Beneficial Interests for Definitive Notes.

(a) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficialinterest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer suchbeneficial interest to a person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by theRegistrar of the following documentation:

(i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficialinterest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit D hereto, including thecertifications in item (2)(a) thereof;

(ii) if such beneficial interest is being transferred to a QIB in accordance with Rule l44A, a certificate to theeffect set forth in Exhibit C hereto, including the certifications in item (1) thereof;

(iii) if such beneficial interest is being transferred to a Non−U.S. Person in an offshore transaction inaccordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit C hereto,including the certifications in item (2) thereof;

(iv) if such beneficial interest is being transferred pursuant to an exemption from the registration requirementsof the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit C hereto, including thecertifications in item (3)(a) thereof;

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(v) if such beneficial interest is being transferred to the Issuer or any of its Subsidiaries, a certificate to theeffect set forth in Exhibit C hereto, including the certifications in item (3)(b) thereof; or

(vi) if such beneficial interest is being transferred pursuant to an effective registration statement under theSecurities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (3)(c) thereof,

the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 4.8hereof, and the Issuer shall execute and the Trustee shall authenticate and deliver to the person designated in the instructions aDefinitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a RestrictedGlobal Note pursuant to this Section 4.3(a) shall be registered in such name or names and in such authorized denomination ordenominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and theParticipant or Indirect Participant. The Trustee shall make available for delivery such Definitive Notes to the persons in whose namessuch Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant tothis Section 4.3(a) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.

(b) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficialinterest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer suchbeneficial interest to a person who takes delivery thereof in the form of an Unrestricted Definitive Note only if:

(i) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the RegistrationRights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of atransfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker−dealer, (2) a person participating in thedistribution of the Exchange Notes or (3) a person who is an affiliate (as defined in Rule 144) of the Issuer;

(ii) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the RegistrationRights Agreement;

(iii) such transfer is effected by a Participating Broker−Dealer pursuant to the Exchange Offer RegistrationStatement in accordance with the Registration Rights Agreement; or


(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficialinterest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the

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form of Exhibit D hereto, including the certifications in item (l)(b) thereof; or

(B) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficialinterest to a person who shall take delivery thereof in the form of a Definitive Note that does not bear the PrivatePlacement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item(4) thereof;


(c) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficialinterest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer suchbeneficial interest to a person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions setforth in Section 4.2(b) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reducedaccordingly pursuant to Section 4.8 hereof, and the Issuer shall execute and the Trustee shall authenticate and make available fordelivery to the person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issuedin exchange for a beneficial interest pursuant to this Section 4.3(c) shall be registered in such name or names and in such authorizeddenomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from theDepositary and the Participant or Indirect Participant. The Trustee shall make available for delivery such Definitive Notes to thepersons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to thisSection 4.3(c) shall not bear the Private Placement Legend.

4.4 Transfer and Exchange of Definitive Notes for Beneficial Interests.

(a) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a RestrictedDefinitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such RestrictedDefinitive Notes to a person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, uponreceipt by the Registrar of the following documentation:

(i) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficialinterest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit D hereto, including thecertifications in item (2)(b) thereof;

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(ii) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule l44A, acertificate to the effect set forth in Exhibit C hereto, including the certifications in item (1) thereof;

(iii) if such Restricted Definitive Note is being transferred to a Non−U.S. Person in an offshoretransaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit Chereto, including the certifications in item (2) thereof;

(iv) if such Restricted Definitive Note is being transferred pursuant to an exemption from theregistration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit Chereto, including the certifications in item (3)(a) thereof;

(v) if such Restricted Definitive Note is being transferred to the Issuer or any of its Subsidiaries, acertificate to the effect set forth in Exhibit C hereto, including the certifications in item (3)(b) thereof; or

(vi) if such Restricted Definitive Note is being transferred pursuant to an effective registrationstatement under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item(3)(c) thereof;

the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of theappropriate Restricted Global Note.

(b) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted DefinitiveNote may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to aperson who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if:

(i) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with theRegistration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifiesin the applicable Letter of Transmittal that it is not (1) a broker−dealer, (2) a person participating in the distribution of theExchange Notes or (3) a person who is an affiliate (as defined in Rule 144) of the Issuer;

(ii) such transfer is effected pursuant to the Shelf Registration Statement in accordance with theRegistration Rights Agreement;

(iii) such transfer is effected by a Participating Broker−Dealer pursuant to the Exchange OfferRegistration Statement in accordance with the Registration Rights Agreement; or


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(A) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest inthe Unrestricted Global Note, a certificate from such Holder in the form of Exhibit D hereto, including thecertifications in item (1)(c) thereof; or

(B) if the Holder of such Definitive Notes proposes to transfer such Notes to a person who shall takedelivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from suchHolder in the form of Exhibit C hereto, including the certifications in item (4) thereof;


Upon satisfaction of the conditions of any of the subparagraphs in this Section 4.4(b), the Trustee shall cancel the DefinitiveNotes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note.

(c) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an UnrestrictedDefinitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to aperson who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of arequest for such an exchange or registration of transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note andincrease or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes.

If any such exchange or registration of transfer from a Definitive Note to a beneficial interest in a Global Note is effectedpursuant to subparagraphs (b)(ii), (b)(iv) or (c) above at a time when an Unrestricted Global Note has not yet been issued, the Issuershall issue and, upon receipt of an Issuer Order in accordance with Section 2.4 of the Indenture, the Trustee shall authenticate one ormore Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred.

4.5 Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes andsuch Holder’s compliance with the provisions of this Section 4.5, the Registrar shall register the transfer or exchange of DefinitiveNotes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar theDefinitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executedby such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide

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any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section4.5.

(a) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to andregistered in the name of persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives thefollowing:

(i) if the transfer will be made pursuant to Rule l44A, then the transferor must deliver a certificate inthe form of Exhibit C hereto, including the certifications in item (1) thereof; and

(ii) if the transfer will be made pursuant to Rule 903 or Rule 904 under the Securities Act, then thetransferor must deliver a certificate in the form of Exhibit C hereto, including the certifications in item (2) thereof;

(iii) if the transfer will be made pursuant to any other exemption from the registration requirements ofthe Securities Act, then the transferor must deliver a certificate in the form of Exhibit C hereto, including the certifications,certificates and Opinion of Counsel required by item (3) thereof, if applicable.

(b) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged bythe Holder thereof for an Unrestricted Definitive Note or transferred to a person or persons who take delivery thereof in the form of anUnrestricted Definitive Note if:

(i) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the RegistrationRights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in theapplicable Letter of Transmittal that it is not (1) a broker−dealer, (2) a person participating in the distribution of the ExchangeNotes or (3) a person who is an affiliate (as defined in Rule 144) of the Issuer;

(ii) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with theRegistration Rights Agreement;

(iii) any such transfer is effected by a Participating Broker−Dealer pursuant to the Exchange Offer RegistrationStatement in accordance with the Registration Rights Agreement; or


(A) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an UnrestrictedDefinitive Note, a certificate from such Holder in the form of Exhibit D hereto, including the certifications in item(1)(d) thereof; or

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(B) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a person who shall takedelivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of ExhibitC hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (iv), if the Registrar so requests, an Opinion of Counsel in form reasonablyacceptable to the Issuer to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions ontransfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with theSecurities Act.

(c) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes maytransfer such Notes to a person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request toregister such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holderthereof.

4.6 Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration RightsAgreement, the Issuer shall issue and, upon receipt of an Issuer Order in accordance with Section 2.4 of the Indenture, the Trusteeshall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of thebeneficial interests in the Restricted Global Notes tendered for acceptance by persons that certify in the applicable Letters ofTransmittal or via the Depositary’s book−entry system that (x) they are not broker−dealers, (y) they are not participating in adistribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Issuer, and accepted for exchange inthe Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the RestrictedDefinitive Notes accepted for exchange in the Exchange Offer. In addition, if pursuant to the Registration Rights Agreement, anyHolder is entitled to receive Private Exchange Notes simultaneously with the consummation of the Exchange Offer and so requests,the Issuer shall issue and, upon receipt of an Issuer Order in accordance with Section 2.4 of the Indenture, the Trustee shallauthenticate (i) one or more Restricted Global Notes that are identical in all material respects to the Exchange Notes, except for thePrivate Placement Legend, in an aggregate principal amount equal to the principal amount of the beneficial interests in the RestrictedGlobal Notes accepted for exchange in the Private Exchange and (ii) Restricted Definitive Notes that are identical in all materialrespects to the Exchange Notes, except for the Private Placement Legend, in an aggregate principal amount equal to the principalamount of the Restricted Definitive Notes accepted for exchange in the Private Exchange. Concurrently with the issuance of suchNotes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, andthe Issuer shall execute and the Trustee shall authenticate and make available for delivery to the persons designated by the Holders ofDefinitive Notes so accepted Definitive Notes in the appropriate principal amount.

4.7 Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under thisFirst Supplemental Indenture unless specifically stated otherwise in the applicable provisions hereof:

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(a) Private Placement Legend. Except as permitted by subparagraph (b) below, each Global Note and each DefinitiveNote (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:

“THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF IS DEEMED TO HAVE AGREED TO BEBOUND BY THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT AMONG BALTIMORE GAS ANDELECTRIC COMPANY AND THE INITIAL PURCHASERS, DATED OCTOBER 13, 2006 (THE “REGISTRATIONRIGHTS AGREEMENT”). WE WILL PROVIDE A COPY OF THE REGISTRATION RIGHTS AGREEMENT TO AHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST TO US AT OUR PRINCIPAL PLACE OF BUSINESS.

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST ORPARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBEREDOR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTIONIS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISETRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”)WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATEON WHICH BALTIMORE GAS AND ELECTRIC COMPANY (THE “COMPANY”) OR ANY AFFILIATE OF THECOMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (I) TOTHE COMPANY OR ANY SUBSIDIARY THEREOF, (II) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FORRESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A PERSON ITREASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE l44A THATPURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TOWHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE l44A, (III)PURSUANT TO OFFERS AND SALES TO NON U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATESWITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (IV) PURSUANT TO AREGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR(V) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT (INCLUDING UNDER RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE), SUBJECTTO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFERPURSUANT TO CLAUSES (III) OR (V) TO REQUIRE THE

15


DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORYTO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORMAPPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THETRANSFEROR TO THE TRUSTEE.”

If Definitive Notes are issued, each Definitive Note will bear the following additional legend:

“IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFERAGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLYREQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.”

Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to Sections 4.2(d), 4.3(b), 4.4(b), 4.4(c), 4.5(b),4.5(c) or 4.6 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend.

(b) Global Note Legends. Each Global Note shall bear legends in substantially the following form:

“THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THISNOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND ISNOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEEMAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.02 OF THEINDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TOSECTION 4.1 OF THE FIRST SUPPLEMENTAL INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TOTHE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 3.07 OF THE INDENTURE AND (IV) THISGLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTENCONSENT OF THE COMPANY.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THISNOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THEDEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OFTHE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR ANOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY ANAUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK,NEW YORK) (“DTC”) TO THE COMPANY OR ITS AGENT FOR

16


REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTEREDIN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZEDREPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY ASMAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OROTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH ASTHE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.”

4.8 Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Notehave been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not inpart, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 3.07 of theIndenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a personwho will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amountof Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by theTrustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchangedfor or transferred to a person who will take delivery thereof in the form of a beneficial interest in another Global Note, such otherGlobal Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by theDepositary at the direction of the Trustee to reflect such increase.

SECTION 5. MISCELLANEOUS.

5.1 Ratification of Indenture. The Indenture, as supplemented by this First Supplemental Indenture, is in all respectsratified and confirmed, and this First Supplemental Indenture shall be deemed a part of the Indenture in the manner and to the extentherein and therein provided.

5.2 GOVERNING LAW. THIS FIRST SUPPLEMENTAL INDENTURE, EACH NOTE AND THE RIGHTS ANDOBLIGATIONS OF THE PARTIES UNDER THIS FIRST SUPPLEMENTAL INDENTURE AND EACH NOTE SHALL BEGOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEWYORK.

5.3 Counterparts. This First Supplemental Indenture may be executed in several counterparts, each of which shall be anoriginal, and all collectively but one instrument.

5.4 The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity orsufficiency of this First Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by theIssuer.

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IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be executed as of the date firstabove written.

BALTIMORE GAS AND ELECTRICCOMPANY, as Issuer

By: /s/ Jeanne M. BlondiaName: Jeanne M. BlondiaTitle: Treasurer and Assistant

Secretary

DEUTSCHE BANK TRUST COMPANYAMERICAS,as TrusteeBy Deutsche Bank National Trust Company

By: /s/ Yana KalachikovaName: Yana KalachikovaTitle: Assistant Vice President

By: /s/ David ContinoName: David ContinoTitle: Assistant Vice President


EXHIBIT A

[FACE OF 5.90% NOTE DUE 2016]

[Insert Global Note Legends, if applicable pursuant to the provisions of theFirst Supplemental Indenture]

[Insert the Private Placement Legend, if applicable pursuant to the provisions of the First Supplemental Indenture]

No. $

CUSIP:

BALTIMORE GAS AND ELECTRIC COMPANY

% [Series A] [Series B] Notes due

ORIGINAL ISSUE INTEREST PAYMENTDATE: DATES: April 1 and October 1

INTEREST RATE: 5.90% per annum plusadditional interest, if any, pursuant to theapplicable Registration Rights Agreement (asdefined below)

MATURITY DATE: October 1, 2016

Baltimore Gas and Electric Company, a Maryland corporation (together with its successors and assigns, the “Issuer”), forvalue received, hereby promises to pay to , or registered assignees, the principal sum of on the Maturity Datespecified above and to pay interest thereon at the Interest Rate per annum specified above, semiannually in arrears on each InterestPayment Date specified above during each year commencing on the Interest Payment Date next succeeding the Original Issue Datespecified above, and at maturity (or on any redemption or repayment date).

Interest on this Note will accrue from the most recent Interest Payment Date to which interest has been paid or duly providedfor, or, if no interest has been paid or duly provided for, from the Original Issue Date, until the principal hereof has been paid or dulymade available for payment (except as provided below). The interest so payable, and punctually paid or duly provided for, on anyInterest Payment Date will, subject to certain exceptions described herein, be paid to the person in whose name this Note (or one ormore predecessor Notes) is registered at the close of business on the 15th day of the calendar

A−1


month prior to such Interest Payment Date (whether or not a Business Day) (each such date a “Record Date”); provided, however, thatinterest payable at maturity (or on any redemption or repayment date) will be payable to the person to whom the principal hereof shallbe payable. As used herein, “Business Day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a dayon which banking institutions are authorized or required by law or executive order to close in Baltimore Maryland or The City of NewYork.

The holder of this Note is entitled to the benefits of the applicable Registration Rights Agreement (as defined in the FirstSupplemental Indenture dated as of October 13, 2006 to the Indenture).

Payment of the principal of this Note, any premium and the interest due at maturity (or on any redemption or repayment date)will be made in immediately available funds upon surrender of this Note at the office or agency of the Paying Agent, as defined on thereverse hereof, maintained for that purpose in the Borough of Manhattan, The City of New York, or at such other paying agency as theIssuer may determine. Payment of the principal of and premium, if any, and interest on this Note will be made by U.S. dollar checkmailed to the address of the person entitled thereto as such address shall appear in the Note register. A holder of U.S. $10,000,000 ormore in aggregate principal amount of Notes having the same Interest Payment Date will be entitled to receive payments of interest,other than interest due at maturity or on any date of redemption or repayment, by wire transfer of immediately available funds ifappropriate wire transfer instructions have been received by the Paying Agent in writing not less than 15 calendar days prior to theapplicable Interest Payment Date.

Reference is hereby made to the further provisions of this Note set forth on the reverse hereof; which further provisions shallfor all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manualsignature, this Note shall not be entitled to any benefit under the Indenture, as defined on the reverse hereof, or be valid or obligatoryfor any purpose.

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IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed under its corporate seal.

DATED:

BALTIMORE GAS AND ELECTRICCOMPANY

By:Name:Title:

ATTEST:

By:Name:Title:

TRUSTEE’S CERTIFICATEOF AUTHENTICATION

This is one of the Notes referredto in the within−mentioned Indenture.


By:Name:Title:

By:Name:Title:

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[BACK OF 5.90% NOTE DUE 2016]

This Note is one of a duly authorized issue of 5.90% Series [A][B] Notes due 2016 (the “Notes”) of the Issuer. The Notes areissuable under an indenture, dated as of July 24, 2006 (as amended by the First Supplemental Indenture dated as of October 13, 2006,the “Indenture”), each between the Issuer and Deutsche Bank Trust Company Americas, as Trustee (the “Trustee,” which termincludes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is herebymade for a statement of the respective rights, limitations of rights, duties and immunities of the Issuer, the Trustee and holders of theNotes and the terms upon which the Notes are, and are to be, authenticated and delivered. The Issuer has appointed Deutsche BankTrust Company Americas, at its principal corporate trust office in The City of New York as the paying agent (the “Paying Agent,”which term includes any additional or successor Paying Agent appointed by the Issuer) with respect to the Notes. To the extent notinconsistent herewith, the terms of the Indenture are hereby incorporated by reference herein.

This Note may be redeemed in whole or in part at the option of the Issuer upon payment of the redemption price specifiedbelow. If the Issuer exercises the option to redeem this Note, the redemption price will equal the greater of (i) 100% of the principalamount of this Note or (ii) the sum, as determined by the Independent Investment Banker (defined below), of the present value of theprincipal amount of this Note and the remaining scheduled payments of interest on this Note from the redemption date to the MaturityDate, exclusive of interest accrued to the redemption date (the “Remaining Life”), discounted from the scheduled payment dates to theredemption date on a semiannual basis (assuming a 360−day year of 30−day months) at the Treasury Yield (defined below) plus 20basis points, plus accrued and unpaid interest on the principal amount being redeemed to the date of redemption. Notice ofredemption shall be mailed to the registered holders of the Notes designated for redemption at their addresses as the same shall appearon the Note register not less than 30 nor more than 60 days prior to the date fixed for redemption, subject to all the conditions andprovisions of the Indenture. In the event of redemption of this Note in part only, a new Note or Notes for the amount of theunredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof.

If the Issuer fails to deposit the redemption price with the Trustee on or prior to the redemption date, then notwithstandingany notice of redemption that has been given as provided in Section 4.04 of the Indenture, the Notes or portions of Notes with respectto which such notice has been given shall not become due and payable on the date and at the place or places stated in such notice. Inaddition, the failure to redeem the Notes shall not constitute a default or Event of Default pursuant to Section 7.01 of the Indenture.

For purposes of the immediately preceding paragraph, the following defined terms shall have the meanings specified:

“Independent Investment Banker” means Merrill Lynch, Pierce Fenner & Smith Incorporated if (1) the Issuer does notappoint someone else at least 30 days prior to such redemption date or (2) such other institution appointed by the Issuer is unwilling orunable to calculate the redemption price. If Merrill Lynch, Pierce Fenner & Smith Incorporated is

A−4


unwilling or unable to calculate the redemption price, then the Trustee shall appoint an independent investment banking institution ofnational standing to make the calculation.

“Treasury Yield” means, with respect to any redemption date, the rate determined by the Independent Investment Bankerfrom the most recent statistical release published by the Federal Reserve Bank of New York entitled “H.15(519) Selected InterestRate” or any successor publication as follows: (i) if the H.15 Statistical Release gives a weekly average yield for United StatesTreasury Notes having a constant maturity that is the same as the Remaining Life of the Notes, then the Treasury Yield will equal thatweekly average yield and (ii) in all other cases, the Independent Investment Banker will calculate the Treasury Yield by interpolating,on a straight line basis, the weekly average yields from the H.15 Statistical Release on the United States Treasury Notes having aconstant maturity closest to but greater than the Remaining Life of the Notes and the United States Treasury Notes having a constantmaturity closest to and less than the Remaining Life of the Notes. The Independent Investment Banker shall round any weekly averageyields calculated by interpolation to the nearest 1/100th of 1% and shall round the percentage up for any figure of 1/200th of 1% orabove. If weekly average yields for United States Treasury Notes are not available in the H.15 Statistical Release, or anywhere else,the Independent Investment Banker shall select comparable rates and calculate the Treasury Yield using such rates.

Interest payments on this Note will include interest accrued to but excluding the Interest Payment Dates or the Maturity Date(or any earlier redemption or repayment date), as the case may be. Interest payments for this Note will be computed and paid on thebasis of a 360−day year of twelve 30−day months.

In the case where the Interest Payment Date or the Maturity Date (or any redemption or repayment date) does not fall on aBusiness Day, payment of interest, premium, if any, or principal otherwise payable on such date need not be made on such date, butmay be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or on theMaturity Date (or any redemption or repayment date), and no interest on such payment shall accrue for the period from and after theInterest Payment Date or the Maturity Date (or any redemption or repayment date) to such next succeeding Business Day.

This Note and all the obligations of the Issuer hereunder are direct, unsecured obligations of the Issuer and rank withoutpreference or priority among themselves and pari passu with all other existing and future unsecured and unsubordinated indebtednessof the Issuer, subject to certain statutory exceptions in the event of liquidation upon insolvency.

This Note, and any Note or Notes issued upon registration of transfer or exchange hereof, is issuable only in fully registeredform, without coupons, and is issuable only in denominations of U.S. $1,000 and any integral multiple of U.S. $1,000 in excessthereof.

The Trustee has been appointed registrar for the Notes, and the Trustee will maintain at its principal corporate trust office inThe City of New York a register for the registration and transfer of Notes. This Note may be transferred at the aforesaid office of

A−5


the Trustee by surrendering this Note for cancellation, accompanied by a written instrument of transfer in form satisfactory to theTrustee and duly executed by the registered holder hereof in person or by the holder’s attorney duly authorized in writing, andthereupon the Trustee shall issue in the name of the transferee or transferees, in exchange herefor, a new Note or Notes havingidentical terms and provisions and having a like aggregate principal amount in authorized denominations, subject to the terms andconditions set forth herein; provided, however, that the Trustee will not be required (i) to register the transfer of or exchange any Notethat has been called for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part, (ii) to registerthe transfer of or exchange any Note if the holder thereof has exercised his right, if any, to require the Issuer to repurchase such Notein whole or in part, except the portion of such Note not required to be repurchased, or (iii) to register the transfer of or exchange Notesto the extent and during the period so provided in the Indenture with respect to the redemption of Notes. Notes are exchangeable atsaid office for other Notes of other authorized denominations of equal aggregate principal amount having identical terms andprovisions. All such exchanges and transfers of Notes will be free of charge, but the Issuer or the Trustee may require payment of asum sufficient to cover any tax or other governmental charge in connection therewith. All Notes surrendered for exchange shall beaccompanied by a written instrument of transfer in form satisfactory to the Trustee and executed by the registered holder in person orby the holder’s attorney duly authorized in writing. The date of registration of any Note delivered upon any exchange or transfer ofNotes shall be such that no gain or loss of interest results from such exchange or transfer.

In case any Note shall at any time become mutilated, defaced or be destroyed, lost or stolen and such Note or evidence of theloss, theft or destruction thereof (together with the indemnity hereinafter referred to and such other documents or proof as may berequired in the premises) shall be delivered to the Trustee, a new Note of like tenor will be issued by the Issuer in exchange for theNote so mutilated or defaced, or in lieu of the Note so destroyed or lost or stolen, but, in the case of any destroyed or lost or stolenNote, only upon receipt of evidence satisfactory to the Trustee and the Issuer that such Note was destroyed or lost or stolen and, ifrequired, upon receipt also of indemnity satisfactory to each of them. All expenses and reasonable charges associated with procuringsuch indemnity and with the preparation, authentication and delivery of a new Note shall be borne by the owner of the Note mutilated,defaced, destroyed, lost or stolen.

So long as this Note shall be outstanding, the Issuer will cause to be maintained an office or agency for the payment of theprincipal of and premium, if any, and interest on this Note as herein provided in the Borough of Manhattan, The City of New York,and an office or agency in said Borough of Manhattan for the registration, transfer and exchange as aforesaid of the Notes. The Issuermay designate other agencies for the payment of said principal, premium and interest at such place or places (subject to applicablelaws and regulations) as the Issuer may decide. So long as there shall be such an agency, the Issuer shall keep the Trustee advised ofthe names and locations of such agencies, if any are so designated.

With respect to moneys paid by the Issuer and held by the Trustee or any Paying Agent for payment of the principal of orinterest or premium, if any, on any Notes that

A−6


remain unclaimed at the end of two years after such principal, interest or premium shall have become due and payable (whether atmaturity or upon call for redemption or otherwise), (i) the Trustee or such Paying Agent shall notify the holders of such Notes thatsuch moneys shall be repaid to the Issuer and any person claiming such moneys shall thereafter look only to the Issuer for paymentthereof and (ii) such moneys shall be so repaid to the Issuer. Upon such repayment all liability of the Trustee or such Paying Agentwith respect to such moneys shall thereupon cease, without, however, limiting in any way any obligation that the Issuer may have topay the principal of or interest or premium, if any, on this Note as the same shall become due.

No provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute andunconditional, to pay the principal of, premium, if any, and interest on this Note at the time, place and rate, and in the coin andcurrency, herein prescribed unless otherwise agreed between the Issuer and the registered holder of this Note.

Prior to due presentment of this Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or theTrustee may treat the holder in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note beoverdue, and none of the Issuer, the Trustee or any such agent shall be affected by notice to the contrary.

No recourse under or upon any obligation, covenant or agreement contained in the Indenture, or in this Note, or because ofthe indebtedness evidenced hereby, shall be had against any incorporator, as such, or against any past, present or future stockholder,officer or director, as such, of the Issuer or of any successor, either directly or through the Issuer or any successor, under any rule oflaw, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise,all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived andreleased.

This Note shall for all purposes be governed by, and construed in accordance with, the laws of the State of New York.

All terms used in this Note which are defined in the Indenture and not otherwise defined herein shall have the meaningsassigned to them in the Indenture.

A−7


Assignment Form

To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint

to transfer this Note on the books of the Issuer. The agent may substitute another to act for him.

Date:

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Tax Identification No:

SIGNATURE GUARANTEE:

Signatures must be guaranteed by an “eligible guarantor institution” meeting therequirements of the Registrar, which requirements include membership or participation inthe Security Transfer Agent Medallion Program (“STAMP”) or such other “signatureguarantee program” as may be determined by the Registrar in addition to, or insubstitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, asamended.

A−8


SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE(1)

The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, orexchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

Date ofExchange

Amount ofdecrease in

Principal Amountof this Global

Note

Amount ofincrease in

Principal Amountof this Global Note

Principal Amountof this GlobalNote following

such decrease (orincrease)

Signature ofauthorized officer

of Trustee

(1) This should be included only if the Note is issued in global form.

A−9


EXHIBIT B

[FACE OF 6.35% NOTE DUE 2036]

[Insert Global Note Legends, if applicable pursuant to the provisions of theFirst Supplemental Indenture]

[Insert the Private Placement Legend, if applicable pursuant to the provisions of the First Supplemental Indenture]

No. $ CUSIP:

BALTIMORE GAS AND ELECTRIC COMPANY

% [Series A] [Series B] Notes due

ORIGINAL ISSUE INTEREST PAYMENTDATE: DATES: April 1 and October 1

INTEREST RATE: 6.35% per annum plusadditional interest, if any, pursuant to theapplicable Registration Rights Agreement (asdefined below)

MATURITY DATE: October 1, 2036

Baltimore Gas and Electric Company, a Maryland corporation (together with its successors and assigns, the “Issuer”), forvalue received, hereby promises to pay to , or registered assignees, the principal sum of on the Maturity Datespecified above and to pay interest thereon at the Interest Rate per annum specified above, semiannually in arrears on each InterestPayment Date specified above during each year commencing on the Interest Payment Date next succeeding the Original Issue Datespecified above, and at maturity (or on any redemption or repayment date).

Interest on this Note will accrue from the most recent Interest Payment Date to which interest has been paid or duly providedfor, or, if no interest has been paid or duly provided for, from the Original Issue Date, until the principal hereof has been paid or dulymade available for payment (except as provided below). The interest so payable, and punctually paid or duly provided for, on anyInterest Payment Date will, subject to certain exceptions described herein, be paid to the person in whose name this Note (or one ormore predecessor Notes) is registered at the close of business on the 15th day of the calendar

B−1


month prior to such Interest Payment Date (whether or not a Business Day) (each such date a “Record Date”); provided, however, thatinterest payable at maturity (or on any redemption or repayment date) will be payable to the person to whom the principal hereof shallbe payable. As used herein, “Business Day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a dayon which banking institutions are authorized or required by law or executive order to close in Baltimore Maryland or The City of NewYork.

The holder of this Note is entitled to the benefits of the applicable Registration Rights Agreement (as defined in the FirstSupplemental Indenture dated as of October 13, 2006 to the Indenture).

Payment of the principal of this Note, any premium and the interest due at maturity (or on any redemption or repayment date)will be made in immediately available funds upon surrender of this Note at the office or agency of the Paying Agent, as defined on thereverse hereof, maintained for that purpose in the Borough of Manhattan, The City of New York, or at such other paying agency as theIssuer may determine. Payment of the principal of and premium, if any, and interest on this Note will be made by U.S. dollar checkmailed to the address of the person entitled thereto as such address shall appear in the Note register. A holder of U.S. $10,000,000 ormore in aggregate principal amount of Notes having the same Interest Payment Date will be entitled to receive payments of interest,other than interest due at maturity or on any date of redemption or repayment, by wire transfer of immediately available funds ifappropriate wire transfer instructions have been received by the Paying Agent in writing not less than 15 calendar days prior to theapplicable Interest Payment Date.

Reference is hereby made to the further provisions of this Note set forth on the reverse hereof; which further provisions shallfor all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manualsignature, this Note shall not be entitled to any benefit under the Indenture, as defined on the reverse hereof, or be valid or obligatoryfor any purpose.

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IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed under its corporate seal.

DATED:


By:Name:Title:

ATTEST:

By:Name:Title:

TRUSTEE’S CERTIFICATEOF AUTHENTICATION

This is one of the Notes referredto in the within−mentioned Indenture.


By:Name:Title:

By:Name:Title:

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[BACK OF 6.35% NOTE DUE 2036]

This Note is one of a duly authorized issue of 6.35%% Series [A][B] Notes due 2036 (the “Notes”) of the Issuer. The Notesare issuable under an indenture, dated as of July 24, 2006 (as amended by the First Supplemental Indenture dated as of October 13,2006, the “Indenture”), each between the Issuer and Deutsche Bank Trust Company Americas, as Trustee (the “Trustee,” which termincludes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is herebymade for a statement of the respective rights, limitations of rights, duties and immunities of the Issuer, the Trustee and holders of theNotes and the terms upon which the Notes are, and are to be, authenticated and delivered. The Issuer has appointed Deutsche BankTrust Company Americas, at its principal corporate trust office in The City of New York as the paying agent (the “Paying Agent,”which term includes any additional or successor Paying Agent appointed by the Issuer) with respect to the Notes. To the extent notinconsistent herewith, the terms of the Indenture are hereby incorporated by reference herein.

This Note may be redeemed in whole or in part at the option of the Issuer upon payment of the redemption price specifiedbelow. If the Issuer exercises the option to redeem this Note, the redemption price will equal the greater of (i) 100% of the principalamount of this Note or (ii) the sum, as determined by the Independent Investment Banker (defined below), of the present value of theprincipal amount of this Note and the remaining scheduled payments of interest on this Note from the redemption date to the MaturityDate, exclusive of interest accrued to the redemption date (the “Remaining Life”), discounted from the scheduled payment dates to theredemption date on a semiannual basis (assuming a 360−day year of 30−day months) at the Treasury Yield (defined below) plus 25basis points, plus accrued and unpaid interest on the principal amount being redeemed to the date of redemption. Notice ofredemption shall be mailed to the registered holders of the Notes designated for redemption at their addresses as the same shall appearon the Note register not less than 30 nor more than 60 days prior to the date fixed for redemption, subject to all the conditions andprovisions of the Indenture. In the event of redemption of this Note in part only, a new Note or Notes for the amount of theunredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof.

If the Issuer fails to deposit the redemption price with the Trustee on or prior to the redemption date, then notwithstandingany notice of redemption that has been given as provided in Section 4.04 of the Indenture, the Notes or portions of Notes with respectto which such notice has been given shall not become due and payable on the date and at the place or places stated in such notice. Inaddition, the failure to redeem the Notes shall not constitute a default or Event of Default pursuant to Section 7.01 of the Indenture.

For purposes of the immediately preceding paragraph, the following defined terms shall have the meanings specified:

“Independent Investment Banker” means Merrill Lynch, Pierce Fenner & Smith Incorporated if (1) the Issuer does notappoint someone else at least 30 days prior to such redemption date or (2) such other institution appointed by the Issuer is unwilling orunable to calculate the redemption price. If Merrill Lynch, Pierce Fenner & Smith Incorporated is

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unwilling or unable to calculate the redemption price, then the Trustee shall appoint an independent investment banking institution ofnational standing to make the calculation.

“Treasury Yield” means, with respect to any redemption date, the rate determined by the Independent Investment Bankerfrom the most recent statistical release published by the Federal Reserve Bank of New York entitled “H.15(519) Selected InterestRate” or any successor publication as follows: (i) if the H.15 Statistical Release gives a weekly average yield for United StatesTreasury Notes having a constant maturity that is the same as the Remaining Life of the Notes, then the Treasury Yield will equal thatweekly average yield and (ii) in all other cases, the Independent Investment Banker will calculate the Treasury Yield by interpolating,on a straight line basis, the weekly average yields from the H.15 Statistical Release on the United States Treasury Notes having aconstant maturity closest to but greater than the Remaining Life of the Notes and the United States Treasury Notes having a constantmaturity closest to and less than the Remaining Life of the Notes. The Independent Investment Banker shall round any weekly averageyields calculated by interpolation to the nearest 1/100th of 1% and shall round the percentage up for any figure of 1/200th of 1% orabove. If weekly average yields for United States Treasury Notes are not available in the H.15 Statistical Release, or anywhere else,the Independent Investment Banker shall select comparable rates and calculate the Treasury Yield using such rates.

Interest payments on this Note will include interest accrued to but excluding the Interest Payment Dates or the Maturity Date(or any earlier redemption or repayment date), as the case may be. Interest payments for this Note will be computed and paid on thebasis of a 360−day year of twelve 30−day months.

In the case where the Interest Payment Date or the Maturity Date (or any redemption or repayment date) does not fall on aBusiness Day, payment of interest, premium, if any, or principal otherwise payable on such date need not be made on such date, butmay be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or on theMaturity Date (or any redemption or repayment date), and no interest on such payment shall accrue for the period from and after theInterest Payment Date or the Maturity Date (or any redemption or repayment date) to such next succeeding Business Day.

This Note and all the obligations of the Issuer hereunder are direct, unsecured obligations of the Issuer and rank withoutpreference or priority among themselves and pari passu with all other existing and future unsecured and unsubordinated indebtednessof the Issuer, subject to certain statutory exceptions in the event of liquidation upon insolvency.

This Note, and any Note or Notes issued upon registration of transfer or exchange hereof, is issuable only in fully registeredform, without coupons, and is issuable only in denominations of U.S. $1,000 and any integral multiple of U.S. $1,000 in excessthereof.

The Trustee has been appointed registrar for the Notes, and the Trustee will maintain at its principal corporate trust office inThe City of New York a register for the registration and transfer of Notes. This Note may be transferred at the aforesaid office of

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the Trustee by surrendering this Note for cancellation, accompanied by a written instrument of transfer in form satisfactory to theTrustee and duly executed by the registered holder hereof in person or by the holder’s attorney duly authorized in writing, andthereupon the Trustee shall issue in the name of the transferee or transferees, in exchange herefor, a new Note or Notes havingidentical terms and provisions and having a like aggregate principal amount in authorized denominations, subject to the terms andconditions set forth herein; provided, however, that the Trustee will not be required (i) to register the transfer of or exchange any Notethat has been called for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part, (ii) to registerthe transfer of or exchange any Note if the holder thereof has exercised his right, if any, to require the Issuer to repurchase such Notein whole or in part, except the portion of such Note not required to be repurchased, or (iii) to register the transfer of or exchange Notesto the extent and during the period so provided in the Indenture with respect to the redemption of Notes. Notes are exchangeable atsaid office for other Notes of other authorized denominations of equal aggregate principal amount having identical terms andprovisions. All such exchanges and transfers of Notes will be free of charge, but the Issuer or the Trustee may require payment of asum sufficient to cover any tax or other governmental charge in connection therewith. All Notes surrendered for exchange shall beaccompanied by a written instrument of transfer in form satisfactory to the Trustee and executed by the registered holder in person orby the holder’s attorney duly authorized in writing. The date of registration of any Note delivered upon any exchange or transfer ofNotes shall be such that no gain or loss of interest results from such exchange or transfer.

In case any Note shall at any time become mutilated, defaced or be destroyed, lost or stolen and such Note or evidence of theloss, theft or destruction thereof (together with the indemnity hereinafter referred to and such other documents or proof as may berequired in the premises) shall be delivered to the Trustee, a new Note of like tenor will be issued by the Issuer in exchange for theNote so mutilated or defaced, or in lieu of the Note so destroyed or lost or stolen, but, in the case of any destroyed or lost or stolenNote, only upon receipt of evidence satisfactory to the Trustee and the Issuer that such Note was destroyed or lost or stolen and, ifrequired, upon receipt also of indemnity satisfactory to each of them. All expenses and reasonable charges associated with procuringsuch indemnity and with the preparation, authentication and delivery of a new Note shall be borne by the owner of the Note mutilated,defaced, destroyed, lost or stolen.

So long as this Note shall be outstanding, the Issuer will cause to be maintained an office or agency for the payment of theprincipal of and premium, if any, and interest on this Note as herein provided in the Borough of Manhattan, The City of New York,and an office or agency in said Borough of Manhattan for the registration, transfer and exchange as aforesaid of the Notes. The Issuermay designate other agencies for the payment of said principal, premium and interest at such place or places (subject to applicablelaws and regulations) as the Issuer may decide. So long as there shall be such an agency, the Issuer shall keep the Trustee advised ofthe names and locations of such agencies, if any are so designated.

With respect to moneys paid by the Issuer and held by the Trustee or any Paying Agent for payment of the principal of orinterest or premium, if any, on any Notes that

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remain unclaimed at the end of two years after such principal, interest or premium shall have become due and payable (whether atmaturity or upon call for redemption or otherwise), (i) the Trustee or such Paying Agent shall notify the holders of such Notes thatsuch moneys shall be repaid to the Issuer and any person claiming such moneys shall thereafter look only to the Issuer for paymentthereof and (ii) such moneys shall be so repaid to the Issuer. Upon such repayment all liability of the Trustee or such Paying Agentwith respect to such moneys shall thereupon cease, without, however, limiting in any way any obligation that the Issuer may have topay the principal of or interest or premium, if any, on this Note as the same shall become due.

No provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute andunconditional, to pay the principal of, premium, if any, and interest on this Note at the time, place and rate, and in the coin andcurrency, herein prescribed unless otherwise agreed between the Issuer and the registered holder of this Note.

Prior to due presentment of this Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or theTrustee may treat the holder in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note beoverdue, and none of the Issuer, the Trustee or any such agent shall be affected by notice to the contrary.

No recourse under or upon any obligation, covenant or agreement contained in the Indenture, or in this Note, or because ofthe indebtedness evidenced hereby, shall be had against any incorporator, as such, or against any past, present or future stockholder,officer or director, as such, of the Issuer or of any successor, either directly or through the Issuer or any successor, under any rule oflaw, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise,all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived andreleased.

This Note shall for all purposes be governed by, and construed in accordance with, the laws of the State of New York.

All terms used in this Note which are defined in the Indenture and not otherwise defined herein shall have the meaningsassigned to them in the Indenture.

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Assignment Form

To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint

to transfer this Note on the books of the Issuer. The agent may substitute another to act for him.

Date:

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Tax Identification No:

SIGNATURE GUARANTEE:

Signatures must be guaranteed by an “eligible guarantor institution” meeting therequirements of the Registrar, which requirements include membership or participation inthe Security Transfer Agent Medallion Program (“STAMP”) or such other “signatureguarantee program” as may be determined by the Registrar in addition to, or insubstitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, asamended.

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SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE(2)

The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, orexchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

Date ofExchange

Amount ofdecrease in

Principal Amountof this Global

Note

Amount ofincrease in

Principal Amountof this Global Note

Principal Amountof this GlobalNote following

such decrease (orincrease)

Signature ofauthorized officer

of Trustee

(2) This should be included only if the Note is issued in global form.

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EXHIBIT C

[FORM OF CERTIFICATE OF TRANSFER]

Baltimore Gas and Electric Company750 East Pratt StreetBaltimore, MD 21202Attention: Secretary of the Company

Deutsche Bank Trust Company Americas60 Wall Street, 27th FloorNew York, NY 10005Attention: Trust and Securities Services

Re: [ ]% Series [A][B] Notes due [ ]

Reference is hereby made to the Indenture, dated as of July 24, 2006, as amended by the First Supplemental Indenture, datedas of October 13, 2006 (as so amended and supplemented, the “Indenture”), between Baltimore Gas and Electric Company, aMaryland corporation, as issuer (the “Company”), and Deutsche Bank Trust Company Americas, as trustee. Capitalized terms usedbut not defined herein shall have the meanings given to them in the Indenture.

, (the “Transferor”) owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex Ahereto, in the principal amount of $ in such Note[s] or interests (the “Transfer”), to (the “Transferee”), asfurther specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

1. o Check if Transferee will take delivery of a beneficial interest in a Restricted Global Note or a Restricted DefinitiveNote Pursuant to Rule 144A. The Transfer is being effected pursuant to and in accordance with Rule l44A under the UnitedStates Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, the Transferor hereby further certifies thatthe beneficial interest or Restricted Definitive Note is being transferred to a person that the Transferor reasonably believedand believes is purchasing the beneficial interest or Restricted Definitive Note for its own account, or for one or moreaccounts with respect to which such person exercises sole investment discretion, and such person and each such account is a“qualified institutional buyer” within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A andsuch Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Uponconsummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest orRestricted Definitive Note

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will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted GlobalNote and/or the Restricted Definitive Note and in the Indenture and the Securities Act.

2. o Check if Transferee will take delivery of a beneficial interest in a Restricted Global Note or a Restricted DefinitiveNote Pursuant to Regulation S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to aperson in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States orsuch Transferor and any person acting on its behalf reasonably believed and believes that the Transferee was outside theUnited States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market andneither such Transferor nor any person acting on its behalf knows that the transaction was prearranged with a buyer in theUnited States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule904(b) of Regulation S under the Securities Act and (iii) the transaction is not part of a plan or scheme to evade theregistration requirements of the Securities Act. Upon consummation of the proposed transfer in accordance with the terms ofthe Indenture, the transferred beneficial interest or Restricted Definitive Note will be subject to the restrictions on transferenumerated in the Private Placement Legend printed on the Restricted Global Note and/or the Restricted Definitive Note andin the Indenture and the Securities Act.

3. o Check and complete if Transferee will take delivery of a beneficial interest in a Definitive Note pursuant to anyprovision of the Securities Act other than Rule 144A or Regulation S. The Transfer is being effected in compliance withthe transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes andpursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the UnitedStates, and accordingly the Transferor hereby further certifies that (check one):

(a) o such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act;

or

(b) o such Transfer is being effected to the Company or a subsidiary thereof;

or

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(c) o such Transfer is being effected pursuant to an effective registration statement under the Securities Actand in compliance with the prospectus delivery requirements of the Securities Act.

4. o Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an UnrestrictedDefinitive Note.

(a) o Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and inaccordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and anyapplicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture andthe Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of theproposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longerbe subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, onRestricted Definitive Notes and in the Indenture.

(b) o Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and inaccordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in theIndenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained inthe Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Uponconsummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or DefinitiveNote will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the RestrictedGlobal Notes, on Restricted Definitive Notes and in the Indenture.

(c) o Check if Transfer is Pursuant to Other Exemption. (i) The Transfer is being effected pursuant toand in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any Stateof the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not requiredin order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the termsof the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated inthe Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.

This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

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[Insert Name of Transferor]

By:Name:Title:

Dated: ,

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ANNEX A TO CERTIFICATE OF TRANSFER

1. The Transferor owns and proposes to transfer the following:

[CHECK ONE OF (a) OR (b)]

(a) o a beneficial interest in the Restricted Global Note; or

(b) o a Restricted Definitive Note.

2. After the Transfer the Transferee will hold:

[CHECK ONE]

(a) o a beneficial interest in the:

(i) o Restricted Global Note (CUSIP ), or

(ii) o Unrestricted Global Note (CUSIP ); or

(b) o Restricted Definitive Note; or

(c) o an Unrestricted Definitive Note,

in accordance with the terms of the Indenture.

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EXHIBIT D

[FORM OF CERTIFICATE OF EXCHANGE]

Baltimore Gas and Electric Company750 East Pratt StreetBaltimore, MD 21202Attention: Secretary of the Company

Deutsche Bank Trust Company Americas60 Wall Street, 27th FloorNew York, NY 10005Attention: Trust and Securities Services

Re: [ ]% Series [A][B] Notes due [ ]

Reference is hereby made to the Indenture, dated as of July 24, 2006, as amended by the First Supplemental Indenture, datedas of October 13, 2006 (as so amended and supplemented, the “Indenture”), between Baltimore Gas and Electric Company, aMaryland corporation, as issuer (the “Company”), and Deutsche Bank Trust Company Americas, as trustee. Capitalized terms usedbut not defined herein shall have the meanings given to them in the Indenture.

, (the “Owner”) owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in theprincipal amount of $ in such Note[s] or interests (the “Exchange”). In connection with the Exchange, the Ownerhereby certifies that:

1. Exchange of Restricted Definitive Notes or Beneficial Interests in a Restricted Global Note for Unrestricted DefinitiveNotes or Beneficial Interests in an Unrestricted Global Note.

(a) o Check if Exchange is from beneficial interest in a Restricted Global Note to beneficial interest in anUnrestricted Global Note. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Note for abeneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest isbeing acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transferrestrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, asamended (the “Securities Act”), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are notrequired in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is beingacquired in compliance with any applicable blue sky securities laws of any state of the United States.

(b) o Check if Exchange is from beneficial interest in a Restricted Global Note to Unrestricted Definitive Note. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note,the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner’s own account without transfer, (ii) such Exchangehas been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and inaccordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend arenot required in order to maintain compliance with

D−1


the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of anystate of the United States.

(c) o Check if Exchange is from Restricted Definitive Note to beneficial interest in an Unrestricted Global Note. In connection with the Owner’s Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, theOwner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such Exchangehas been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and inaccordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend arenot required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliancewith any applicable blue sky securities laws of any state of the United States.

(d) o Check if Exchange is from Restricted Definitive Note to Unrestricted Definitive Note. In connection withthe Owner’s Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) theUnrestricted Definitive Note is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected incompliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with theSecurities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order tomaintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with anyapplicable blue sky securities laws of any state of the United States.

2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted Global Notes for Restricted DefinitiveNotes or Beneficial Interests in Restricted Global Notes.

(a) o Check if Exchange is from beneficial interest in a Restricted Global Note to Restricted Definitive Note. Inconnection with the Exchange of the Owner’s beneficial interest in a Restricted Global Note for a Restricted Definitive Note with anequal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner’s own accountwithout transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the RestrictedDefinitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printedon the Restricted Definitive Note and in the Indenture and the Securities Act.

(b) o Check if Exchange is from Restricted Definitive Note to beneficial interest in a Restricted Global Note. Inconnection with the Exchange of the Owner’s Restricted Definitive Note for a beneficial interest in the Restricted Global Note, theOwner hereby certifies (1) the beneficial interest is being acquired for the Owner’s own account without transfer and (ii) suchExchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to andin accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the UnitedStates. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issuedwill be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted GlobalNote and in the Indenture and the Securities Act.

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This certificate and the statements contained herein are made for your benefit and the benefit of the Company.

[Insert Name of Owner]

By:Name:Title:

Dated: ,

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EXHIBIT 4(b)

Registration Rights Agreement

Dated As of October 13, 2006

among

Baltimore Gas and Electric Company

and

Banc of America Securities LLC,

Barclays Capital Inc.,

Citigroup Global Markets Inc.,

and

Merrill Lynch, Pierce, Fenner & SmithIncorporated


REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the “Agreement”) is made and entered into this 13th day of October, 2006,among Baltimore Gas and Electric Company, a Maryland corporation (the “Company”), and Banc of America Securities LLC,Barclays Capital Inc., Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the “Representatives”)and the other initial purchasers (collectively, the “Initial Purchasers”) named in Schedule A to the purchase agreement dated October11, 2006, among the Company and the Initial Purchasers (the “Purchase Agreement”), which provides for the sale by the Company tothe Initial Purchasers of an aggregate of $300,000,000 million principal amount of the Company’s 5.90% Notes due 2016 (the“Securities”).

This Agreement is made pursuant to the Purchase Agreement,. In order to induce the Initial Purchasers to enter intothe Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees theregistration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the PurchaseAgreement.

In consideration of the foregoing, the parties hereto agree as follows:

1. Definitions.

As used in this Agreement, the following capitalized defined terms shall have the following meanings:

“1933 Act” shall mean the Securities Act of 1933, as amended from time to time.

“1934 Act” shall mean the Securities Exchange Act of l934, as amended from time to time.

“Closing Date” shall mean the Closing Date as defined in the Purchase Agreement.

“Company” shall have the meaning set forth in the preamble and shall also include the Company’s successors.

“Depositary” shall mean The Depository Trust Company, or any other depositary appointed by the Company,provided, however, that such depositary must have an address in the Borough of Manhattan, in The City of New York.


“Exchange Offer” shall mean the exchange offer by the Company of Exchange Securities for Registrable Securitiespursuant to Section 2.1 hereof.

“Exchange Offer Registration” shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof.

“Exchange Offer Registration Statement” shall mean an exchange offer registration statement on Form S−4 (or, ifapplicable, on another appropriate form), and all amendments and supplements to such registration statement, including theProspectus contained therein, all exhibits thereto and all documents incorporated by reference therein.

“Exchange Period” shall have the meaning set forth in Section 2.1 hereof.

“Exchange Securities” shall mean the 5.90% Notes due 2016 issued by the Company under the Indenture containingterms identical to the Securities in all material respects (except for references to certain interest rate provisions, restrictionson transfers and restrictive legends), to be offered to Holders of Securities in exchange for Registrable Securities pursuant tothe Exchange Offer.

“Holder” shall mean an Initial Purchaser, for so long as it owns any Registrable Securities, and each of its successors,assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture andeach Participating Broker−Dealer that holds Exchange Securities for so long as such Participating Broker−Dealer is requiredto deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities.

“Indenture” shall mean the Indenture relating to the Securities, dated as of July 24, 2006, between the Company andDeutsche Bank Trust Company Americas, as trustee, as supplemented by a supplemental indenture dated as of October 13,2006 between the Company and the Trustee and as the same may be further amended, supplemented, waived or otherwisemodified from time to time in accordance with the terms thereof.

“Initial Purchaser” or “Initial Purchasers” shall have the meaning set forth in the preamble.

“Majority Holders” shall mean the Holders of a majority of the aggregate principal amount of Outstanding (asdefined in the Indenture) Registrable


Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities isrequired hereunder, Registrable Securities held by the Company and other obligors on the Securities or any Affiliate (asdefined in the Indenture) of the Company shall be disregarded in determining whether such consent or approval was given bythe Holders of such required percentage amount.

“Participating Broker−Dealer” shall mean any of Banc of America Securities LLC, Barclays Capital Inc., CitigroupGlobal Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and any other broker−dealer which makes amarket in the Securities and exchanges Registrable Securities in the Exchange Offer for Exchange Securities.

“Person” shall mean an individual, partnership (general or limited), corporation, limited liability company, trust orunincorporated organization, or a government or agency or political subdivision thereof.

“Private Exchange” shall have the meaning set forth in Section 2.1 hereof.

“Private Exchange Securities” shall have the meaning set forth in Section 2.1 hereof.

“Prospectus” shall mean the prospectus included in a Registration Statement, including any preliminary prospectus,and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectussupplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a ShelfRegistration Statement, and by all other amendments and supplements to a prospectus, including post−effective amendments,and in each case including all material incorporated by reference therein.

“Purchase Agreement” shall have the meaning set forth in the preamble.

“Registrable Securities” shall mean the Securities and, if issued, the Private Exchange Securities; provided, however,that the Securities and, if issued, the Private Exchange Securities, shall cease to be Registrable Securities when (i) aRegistration Statement with respect to such Securities shall have been declared effective under the 1933 Act and suchSecurities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to thepublic pursuant to Rule l44 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) suchSecurities shall have ceased to be outstanding


or (iv) the Exchange Offer is consummated (except in the case of Securities purchased from the Company and continued tobe held by the Initial Purchasers).

“Registration Expenses” shall mean any and all expenses incident to performance of or compliance by the Companywith this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers,Inc. (the “NASD”) registration and filing fees, including, if applicable, the fees and expenses of any “qualified independentunderwriter” (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with therules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities orblue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for anyunderwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securitiesand any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing,printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, anyunderwriting agreements, securities sales agreements and other documents relating to the performance of and compliancewith this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the RegistrableSecurities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel forthe Company and of the independent public accountants of the Company, including the expenses of any special audits or“cold comfort” letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee,and any escrow agent or custodian, (viii) the reasonable fees and expenses of the Initial Purchasers in connection with theExchange Offer, including the reasonable fees and expenses of counsel to the Initial Purchasers in connection therewith, (ix)the reasonable fees and disbursements of special counsel representing the Holders of Registrable Securities and (x) any feesand disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees andexpenses of any special experts retained by the Company in connection with any Registration Statement, but excludingunderwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securitiesby a Holder.

“Registration Statement” shall mean any registration statement of the Company which covers any of the ExchangeSecurities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to anysuch Registration Statement, including post−effective amendments, in each case including the Prospectus contained therein,all exhibits thereto and all material incorporated by reference therein.


“SEC” shall mean the Securities and Exchange Commission or any successor agency or government body performingthe functions currently performed by the United States Securities and Exchange Commission.

“Shelf Registration” shall mean a registration effected pursuant to Section 2.2 hereof.

“Shelf Registration Statement” shall mean a “shelf” registration statement of the Company pursuant to the provisionsof Section 2.2 of this Agreement which covers all of the Registrable Securities or all of the Private Exchange Securities on anappropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and allamendments and supplements to such registration statement, including post−effective amendments, in each case including theProspectus contained therein, all exhibits thereto and all material incorporated by reference therein.

“Trustee” shall mean the trustee with respect to the Securities under the Indenture.

2. Registration Under the 1933 Act.

2.1 Exchange Offer. The Company shall, for the benefit of the Holders, at the Company’s cost, (A) prepare and,as soon as practicable but not later than 210 days following the Closing Date, file with the SEC an Exchange Offer RegistrationStatement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to theHolders, in exchange for the Registrable Securities (other than Private Exchange Securities), of a like principal amount of ExchangeSecurities, (B) use its reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the1933 Act within 270 days of the Closing Date, (C) use its reasonable best efforts to keep the Exchange Offer Registration Statementeffective until the closing of the Exchange Offer and (D) use its reasonable best efforts to cause the Exchange Offer to beconsummated not later than 315 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Uponthe effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it beingthe objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for ExchangeSecurities (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) isnot a broker−dealer tendering Registrable Securities acquired directly from the Company for its own account, (c) acquired theExchange Securities in the ordinary


course of such Holder’s business and (d) has no arrangements or understandings with any Person to participate in the Exchange Offerfor the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without anylimitations or restrictions under the 1933 Act and under state securities or blue sky laws.

In connection with the Exchange Offer, the Company shall:

(a) mail as promptly as practicable to each Holder a copy of the Prospectus forming part of theExchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents;

(b) keep the Exchange Offer open for acceptance for a period of not less than 30 calendar days after thedate notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the “ExchangePeriod”);

(c) utilize the services of the Depositary for the Exchange Offer;

(d) permit Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m. (EasternTime), on the last business day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex,facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered forexchange, and a statement that such Holder is withdrawing such Holder’s election to have such Securities exchanged;

(e) notify each Holder that any Registrable Security not tendered will remain outstanding and continueto accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and ParticipatingBroker−Dealers as provided herein); and

(f) otherwise comply in all respects with all applicable laws relating to the Exchange Offer.

If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Securities acquired by them andhaving the status of an unsold allotment in the initial distribution, the Company upon the request of any Initial Purchaser shall,simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to such Initial Purchaser inexchange (the “Private Exchange”) for the Securities held by such Initial Purchaser, a like principal amount of debt securities of theCompany on a senior basis, that are identical (except that such securities shall bear


appropriate transfer restrictions) to the Exchange Securities (the “Private Exchange Securities”).

The Exchange Securities and the Private Exchange Securities shall be issued under (i) the Indenture or (ii) anindenture identical in all material respects to the Indenture and which, in either case, has been qualified under the Trust Indenture Actof 1939, as amended (the “TIA”), or is exempt from such qualification and shall provide that the Exchange Securities shall not besubject to the transfer restrictions set forth in the Indenture but that the Private Exchange Securities shall be subject to such transferrestrictions. The Indenture or such indenture shall provide that the Exchange Securities, the Private Exchange Securities and theSecurities shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private ExchangeSecurities or the Securities will have the right to vote or consent as a separate class on any matter. The Private Exchange Securitiesshall be of the same series as and the Company shall use reasonable best efforts to have the Private Exchange Securities bear the sameCUSIP number as the Exchange Securities. The Company shall not have any liability under this Agreement solely as a result of suchPrivate Exchange Securities not bearing the same CUSIP number as the Exchange Securities.

As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, theCompany shall:

(i) accept for exchange all Registrable Securities duly tendered and not validly withdrawn pursuant to theExchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter oftransmittal which shall be an exhibit thereto;

(ii) accept for exchange all Securities properly tendered pursuant to the Private Exchange;

(iii) deliver to the Trustee for cancellation all Registrable Securities so accepted for exchange; and

(iv) cause the Trustee promptly to authenticate and deliver Exchange Securities or Private ExchangeSecurities, as the case may be, to each Holder of Registrable Securities so accepted for exchange in a principalamount equal to the principal amount of the Registrable Securities of such Holder so accepted for exchange.

Interest on each Exchange Security and Private Exchange Security will accrue from the last date on which interestwas paid on the Registrable Securities


surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from the date of original issuance. TheExchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or the PrivateExchange, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff ofthe SEC, (ii) the due tendering of Registrable Securities in accordance with the Exchange Offer and the Private Exchange, (iii) thateach Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that all Exchange Securities to bereceived by it shall be acquired in the ordinary course of its business and that at the time of the consummation of the Exchange Offer itshall have no arrangement or understanding with any person to participate in the distribution (within the meaning of the 1933 Act) ofthe Exchange Securities and shall have made such other representations as may be reasonably necessary under applicable SEC rules,regulations or interpretations to render the use of Form S−4 or other appropriate form under the 1933 Act available and (iv) that noaction or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to theExchange Offer or the Private Exchange which, in the Company’s judgment, would reasonably be expected to impair the ability of theCompany to proceed with the Exchange Offer or the Private Exchange. The Company shall inform the Initial Purchasers of the namesand addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact suchHolders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer.

2.2 Shelf Registration. (i) If, because of any changes in law, SEC rules or regulations or applicableinterpretations thereof by the staff of the SEC, the Company is not permitted to effect the Exchange Offer as contemplated by Section2.1 hereof, (ii) if for any other reason the Exchange Offer Registration Statement is not filed with the SEC within 210 days of theClosing Date, or if such Exchange Offer Registration Statement is not declared effective within 270 days following the original issueof the Registrable Securities or if the Exchange Offer is not consummated within 315 days after the original issue of the RegistrableSecurities, (iii) upon the request of any of the Initial Purchasers with respect to any Securities not eligible to be exchanged for theExchange Securities in the Exchange Offer Registration, (iv) if a Holder is not permitted to participate in the Exchange Offer or doesnot receive fully tradeable Exchange Securities pursuant to the Exchange Offer, and such Holder so requests, or (v) if the Company soelects, then in case of each of clauses (i) through (v) the Company shall, at its cost:

(a) As promptly as practicable, file with the SEC, and thereafter shall use its reasonable best efforts tocause to be declared effective as promptly as practicable but no later than the later of (A) 180 days after


being required or requested by a Holder to file a Shelf Registration Statement, or (B) 270 days after the originalissue of the Registrable Securities, a Shelf Registration Statement relating to the offer and sale of the RegistrableSecurities by the Holders from time to time in accordance with the methods of distribution elected by the MajorityHolders participating in the Shelf Registration and set forth in such Shelf Registration Statement.

(b) Use its reasonable best efforts to keep the Shelf Registration Statement continuously effective inorder to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the datethe Shelf Registration Statement is declared effective by the SEC, or for such shorter period that will terminate whenall Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the ShelfRegistration Statement or cease to be outstanding or otherwise to be Registrable Securities (the “EffectivenessPeriod”); provided, however, that the Effectiveness Period in respect of the Shelf Registration Statement shall beextended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements ofRule 174 under the 1933 Act and as otherwise provided herein.

(c) Notwithstanding any other provisions hereof, use its reasonable best efforts to ensure that (i) anyShelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and anysupplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii)any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untruestatement of a material fact or omit to state a material fact required to be stated therein or necessary to make thestatements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and anysupplement to such Prospectus (as amended or supplemented from time to time), does not include an untruestatement of a material fact or omit to state a material fact necessary in order to make the statements, in light of thecircumstances under which they were made, not misleading.

The Company shall not permit any securities other than Registrable Securities to be included in the ShelfRegistration Statement. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, asrequired by Section 3(b) below, and to furnish to the Holders of Registrable Securities


copies of any such supplement or amendment promptly after its being used or filed with the SEC.

2.3 Expenses. The Company shall pay all Registration Expenses in connection with the registration pursuant toSection 2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale ordisposition of such Holder’s Registrable Securities pursuant to the Shelf Registration Statement.

2.4. Effectiveness. (a) The Company will be deemed not to have used its reasonable efforts to cause theExchange Offer Registration Statement or its reasonable best efforts to cause the Shelf Registration Statement, as the case may be, tobecome, or to remain, effective during the requisite period if the Company voluntarily takes any action that would, or omits to takeany action which omission would, result in any such Registration Statement not being declared effective or in the Holders ofRegistrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period asand to the extent contemplated hereby, unless such action is required by applicable law.

(b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statementpursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided,however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to an Exchange Offer RegistrationStatement or a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SECor any other governmental agency or court, such Registration Statement will be deemed not to have become effective during theperiod of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume.

2.5 Interest. The Indenture executed in connection with the Securities will provide that in the event that either(a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 210th calendar day following thedate of original issue of the Securities, (b) the Exchange Offer Registration Statement (or, if a change in law or in applicableinterpretations of the staff of the SEC does not permit the Company to effect a Registered Exchange Offer, the Shelf RegistrationStatement) has not been declared effective on or prior to the 270th calendar day following the date of original issue of the Securities,(c) the Exchange Offer is not consummated on or prior to the 315th calendar day following the date of original issue of the Securities,(d) the Shelf Registration Statement is not declared effective by the SEC within the later of (A) 180 days after being required orrequested by a Holder to file a Shelf Registration Statement,


or (B) 270 days after the original issue of the Registrable Securities, or (e) after the Exchange Offer Registration Statement or theShelf Registration Statement, as the case may be, is declared effective, such Registration Statement thereafter ceases to be effective orusable and the aggregate number of days in any consecutive twelve−month period for which the Shelf Registration Statement shall notbe usable exceeds 30 days in the aggregate (each such event referred to in clauses (a) through (e) above, a “Registration Default”), theinterest rate borne by the Securities shall be increased (“Additional Interest”) by one−quarter of one percent per annum upon theoccurrence of each Registration Default, which rate will increase by one quarter of one percent each 90−day period that suchAdditional Interest continues to accrue under any such circumstance, provided that the maximum aggregate increase in the interestrate will in no event exceed one percent (1%) per annum. Following the cure of all Registration Defaults the accrual of AdditionalInterest will cease and the interest rate will revert to the original rate.

The Company shall notify the Trustee within three business days after each and every date on which an event occursin respect of which Additional Interest is required to be paid (an “Event Date”). Additional Interest shall be paid by depositing withthe Trustee, in trust, for the benefit of the Holders of Registrable Securities, on or before the applicable semiannual interest paymentdate, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall bepayable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on suchdate as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the dayfollowing the applicable Event Date.

3. Registration Procedures.

In connection with the obligations of the Company with respect to Registration Statements pursuant to Sections 2.1and 2.2 hereof, the Company shall:

(a) prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2,on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a ShelfRegistration, be available for the sale of the Registrable Securities by the selling Holders thereof, (iii) shall comply as to form in allmaterial respects with the requirements of the applicable form and include or incorporate by reference all financial statements requiredby the SEC to be filed therewith or incorporated by reference therein, and (iv) shall comply in all respects with the requirements ofRegulation S−T under the 1933 Act, and use its reasonable best efforts to cause such Registration Statement to become effective andremain effective in accordance with Section 2 hereof;


(b) prepare and file with the SEC such amendments and post−effective amendments to each RegistrationStatement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and causeeach Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424(or any similar provision then in force) under the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and the rulesand regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statementduring the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof(including sales by any Participating Broker−Dealer);

(c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business daysprior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holdersthat the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holdersparticipating in the Shelf Registration; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwrittenoffering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus,and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, includingfinancial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition ofthe Registrable Securities; and (iii) hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of theselling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by theProspectus or any amendment or supplement thereto;

(d) use its reasonable best efforts to register or qualify the Registrable Securities under all applicable statesecurities or “blue sky” laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement andeach underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable RegistrationStatement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisableto enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securitiesowned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealerin securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (ii) take any actionwhich would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject;


(e) notify promptly each Holder of Registrable Securities under a Shelf Registration or any ParticipatingBroker−Dealer who has notified the Company that it is utilizing the Exchange Offer Registration Statement as provided in paragraph(f) below and, if requested by such Holder or Participating Broker−Dealer, confirm such advice in writing promptly (i) when aRegistration Statement has become effective and when any post−effective amendments and supplements thereto become effective, (ii)of any request by the SEC or any state securities authority for post−effective amendments and supplements to a Registration Statementand Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC orany state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of anyproceedings for that purpose, (iv) in the case of a Shelf Registration, if, between the effective date of a Registration Statement and theclosing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in anyunderwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true andcorrect in all material respects, (v) of the happening of any event or the discovery of any facts during the period a Shelf RegistrationStatement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in anymaterial respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make thestatements therein not misleading, (vi) of the receipt by the Company of any notification with respect to the suspension of thequalification of the Registrable Securities or the Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation orthreatening of any proceeding for such purpose and (vii) of any determination by the Company that a post−effective amendment tosuch Registration Statement would be appropriate;

(f) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer RegistrationStatement a section entitled “Plan of Distribution” which section shall be reasonably acceptable to the Representatives on behalf of theParticipating Broker−Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of theSEC with respect to the potential “underwriter” status of any broker−dealer that holds Registrable Securities acquired for its ownaccount as a result of market−making activities or other trading activities and that will be the beneficial owner (as defined in Rule13d−3 under the Exchange Act) of Exchange Securities to be received by such broker−dealer in the Exchange Offer, whether suchpositions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgmentof the Representatives on behalf of the Participating Broker−Dealers and its counsel, represent the prevailing views of the staff of theSEC, including a statement that any such broker−dealer who receives Exchange Securities for Registrable Securities pursuant to theExchange Offer may be deemed a statutory underwriter and must deliver a prospectus


meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (ii) furnish to each ParticipatingBroker−Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of eachProspectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment orsupplement thereto, as such Participating Broker−Dealer may reasonably request, (iii) hereby consent to the use of the Prospectusforming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any Person subject to theprospectus delivery requirements of the SEC, including all Participating Broker−Dealers, in connection with the sale or transfer of theExchange Securities covered by the Prospectus or any amendment or supplement thereto, and (iv) include in the transmittal letter orsimilar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision:

“If the exchange offeree is a broker−dealer holding Registrable Securities acquired for its own account as a result ofmarket−making activities or other trading activities, it will deliver a prospectus meeting the requirements of the1933 Act in connection with any resale of Exchange Securities received in respect of such Registrable Securitiespursuant to the Exchange Offer;” and

(y) a statement to the effect that by a broker−dealer making the acknowledgment described in clause (x) and by delivering aProspectus in connection with the exchange of Registrable Securities, the broker−dealer will not be deemed to admit that it is anunderwriter within the meaning of the 1933 Act; and

(B) in the case of any Exchange Offer Registration Statement, the Company agrees to deliverto the Initial Purchasers on behalf of the Participating Broker−Dealers upon the effectiveness of the Exchange Offer RegistrationStatement an officers’ certificates substantially in the form customarily delivered in a public offering of debt securities;

(g) (i) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (ii) in the case of a ShelfRegistration, furnish counsel for the Holders of Registrable Securities copies of any comment letters received from the SEC or anyother request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectusor for additional information;

(h) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of aRegistration Statement at the earliest possible moment;


(i) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, and each underwriter, ifany, without charge, at least one conformed copy of each Registration Statement and any post−effective amendment thereto, includingfinancial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested);

(j) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitatethe timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictivelegends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) andregistered in such names as the selling Holders or the underwriters, if any, may reasonably request at least three business days prior tothe closing of any sale of Registrable Securities;

(k) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each ascontemplated by Sections 3(e)(v) and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an event, use itsreasonable best efforts to prepare a supplement or post−effective amendment to the Registration Statement or the related Prospectus orany document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasersof the Registrable Securities or Participating Broker−Dealers, such Prospectus will not contain at the time of such delivery any untruestatement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstancesunder which they were made, not misleading or will remain so qualified. At such time as such public disclosure is otherwise made orthe Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to includeany omitted material fact, the Company agrees promptly to notify each Holder of such determination and to furnish each Holder suchnumber of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request;

(l) in the case of a Shelf Registration, a reasonable time prior to the filing of any Registration Statement, anyProspectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or any document which is to beincorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copiesof such document to the Initial Purchasers on behalf of such Holders; and make representatives of the Company as shall be reasonablyrequested by the Holders of Registrable Securities, or the Initial Purchasers on behalf of such Holders, available for discussion of suchdocument;


(m) obtain a CUSIP number for all Exchange Securities, Private Exchange Securities or Registrable Securities,as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates forthe Exchange Securities, Private Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for depositwith the Depositary;

(n) (i) cause the Indenture to be qualified under the TIA in connection with the registration of the ExchangeSecurities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to theIndenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use itsreasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other formsand documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner;

(o) in the case of a Shelf Registration, enter into agreements (including underwriting agreements) and take allother customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in suchconnection whether or not an underwriting agreement is entered into and whether or not the registration is an underwrittenregistration:

(i) make such representations and warranties to the Holders of such Registrable Securities and theunderwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similarunderwritten offerings as may be reasonably requested by them;

(ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form,scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of amajority in principal amount of the Registrable Securities being sold) addressed to each selling Holder and theunderwriters, if any, covering the matters customarily covered in opinions requested in sales of securities orunderwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters;

(iii) obtain “cold comfort” letters and updates thereof from the Company’s independent certified publicaccountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Companyor of any business acquired by the Company for which financial statements are, or are required to be, included in theRegistration Statement) addressed to the underwriters, if any, and use reasonable efforts to have


such letter addressed to the selling Holders of Registrable Securities (to the extent consistent with Statement onAuditing Standards No. 72 of the American Institute of Certified Public Accounts), such letters to be in customaryform and covering matters of the type customarily covered in “cold comfort” letters to underwriters in connectionwith similar underwritten offerings;

(iv) enter into a securities sales agreement with the Holders and an agent of the Holders providing for,among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases ofRegistrable Securities, which agreement shall be in form, substance and scope customary for similar offerings;

(v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions andprocedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereofwith respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request ofany underwriters, in the form customarily provided to such underwriters in similar types of transactions; and

(vi) deliver such documents and certificates as may be reasonably requested and as are customarilydelivered in similar offerings to the Holders of a majority in principal amount of the Registrable Securities beingsold and the managing underwriters, if any.

The above shall be done at (i) the effectiveness of such Registration Statement (and each post−effective amendment thereto) and (ii)each closing under any underwriting or similar agreement as and to the extent required thereunder;

(p) in the case of a Shelf Registration or if a Prospectus is required to be delivered by any ParticipatingBroker−Dealer in the case of an Exchange Offer, make available for inspection by representatives of the Holders of the RegistrableSecurities, any underwriters participating in any disposition pursuant to a Shelf Registration Statement, any ParticipatingBroker−Dealer and any counsel or accountant retained by any of the foregoing, all financial and other records, pertinent corporatedocuments and properties of the Company reasonably requested by any such persons, and cause the respective officers, directors,employees, and any other agents of the Company to supply all information reasonably requested by any such representative,underwriter, special counsel or accountant in connection with a Registration Statement, and make such


representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers;

(q) (i) in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of anyExchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer RegistrationStatement or amendment or supplement to such Prospectus, provide copies of such document to the Initial Purchasers and to counselto the Holders of Registrable Securities and make such changes in any such document prior to the filing thereof as the InitialPurchasers or counsel to the Holders of Registrable Securities may reasonably request and, except as otherwise required by applicablelaw, not file any such document in a form to which the Initial Purchasers on behalf of the Holders of Registrable Securities andcounsel to the Holders of Registrable Securities shall not have previously been advised and furnished a copy of or to which the InitialPurchasers on behalf of the Holders of Registrable Securities or counsel to the Holders of Registrable Securities shall reasonablyobject, and make the representatives of the Company available for discussion of such documents as shall be reasonably requested bythe Initial Purchasers; and

(ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement,any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to suchProspectus, provide copies of such document to the Holders of Registrable Securities, to the Initial Purchasers, to counsel for theHolders and to the underwriter or underwriters of an underwritten offering of Registrable Securities, if any, make such changes in anysuch document prior to the filing thereof as the Initial Purchasers, the counsel to the Holders or the underwriter or underwritersreasonably request and not file any such document in a form to which the Majority Holders, the Initial Purchasers on behalf of theHolders of Registrable Securities, counsel for the Holders of Registrable Securities or any underwriter shall not have previously beenadvised and furnished a copy of or to which the Majority Holders, the Initial Purchasers on behalf of the Holders of RegistrableSecurities, counsel to the Holders of Registrable Securities or any underwriter shall reasonably object, and make the representatives ofthe Company available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, theInitial Purchasers on behalf of such Holders, counsel for the Holders of Registrable Securities or any underwriter.

(r) in the case of a Shelf Registration, use its best efforts to cause all Registrable Securities to be listed on anysecurities exchange on which similar debt securities issued by the Company are then listed if requested by the Majority Holders, or


if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any;

(s) in the case of a Shelf Registration, use its reasonable best efforts to cause the Registrable Securities to berated by the appropriate rating agencies, if so requested by the Majority Holders, or if requested by the underwriter or underwriters ofan underwritten offering of Registrable Securities, if any;

(t) otherwise comply with all applicable rules and regulations of the SEC and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions ofSection 11(a) of the 1933 Act and Rule 158 thereunder;

(u) cooperate and assist in any filings required to be made with the NASD and, in the case of a ShelfRegistration, in the performance of any due diligence investigation by any underwriter and its counsel (including any “qualifiedindependent underwriter” that is required to be retained in accordance with the rules and regulations of the NASD); and

(v) upon consummation of an Exchange Offer or a Private Exchange, obtain a customary opinion of counsel tothe Company addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer orPrivate Exchange, and which includes an opinion that (i) the Company has duly authorized, executed and delivered the ExchangeSecurities and/or Private Exchange Securities, as applicable, and the related indenture, and (ii) each of the Exchange Securities andrelated indenture constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance withits respective terms (with customary exceptions).

In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder’s participation in theShelf Registration) require each Holder of Registrable Securities to furnish to the Company such information regarding the Holder andthe proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request inwriting.

In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Companyof the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof, such Holder willforthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder’s receipt of thecopies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by the Company,


such Holder will deliver to the Company (at its expense) all copies in such Holder’s possession, other than permanent file copies thenin such Holder’s possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice.

In the event that the Company fails to effect the Exchange Offer or file any Shelf Registration Statement andmaintain the effectiveness of any Shelf Registration Statement as provided herein, the Company shall not file any RegistrationStatement with respect to any securities (within the meaning of Section 2(1) of the 1933 Act) of the Company other than RegistrableSecurities.

If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwrittenoffering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the MajorityHolders of such Registrable Securities included in such offering and shall be acceptable to the Company. No Holder of RegistrableSecurities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder’s RegistrableSecurities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve sucharrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and otherdocuments required under the terms of such underwriting arrangements.

4. Indemnification; Contribution.

(a) The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each ParticipatingBroker−Dealer, each Person who participates as an underwriter (any such Person being an “Underwriter”) and each Person, if any,who controls any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

(i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of anyuntrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment orsupplement thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act,including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material factrequired to be stated therein or necessary to make the statements therein not misleading, or arising out of any untruestatement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplementthereto) or the omission or alleged omission therefrom of a material


fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, notmisleading;

(ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent ofthe aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency orbody, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any suchalleged untrue statement or omission; provided that (subject to Section 4(d) below) any such settlement is effected with thewritten consent of the Company; and

(iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counselchosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or anyinvestigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever basedupon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any suchexpense is not paid under subparagraph (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arisingout of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with writteninformation furnished to the Company by any Holder or Underwriter expressly for use in a Registration Statement (or any amendmentthereto) or any Prospectus (or any amendment or supplement thereto).

(b) Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, the InitialPurchasers, each Underwriter and the other selling Holders, and each of their respective directors and officers, and each Person, if any,who controls the Company, the Initial Purchasers, any Underwriter or any other selling Holder within the meaning of Section 15 of the1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnitycontained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements oromissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus included therein (or anyamendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnishedto the Company by such Holder expressly for use in the Shelf Registration Statement (or any amendment thereto) or such Prospectus(or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excessof the amount of net proceeds


received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement.

(c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying partyof any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure so to notify anindemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudicedas a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of thisindemnity agreement. An indemnifying party may participate at its own expense in the defense of such action; provided, however,that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnifiedparty. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition toany local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similaror related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall,without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respectto any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claimwhatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnifiedparties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release ofeach indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include astatement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

(d) If at any time an indemnified party shall have requested an indemnifying party to reimburse theindemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of thenature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 daysafter receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the termsof such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not havereimbursed such indemnified party in accordance with such request prior to the date of such settlement.

(e) If the indemnification provided for in this Section 4 is for any reason unavailable to or insufficient to holdharmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then eachindemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages


and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of theCompany on the one hand and the Holders and the Initial Purchasers on the other hand in connection with the statements or omissionswhich resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.

The relative fault of the Company on the one hand and the Holders and the Initial Purchasers on the other hand shall bedetermined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission oralleged omission to state a material fact relates to information supplied by the Company, the Holders or the Initial Purchasers and theparties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company, the Holders and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant tothis Section 4 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or byany other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. Theaggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in thisSection 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating,preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced orthreatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 4, no Initial Purchaser shall be required to contribute any amount in excess ofthe amount by which the total price at which the Securities sold by it were offered exceeds the amount of any damages which suchInitial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or allegedomission.

No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled tocontribution from any Person who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 4, each Person, if any, who controls an Initial Purchaser or Holder within the meaning of Section15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser or Holder, andeach director of the Company, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Actor Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Initial Purchasers’ respectiveobligations to contribute pursuant to this Section 7 are several in proportion


to the principal amount of Securities set forth opposite their respective names in Schedule A to the Purchase Agreement and not joint.

5. Miscellaneous.

5.1 Rule 144 and Rule 144A. For so long as the Company is subject to the reporting requirements of Section13 or 15 of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under the 1933 Act and Section13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Company ceases to be so requiredto file such reports, the Company covenants that it will upon the request of any Holder of Registrable Securities (a) make publiclyavailable such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to aprospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action asany Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonable in the circumstances,in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration underthe 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended fromtime to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules orregulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to suchHolder a written statement as to whether it has complied with such requirements.

5.2 No Inconsistent Agreements. The Company has not entered into and the Company will not after the date ofthis Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in thisAgreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not and will not for theterm of this Agreement in any way conflict with the rights granted to the holders of the Company’s other issued and outstandingsecurities under any such agreements.

5.3 Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence,may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be givenunless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstandingRegistrable Securities affected by such amendment, modification, supplement, waiver or departure.

5.4 Notices. All notices and other communications provided for or permitted hereunder shall be made inwriting by hand delivery, registered first−class


mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by suchHolder to the Company by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is theaddress set forth in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to the Company, initially at theCompany’s address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordancewith the provisions of this Section 5.4.

All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, ifpersonally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed;when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnightdelivery.

Copies of all such notices, demands, or other communications shall be concurrently delivered by the person givingthe same to the Trustee under the Indenture, at the address specified in such Indenture.

5.5 Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors,assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequentHolders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securitiesin violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire RegistrableSecurities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of theterms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to haveagreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth inthis Agreement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof.

5.6 Third Party Beneficiaries. The Initial Purchasers (even if the Initial Purchasers are not Holders ofRegistrable Securities) shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand,and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem suchenforcement necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securitiesshall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers,on the other hand, and shall have the right to


enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder.

5.7. Specific Enforcement. Without limiting the remedies available to the Initial Purchasers and the Holders,the Company acknowledges that any failure by the Company to comply with its obligations under Sections 2.1 through 2.4 hereof mayresult in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it wouldnot be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or anyHolder may obtain such relief as may be required to specifically enforce the Company’s obligations under Sections 2.1 through 2.4hereof.

5.8. Restriction on Resales. Until the expiration of two years after the original issuance of the Securities, theCompany will not, and will cause its “affiliates” (as such term is defined in Rule 144(a)(1) under the 1933 Act) not to, resell anySecurities which are “restricted securities” (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have beenreacquired by any of them and shall immediately upon any purchase of any such Securities submit such Securities to the Trustee forcancellation.

5.9 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto inseparate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shallconstitute one and the same agreement.

5.10 Headings. The headings in this Agreement are for convenience of reference only and shall not limit orotherwise affect the meaning hereof.

5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED INACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OFCONFLICT OF LAWS THEREOF.

5.12 Severability. In the event that any one or more of the provisions contained herein, or the application thereofin any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in everyother respect and of the remaining provisions contained herein shall not be affected or impaired thereby.


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.


By: /s/ Jeanne M. Blondia Name: Jeanne M. Blondia Title: Treasurer and Assistant Secretary

Confirmed and accepted as of the date first above written:

BANC OF AMERICA SECURITIES LLC

By: /s/ Peter J. Carbone Name: Peter J. Carbone Title: Vice President

BARCLAYS CAPITAL INC.

By: /s/ Pamela Kendall Name: Pamela Kendall Title: Director

CITIGROUP GLOBAL MARKETS INC.

By: /s/ Brian D. Bednarkski Name: Brian D. Bednarkski Title: Director


MERRILL LYNCH & CO.MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

By: /s/ Jeff Kulik Name: Jeff Kulik Title: Managing Director

For themselves and as Representative(s) of the other Initial Purchasers named in Schedule A hereto.


EXHIBIT 4(c)

Registration Rights Agreement

Dated As of October 13, 2006

among

Baltimore Gas and Electric Company

and

Banc of America Securities LLC,

Barclays Capital Inc.,

Citigroup Global Markets Inc.,

and

Merrill Lynch, Pierce, Fenner & SmithIncorporated


REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the “Agreement”) is made and entered into this 13th day of October, 2006,among Baltimore Gas and Electric Company, a Maryland corporation (the “Company”), and Banc of America Securities LLC,Barclays Capital Inc., Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the “Representatives”)and the other initial purchasers (collectively, the “Initial Purchasers”) named in Schedule A to the purchase agreement dated October11, 2006, among the Company and the Initial Purchasers (the “Purchase Agreement”), which provides for the sale by the Company tothe Initial Purchasers of an aggregate of $400,000,000 million principal amount of the Company’s 6.35% Notes due 2036 (the“Securities”).

This Agreement is made pursuant to the Purchase Agreement. In order to induce the Initial Purchasers to enter intothe Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees theregistration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the PurchaseAgreement.

In consideration of the foregoing, the parties hereto agree as follows:

1. Definitions.

As used in this Agreement, the following capitalized defined terms shall have the following meanings:

“1933 Act” shall mean the Securities Act of 1933, as amended from time to time.

“1934 Act” shall mean the Securities Exchange Act of l934, as amended from time to time.

“Closing Date” shall mean the Closing Date as defined in the Purchase Agreement.

“Company” shall have the meaning set forth in the preamble and shall also include the Company’s successors.

“Depositary” shall mean The Depository Trust Company, or any other depositary appointed by the Company,provided, however, that such depositary must have an address in the Borough of Manhattan, in The City of New York.


“Exchange Offer” shall mean the exchange offer by the Company of Exchange Securities for Registrable Securitiespursuant to Section 2.1 hereof.

“Exchange Offer Registration” shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof.

“Exchange Offer Registration Statement” shall mean an exchange offer registration statement on Form S−4 (or, ifapplicable, on another appropriate form), and all amendments and supplements to such registration statement, including theProspectus contained therein, all exhibits thereto and all documents incorporated by reference therein.

“Exchange Period” shall have the meaning set forth in Section 2.1 hereof.

“Exchange Securities” shall mean the 6.35% Notes due 2036 issued by the Company under the Indenture containingterms identical to the Securities in all material respects (except for references to certain interest rate provisions, restrictionson transfers and restrictive legends), to be offered to Holders of Securities in exchange for Registrable Securities pursuant tothe Exchange Offer.

“Holder” shall mean an Initial Purchaser, for so long as it owns any Registrable Securities, and each of itssuccessors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under theIndenture and each Participating Broker−Dealer that holds Exchange Securities for so long as such ParticipatingBroker−Dealer is required to deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale ofsuch Exchange Securities.

“Indenture” shall mean the Indenture relating to the Securities, dated as of July 24, 2006, between the Company andDeutsche Bank Trust Company Americas, as trustee, as supplemented by a supplemental indenture dated as of October 13,2006 between the Company and the Trustee and as the same may be further amended, supplemented, waived or otherwisemodified from time to time in accordance with the terms thereof.

“Initial Purchaser” or “Initial Purchasers” shall have the meaning set forth in the preamble.

“Majority Holders” shall mean the Holders of a majority of the aggregate principal amount of Outstanding (asdefined in the Indenture) Registrable


Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities isrequired hereunder, Registrable Securities held by the Company and other obligors on the Securities or any Affiliate (asdefined in the Indenture) of the Company shall be disregarded in determining whether such consent or approval was given bythe Holders of such required percentage amount.

“Participating Broker−Dealer” shall mean any of Banc of America Securities LLC, Barclays Capital Inc., CitigroupGlobal Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated and any other broker−dealer which makes amarket in the Securities and exchanges Registrable Securities in the Exchange Offer for Exchange Securities.

“Person” shall mean an individual, partnership (general or limited), corporation, limited liability company, trust orunincorporated organization, or a government or agency or political subdivision thereof.

“Private Exchange” shall have the meaning set forth in Section 2.1 hereof.

“Private Exchange Securities” shall have the meaning set forth in Section 2.1 hereof.

“Prospectus” shall mean the prospectus included in a Registration Statement, including any preliminary prospectus,and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectussupplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a ShelfRegistration Statement, and by all other amendments and supplements to a prospectus, including post−effective amendments,and in each case including all material incorporated by reference therein.

“Purchase Agreement” shall have the meaning set forth in the preamble.

“Registrable Securities” shall mean the Securities and, if issued, the Private Exchange Securities; provided,however, that the Securities and, if issued, the Private Exchange Securities, shall cease to be Registrable Securities when (i) aRegistration Statement with respect to such Securities shall have been declared effective under the 1933 Act and suchSecurities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to thepublic pursuant to Rule l44 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) suchSecurities shall have ceased to be outstanding


or (iv) the Exchange Offer is consummated (except in the case of Securities purchased from the Company and continued tobe held by the Initial Purchasers).

“Registration Expenses” shall mean any and all expenses incident to performance of or compliance by the Companywith this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers,Inc. (the “NASD”) registration and filing fees, including, if applicable, the fees and expenses of any “qualified independentunderwriter” (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with therules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities orblue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for anyunderwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securitiesand any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing,printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, anyunderwriting agreements, securities sales agreements and other documents relating to the performance of and compliancewith this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the RegistrableSecurities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel forthe Company and of the independent public accountants of the Company, including the expenses of any special audits or“cold comfort” letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee,and any escrow agent or custodian, (viii) the reasonable fees and expenses of the Initial Purchasers in connection with theExchange Offer, including the reasonable fees and expenses of counsel to the Initial Purchasers in connection therewith, (ix)the reasonable fees and disbursements of special counsel representing the Holders of Registrable Securities and (x) any feesand disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees andexpenses of any special experts retained by the Company in connection with any Registration Statement, but excludingunderwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securitiesby a Holder.

“Registration Statement” shall mean any registration statement of the Company which covers any of the ExchangeSecurities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to anysuch Registration Statement, including post−effective amendments, in each case including the Prospectus contained therein,all exhibits thereto and all material incorporated by reference therein.


“SEC” shall mean the Securities and Exchange Commission or any successor agency or government bodyperforming the functions currently performed by the United States Securities and Exchange Commission.

“Shelf Registration” shall mean a registration effected pursuant to Section 2.2 hereof.

“Shelf Registration Statement” shall mean a “shelf” registration statement of the Company pursuant to theprovisions of Section 2.2 of this Agreement which covers all of the Registrable Securities or all of the Private ExchangeSecurities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC,and all amendments and supplements to such registration statement, including post−effective amendments, in each caseincluding the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

“Trustee” shall mean the trustee with respect to the Securities under the Indenture.

2. Registration Under the 1933 Act.

2.1 Exchange Offer. The Company shall, for the benefit of the Holders, at the Company’s cost, (A) prepare and,as soon as practicable but not later than 210 days following the Closing Date, file with the SEC an Exchange Offer RegistrationStatement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to theHolders, in exchange for the Registrable Securities (other than Private Exchange Securities), of a like principal amount of ExchangeSecurities, (B) use its reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the1933 Act within 270 days of the Closing Date, (C) use its reasonable best efforts to keep the Exchange Offer Registration Statementeffective until the closing of the Exchange Offer and (D) use its reasonable best efforts to cause the Exchange Offer to beconsummated not later than 315 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Uponthe effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it beingthe objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for ExchangeSecurities (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) isnot a broker−dealer tendering Registrable Securities acquired directly from the Company for its own account, (c) acquired theExchange Securities in the ordinary
