<PAGE>

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

                                   FORM 10-K

                                ---------------

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

                  For the fiscal year ended DECEMBER 31, 2000

<TABLE>
 <C>         <S>                                            <C>
 Commission  Exact name of registrant as specified in its      IRS Employer
 file number                    charter                     Identification No.
   1-12869         CONSTELLATION ENERGY GROUP, INC.             52-1964611
   1-1910         BALTIMORE GAS AND ELECTRIC COMPANY            52-0280210
</TABLE>

                                    MARYLAND
                           (States of incorporation)

               250 W. PRATT STREET   BALTIMORE, MARYLAND         21201
                  (Address of principal executive offices)     (Zip Code)

                                  410-234-5000
              (Registrants' telephone number, including area code)

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

<TABLE>
<CAPTION>
                                                      Name of Each Exchange
            Title of each class                        on Which Registered
            -------------------                   -----------------------------
<S>                                           <C> <C>
                                                  New York Stock Exchange, Inc.
Constellation Energy Group, Inc. Common           Chicago Stock Exchange, Inc.
 Stock--Without Par Value                       } Pacific Stock Exchange, Inc.

7.16% Trust Originated Preferred Securities
($25 liquidation amount per preferred
security) issued by BGE Capital Trust I,        } New York Stock Exchange, Inc.
fully and unconditionally guaranteed, based
on several obligations, by Baltimore Gas and
Electric Company
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                 Not Applicable

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

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

  Aggregate market value of Constellation Energy Group, Inc. Common Stock,
without par value, held by non-affiliates as of February 28, 2001 was
approximately $6,438,511,488 based upon New York Stock Exchange composite
transaction closing price.

  CONSTELLATION ENERGY GROUP, INC. COMMON STOCK, WITHOUT PAR VALUE 151,188,640
                    SHARES OUTSTANDING ON FEBRUARY 28, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
 Part of Form 10-K              Document Incorporated by Reference
 -----------------              ----------------------------------
 <C>               <S>
    III            Certain sections of the Proxy Statement for Constellation
                   Energy Group, Inc. for the Annual Meeting of Shareholders to
                   be held on April 27, 2001.
</TABLE>

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

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
 <C>         <S>                                                           <C>
             Forward Looking Statements.................................     1
 PART I
  Item 1  -- Business...................................................     1
              Overview..................................................     1
              Domestic Merchant Energy Business ........................     3
              BGE.......................................................     9
               Electric Business........................................    10
               Electric Operating Statistics............................    12
               Gas Business.............................................    12
               Gas Operating Statistics.................................    14
               Franchises...............................................    15
              Other Nonregulated Businesses ............................    15
              Consolidated Capital Requirements.........................    16
              Environmental Matters.....................................    16
              Employees.................................................    19
  Item 2  -- Properties.................................................    19
  Item 3  -- Legal Proceedings..........................................    19
  Item 4  -- Submission of Matters to a Vote of Security Holders........    20
             Executive Officers of the Registrant (Instruction 3 to Item
              401(b) of Regulation S-K).................................    20
 PART II
  Item 5  -- Market for Registrant's Common Equity and Related
              Shareholder Matters.......................................    21
  Item 6  -- Selected Financial Data....................................    22
  Item 7  -- Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................    24
  Item 7A -- Quantitative and Qualitative Disclosures About Market
               Risk.....................................................    43
  Item 8  -- Financial Statements and Supplementary Data................    44
  Item 9  -- Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure..................................    83
 PART III
  Item 10 -- Directors and Executive Officers of the Registrant.........    83
  Item 11 -- Executive Compensation.....................................    83
  Item 12 -- Security Ownership of Certain Beneficial Owners and
              Management................................................    83
  Item 13 -- Certain Relationships and Related Transactions.............    83
 PART IV
  Item 14 -- Exhibits, Financial Statement Schedules and Reports on Form
              8-K.......................................................    84
  Signatures.............................................................   88
</TABLE>
<PAGE>

Forward Looking Statements
We make statements in this report that are considered forward looking
statements within the meaning of the Securities Exchange Act of 1934. Sometimes
these statements will contain words such as "believes," "expects," "intends,"
"plans," and other similar words. These statements are not guarantees of our
future performance and are subject to risks, uncertainties, and other important
factors that could cause our actual performance or achievements to be
materially different from those we project. These risks, uncertainties, and
factors include, but are not limited to:
   . satisfaction of all the conditions precedent to the closing on the
     purchase of the Nine Mile Point nuclear power plants, including obtaining
     all regulatory approvals,
   . obtaining all regulatory approvals necessary to close on the investment by
     an affiliate of the Goldman Sachs Group, Inc. in our domestic merchant
     energy business and complete the separation of our domestic merchant
     energy business from our remaining businesses,
   . satisfaction of all conditions precedent to the transaction with Goldman
     Sachs,
   . general economic, business, and regulatory conditions,
   . the pace and nature of deregulation nationwide (including the status of
     the California markets),
   . competition,
   . energy supply and demand,
   . federal and state regulations,
   . availability, terms, and use of capital,
   . nuclear and environmental issues,
   . weather,
   . implications of the Restructuring Order issued by the Maryland PSC,
     including the outcome of the appeal,
   . commodity price risk,
   . operating our generation assets in a deregulated market without the
     benefit of a fuel rate adjustment clause,
   . loss of revenue due to customers choosing alternative suppliers,
   . higher volatility of earnings and cash flows,
   . increased financial requirements of our nonregulated subsidiaries,
   . inability to recover all costs associated with providing electric retail
     customers service during the electric rate freeze period,
   . implications from the transfer of BGE's generation assets and related
     liabilities to nonregulated subsidiaries of Constellation Energy,
     including the outcome of the appeal of the Maryland PSC's Order regarding
     the transfer of generation assets, and
   . force majeure events (events beyond our control), such as: acts of nature,
     changes of laws, labor strikes and work stoppages, especially as they
     could impact plant construction or operation.
   Given these uncertainties, you should not place undue reliance on these
forward looking statements. Please see the other sections of this report and
our other periodic reports filed with the Securities and Exchange Commission
(SEC) for more information on these factors. These forward looking statements
represent our estimates and assumptions only as of the date of this report.

--------------------------------------------------------------------------------
PART I
Item 1. Business

Overview
Constellation Energy(R) Group, Inc. (Constellation Energy) is a holding company
whose businesses consist primarily of a domestic merchant energy business
focused mostly on power marketing and merchant generation in North America, and
Baltimore Gas and Electric Company (BGE(R)), a regulated electric and gas
public utility distribution company. Constellation Energy was incorporated in
Maryland on September 25, 1997. On April 30, 1999, Constellation Energy became
the holding company for BGE and its subsidiaries through a share exchange.
References in this report to "we" and "our" are to Constellation Energy and its
subsidiaries, collectively. References in this report to the "utility business"
are to BGE.
   Effective July 1, 2000, electric generation was deregulated in Maryland. In
anticipation of deregulation, during the first quarter of 2000, we combined our
wholesale power marketing operation with our domestic plant development and
operation activities to form a domestic merchant energy business. Additionally,
on July 1, 2000, BGE transferred all of its generation assets and related
liabilities at book value to two new nonregulated subsidiaries of our domestic
merchant energy business--Calvert Cliffs Nuclear Power Plant,(TM) Inc. and
Constellation Power Source Generation,(TM) Inc. We discuss the deregulation of
electric generation in Item 7. Management's Discussion and Analysis--Current
Issues.
   We also formed a nonregulated holding company, Constellation Power Source
Holdings,(TM) Inc. that oversees:
   . the wholesale power marketing and risk management activities of
     Constellation Power Source,(TM) Inc.,
   . the domestic power projects of Constellation Investments,(TM) Inc. and
     Constellation Power,(TM) Inc. and subsidiaries,
   . the fossil and hydroelectric generating assets of Constellation Power
     Source Generation.

                                       1
<PAGE>

   As a result of these changes, our domestic merchant energy business includes
the operations of Constellation Power Source Holdings, the nuclear generating
assets of Calvert Cliffs Nuclear Power Plant, Inc., and the nuclear consulting
services of Constellation Nuclear,(TM) LLC.
   BGE is a regulated electric and gas public utility distribution company with
a service territory that covers the City of Baltimore and all or part of ten
counties in Central Maryland. BGE was incorporated in Maryland in 1906. BGE's
electric service territory includes an area of approximately 2,300 square miles
with an estimated population of 2.7 million. BGE's gas service territory
includes an area of approximately 800 square miles with an estimated population
of 2.0 million. There are no municipal or cooperative wholesale customers
within BGE's service territory.
   Our other nonregulated businesses include the:
   . Latin American power projects of Constellation Power and subsidiaries,
   . energy products and services of Constellation Energy Source,(TM) Inc.,
   . home products, commercial building systems, and residential and small
     commercial electric and gas retail marketing of BGE Home Products &
     Services,(TM) Inc. and subsidiaries,
   . a general partnership, in which BGE is a partner, of District Chilled
     Water General Partnership (ComfortLink(R)) that provides cooling services
     for commercial customers in Baltimore,
   . financial investments of Constellation Investments, and
   . real estate holdings and senior-living facilities of Constellation Real
     Estate Group,(TM) Inc.

Strategy
Customer choice and regulatory change significantly impact our business. In
response to these, we regularly evaluate our strategies with two goals in mind:
to improve our competitive position, and to anticipate and adapt to regulatory
change. Prior to July 1, 2000, the majority of our earnings were from BGE.
Going forward, prior to separating into two companies, we expect to derive
almost two-thirds of our earnings from our domestic merchant energy business.
   While BGE continues to be regulated and to deliver electricity and natural
gas through its core distribution business, our primary growth strategies
center on the nonregulated domestic merchant energy business with the objective
of providing new sources of earnings growth.
   On October 23, 2000, we announced three initiatives to advance our growth
strategies. The first initiative is that we entered into an agreement (the
"Agreement") with an affiliate of The Goldman Sachs Group, Inc. ("Goldman
Sachs"). Under the terms of the Agreement, Goldman Sachs will acquire up to a
17.5% equity interest in our domestic merchant energy business, which will be
consolidated under a single holding company ("Holdco"). Goldman Sachs will also
acquire a ten-year warrant for up to 13% of Holdco's common stock (subject to
certain adjustments). The warrant is exercisable six months after Holdco's
common stock becomes publicly available. The amount of common stock which
Goldman Sachs may receive upon exercise will be equal to the excess of the
market price of Holdco's common stock at the time of exercise over the exercise
price of $60 per share for all the stock subject to the warrant, divided by the
market price. Holdco may at its option pay Goldman Sachs such excess in cash.
Goldman Sachs is acquiring its interest and the warrant in exchange for $250
million in cash (subject to adjustment in certain instances) and certain assets
related to our power marketing operation. At closing, Goldman Sachs' existing
services agreement with our power marketing operation will terminate.
   The second initiative is a plan to separate our domestic merchant energy
business from our remaining businesses. The separation will create two stand-
alone, publicly traded energy companies. One will be a merchant energy business
engaged in wholesale power marketing and generation under the name
"Constellation Energy Group" after the separation. The other will be a regional
retail energy delivery and energy services company, BGE Corp., which will
include BGE, our other nonregulated businesses, and our investment in Orion
Power Holdings, Inc. ("Orion").
   As a result of the separation, shareholders will continue to own all of
Constellation Energy's current businesses through their ownership of the stock
of the new Constellation Energy Group and of BGE Corp.
   The third initiative is a change in our common stock dividend policy
effective April 2001. In a move closely aligned with our separation plan,
effective April 2001, our annual dividend is expected to be set at $.48 per
share. After the separation, BGE Corp. expects to pay initial annual dividends
of $.48 per share. Constellation Energy Group, as a growing merchant energy
company, initially expects to reinvest its earnings in order to fund its growth
plans and not to pay a dividend.
   The closing of the transaction with Goldman Sachs and the separation are
subject to customary closing conditions and contingent upon obtaining
regulatory approvals and a Private Letter Ruling from the Internal Revenue
Service regarding certain tax matters. We expect to complete the transaction
and separation by mid to late 2001. At the date of this report, we received
approval from the Federal Energy Regulatory Commission (FERC).
   We discuss these strategic initiatives further in our Report on Form 8-K and
exhibits filed with the SEC on October 23, 2000.
   Currently, our domestic merchant energy business controls over 9,000
megawatts (MW) of generation. In December 2000, we announced that a subsidiary
of Constellation Nuclear will purchase 1,550 MW of the 1,757 MW total
generating capacity of the Nine Mile Point nuclear power plant located in
Scriba, New York. The total purchase price, including

                                       2
<PAGE>

fuel, is $815 million. We discuss the planned acquisition of the Nine Mile
Point power plant in more detail in Note 10 to Consolidated Financial
Statements.
   We also are constructing generating facilities representing 1,100 MW of
natural gas-fired peaking capacity in the Mid-Atlantic and Mid-West regions
which are expected to be operational by the summer of 2001. An additional 6,700
MW of natural gas-fired peaking and combined cycle production facilities in
various regions of North America are scheduled for completion in 2002 and
beyond. By 2005, our domestic merchant energy business expects to control
approximately 30,000 MW through the construction or purchase of additional
nuclear and non-nuclear generation assets and through contractual arrangements.
   We decided to exit the Latin American portion of our operation as a result
of our concentration on domestic merchant energy. Currently, we are actively
seeking a buyer for the Latin American portion of our business and are working
toward completing our exit strategy in 2001.
   We also might consider one or more of the following strategies:
   . the complete or partial separation of our transmission and distribution
     functions,
   . mergers or acquisitions of utility or non-utility businesses, and
   . sale of generation assets or one or more businesses.

Operating Segments
The percentages of revenues, net income, and assets attributable to our
operating segments are shown in the tables below. We present information about
our operating segments, including certain nonrecurring items, in Note 2 to
Consolidated Financial Statements. Effective with the first quarter of 2000, we
revised our operating segments to reflect the realignments of our organization
as discussed in the Overview section. Effective July 1, 2000, the financial
results of the electric generation portion of our business are included in the
domestic merchant energy business segment. Prior to that date, the financial
results are included in the regulated electric segment.

<TABLE>
<CAPTION>
                Unaffiliated Revenues
      -----------------------------------------
      Domestic
      Merchant Regulated Regulated    Other
       Energy  Electric     Gas    Nonregulated
      -------- --------- --------- ------------
<S>   <C>      <C>       <C>       <C>
2000     11%       55%       15%        19%
1999      6        60        12         22
1998      4        66        13         17
<CAPTION>
                    Net income(1)
      -----------------------------------------
      Domestic
      Merchant Regulated Regulated    Other
       Energy  Electric     Gas    Nonregulated
      -------- --------- --------- ------------
<S>   <C>      <C>       <C>       <C>
2000     60%       29%        9%         2%
1999     16        81        10         (7)
1998     17        85         9        (11)
</TABLE>

<TABLE>
<CAPTION>
                    Total Assets
      -----------------------------------------
                                      Other
      Domestic                     Nonregulated
      Merchant Regulated Regulated   & Corp.
       Energy  Electric     Gas       Items
      -------- --------- --------- ------------
<S>   <C>      <C>       <C>       <C>
2000     55%       28%        8%         9%
1999     13        65         9         13
1998      9        67        10         14
</TABLE>
(1) Excludes an extraordinary charge of $66.3 million recorded in 1999 related
    to electric restructuring as discussed in Note 4 to Consolidated Financial
    Statements.

Domestic Merchant Energy Business
Introduction
Our domestic merchant energy business engages primarily in generation and power
marketing in North America. We integrate our electric generation, risk
management, and marketing operations to meet our customers' energy needs in the
wholesale energy market.
   Our goal is to become a leading merchant energy business in North America.
We plan to continue our growth through the acquisition, development, and
operation of power plants in our targeted markets. We also intend to capitalize
on our ability to integrate power plants with the marketing of energy products
and the management of market risk associated with these products. We plan to
implement our strategy through the development of new power plants, acquisition
of power assets competitively positioned in targeted markets, contractual
arrangements for the control of generation capacity, and expansion of our
marketing and risk management activities.
   Currently, our domestic merchant energy business controls over 9,000 MW of
generation. By 2005, our domestic merchant energy business expects to control
approximately 30,000 MW through the construction or purchase of additional
nuclear and non-nuclear generation assets and through contractual arrangements.
   Our domestic merchant energy business experiences substantial competition
from diversified energy companies, merchant generation companies, utilities,
independent power producers, and power marketers. Competition is based on the
price and availability of the commodities, services delivered, and the quality
and reliability of services provided.
   Weather conditions in the different regions of North America influence the
financial results of our domestic merchant energy business. Typically, demand
for electricity and its price are higher in the summer and the winter, when
weather is more extreme. However, all regions of North America typically do not
experience extreme weather conditions at the same time. Since the majority of
our generating plants currently are located in the PJM (Pennsylvania-New
Jersey-Maryland) Interconnection, our financial results are affected, to a
greater extent, by weather conditions in this area. Current weather conditions
also can affect the forward market price of

                                       3
<PAGE>

energy commodity and derivative contracts used by our power marketing operation
that are accounted for on a mark-to-market basis. To the extent that our power
marketing operation purchases and sells such contracts, our financial results
could be influenced by the impact that weather conditions have on the market
price of such contracts.
   Delays in, or the ultimate form of, deregulation of electric generation in
various states may affect our domestic merchant energy business strategy. Our
domestic merchant energy business has $297.9 million invested in power projects
that sell 142 MW of electricity in California under power purchase agreements
as discussed in Note 10 to Consolidated Financial Statements, under the heading
California Power Purchase Agreements. The counterparties to the agreements are
two California investor-owned utilities. Due to various factors, including
shortage of generation and the high cost of natural gas, these utilities'
financial condition was severely impacted because they were paying more for
power than they were allowed to recover from their customers under the
deregulation plan in California. As a result, these utilities have not been
able to maintain current payments for the power they purchased to meet their
customers' energy needs and the credit ratings of these utilities were
downgraded below investment grade. The governor and legislature of California
have undertaken emergency actions to stabilize the financial condition of the
two utilities by purchasing power on behalf of these utilities and pursuing
legislation that should permit the utilities to pay their power costs.
   In the meantime, these utilities have not been paying our California
projects in full for power supplied to them from December 2000. As of the date
of this report, our portion of the amount due from these utilities is
approximately $42 million. While we expect to be paid for this power, we cannot
predict when payment will occur or if full payment will be received. We have
taken reserves in amounts we believe to be reasonable under the circumstances.
On March 27, 2001, the California Public Utilities Commission issued an order
for an immediate retail rate increase. Accordingly, we expect that this order
should enable these utilities to pay us for all future power supplied to these
utilities. However, if the ultimate resolution of the events in California
prevents the collection of unpaid balances under power purchase agreements by
some or all of our projects, it could have a material impact on our financial
results.
   In light of California's shortage of generation, we recently signed an
agreement with the California Department of Water Resources for the sale of
electricity beginning April 2001 through June 2003. We also signed an agreement
with the California Department of Water Resources for the output of our High
Desert I plant beginning July 2003 through September 2011 on a unit contingent
basis (i.e., if the output is not available because the plant is not operating,
there is no requirement to provide output from other sources.) We discuss our
credit and other exposures related to the issues in California in Item 7.
Management's Discussion and Analysis-Current Issues section.

Domestic Generation
We have operated in the nonregulated power markets since 1985. At December 31,
2000, we owned about 6,550 MW of generation capacity, and have over 9,000 MW
under development, in construction, or pending acquisition. We cannot provide
assurance that these projects or pending acquisitions will be completed.
   Effective July 1, 2000, BGE transferred, at book value, its nuclear
generating assets, its nuclear decommissioning trust fund, and related
liabilities to Calvert Cliffs Nuclear Power Plant, Inc. These two units are our
largest generating units, totaling 1,685 MW, and are located in PJM. In March
2000, Calvert Cliffs became the first nuclear power plant in the United States
to achieve license renewal. The Nuclear Regulatory Commission (NRC) approved a
twenty-year license renewal for both units of Calvert Cliffs, extending the
license for Unit 1 to 2034 and for Unit 2 to 2036.
   In addition, BGE transferred, at book value, its fossil generating assets
and related liabilities and its partial ownership interest in two coal plants
and a hydroelectric plant located in Pennsylvania to Constellation Power Source
Generation. These plants provide electricity from a variety of fuels (coal,
oil, gas and water) that total 4,554 MW and are located in PJM.
   In total, these generating assets represent about 6,240 MW of generation
capacity with a total net book value at June 30, 2000 of approximately $2.4
billion. The output of these plants is managed by our power marketing
operation. We discuss our power marketing operation in the Power Marketing
section.
   Constellation Power, Inc. and subsidiaries holds up to a 50% ownership
interest in 28 operating domestic energy projects that consist of electric
generation, fuel processing, or fuel handling facilities and are either
qualifying facilities under the Public Utility Regulatory Policies Act of 1978
or otherwise exempt from, or not subject to, the Public Utility Holding Company
Act of 1935. Projects totaling approximately $51.8 million of assets are
located in the East and $419.8 million of assets are located in the West. Each
electric generating plant sells its output to a local utility under long-term
contracts.

                                       4
<PAGE>

   The following table describes our generating and processing facilities.

<TABLE>
<CAPTION>
                                                                 Installed          %           Owned            Primary
    Plant                         Location                     Capacity (MW)      Owned     Capacity (MW)          Fuel
 --------------------  ------------------------------      ---------------------- ----- ---------------------- ------------
                                                           (at December 31, 2000)       (at December 31, 2000)
 <S>                   <C>                                 <C>                    <C>   <C>                    <C>
 Generating
  Facilities

 Nuclear
  Calvert Cliffs            Calvert Co., MD                        1,685          100.0         1,685 (A)       Nuclear

 Fossil
  Steam
  -----
 Brandon Shores             Anne Arundel Co., MD                   1,300          100.0         1,300 (A)       Coal
 Herbert A. Wagner          Anne Arundel Co., MD                   1,006          100.0         1,006 (A)       Coal/Oil/Gas
 Charles P. Crane           Baltimore Co., MD                        385          100.0           385 (A)       Coal
 Gould Street               Baltimore City, MD                       104          100.0           104 (A)       Oil/Gas
 Riverside                  Baltimore Co., MD                         78          100.0            78 (A)       Gas
 Keystone                   Armstrong and Indiana Cos., PA         1,711           21.0           359 (A),(B)   Coal
 Conemaugh                  Indiana Co., PA                        1,711           10.6           181 (A),(B)   Coal
 ACE                        Trona, CA                                102           22.5            23 (C)       Coal
 Jasmin                     Kern Co., CA                              33           50.0            17 (C)       Coal
 POSO                       Kern Co., CA                              33           50.0            17 (C)       Coal
                                                                   -----                        -----
 Total Steam                                                       6,463                        3,470

  Combustion Turbine
  ------------------
 Perryman                   Harford Co., MD                          350          100.0           350           Oil/Gas
 Notch Cliff                Baltimore Co., MD                        128          100.0           128           Gas
 Westport                   Baltimore City, MD                       121          100.0           121           Gas
 Riverside                  Baltimore Co., MD                        173          100.0           173           Oil/Gas
 Philadelphia Road          Baltimore City, MD                        64          100.0            64           Oil
 Charles P. Crane           Baltimore Co., MD                         14          100.0            14           Oil
 Herbert A. Wagner          Anne Arundel Co., MD                      14          100.0            14           Oil
                                                                   -----                        -----
 Total Combustion
  Turbine                                                            864                          864 (A)

Hydroelectric
 Safe Harbor                Safe Harbor, PA                          416           66.7           277 (A)       Hydro
 Malacha                    Muck Valley, CA                           32           50.0            16 (C)       Hydro
                                                                   -----                        -----
 Total Hydroelectric                                                 448                          293

 Alternative
 Mammoth Lakes G-1          Mammoth Lakes, CA                          8           50.0             4           Geothermal
 Mammoth Lakes G-2          Mammoth Lakes, CA                         12           50.0             6           Geothermal
 Mammoth Lakes G-3          Mammoth Lakes, CA                         12           50.0             6           Geothermal
 Ormesa II                  Imperial Valley, CA                       17           50.0             9           Geothermal
 Puna I                     Hilo, HI                                  30           50.0            15           Geothermal
 Soda Lake I                Fallon, NV                                 3           50.0             2           Geothermal
 Soda Lake II               Fallon, NV                                14           50.0             7           Geothermal
 Stillwater                 Fallon, NV                                11           50.0             6           Geothermal
 SEGS IV                    Kramer Junction, CA                       30           12.0             4           Solar
 SEGS V                     Kramer Junction, CA                       30            4.0             1           Solar
 SEGS VI                    Kramer Junction, CA                       30            9.0             3           Solar
 Chinese Station            Sonora, CA                                22           50.0            11           Biomass
 Fresno                     Fresno, CA                                24           50.0            12           Biomass
 Rocklin                    Placer Co., CA                            24           50.0            12           Biomass
 Central Wayne              Dearborn, MI                              22           50.0            11           Municipal
                                                                                                                Solid Waste
 Colver                     Colver Township, PA                      110           50.0            55           Waste Coal
 Panther Creek              Nesquehoning, PA                          83           50.0            42           Waste Coal
 Sunnyside                  Sunnyside, UT                             51           50.0            26           Waste Coal
                                                                   -----                        -----
 Total Alternative                                                   533                          232 (C)
                                                                   -----                        -----
 Total Generating
  Facilities                                                       9,993                        6,544
                                                                   =====                        =====
</TABLE>

(A) Represent the generating assets that were transferred from BGE to
  nonregulated subsidiaries of Constellation Energy on July 1, 2000.
(B) These totals reflect our proportionate interest and entitlement to capacity
  from Keystone and Conemaugh, which include 2 megawatts of diesel capacity for
  Keystone and 1 megawatt of diesel capacity for Conemaugh.
(C) These totals reflect our proportionate interest in the entities that own
  these plants.

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                            Installed          %           Owned               Primary
        Plant             Location        Capacity (MW)      Owned     Capacity (MW)             Fuel
    -------------      -------------- ---------------------- ----- ---------------------- ------------------
                                      (at December 31, 2000)       (at December 31, 2000)
<S>                    <C>            <C>                    <C>   <C>                    <C>
Processing Facilities
 Gary PCI              Gary, IN                 --           12.5            --           Coal Processing
 A/C Fuels             Hazelton, PA             --           50.0            --           Coal Processing
 PC Synfuel VA I       Appalachia, VA           --           16.7            --           Synfuel Processing
 PC Synfuel WV I       Charleston, WV           --           16.7            --           Synfuel Processing
 PC Synfuel WV II      Nettie, WV               --           16.7            --           Synfuel Processing
 PC Synfuel WV III     Mayberry, WV             --           16.7            --           Synfuel Processing
</TABLE>

   Our domestic generation operation currently plans to construct generating
facilities representing about 7,800 MW of natural gas-fired peaking capacity
and combined cycle production facilities in various regions in North America in
2001 and beyond. The output of these plants will be used to meet the energy
requirements of customers in the wholesale energy market. The following table
describes the generating facilities that currently are under construction or
are scheduled to begin construction shortly:

<TABLE>
<CAPTION>
                                                                              Target In
                              Capacity                    Primary  Percent     Service
   Plant         Location       (MW)          Type         Fuel   Controlled    Date
-----------    ------------   --------    ------------    ------- ----------  ---------
<S>          <C>              <C>      <C>                <C>     <C>        <C>
University
 Park        Chicago, IL         300   Combustion Turbine   Gas      100     Summer 2001
Wolf Hills   Bristol, VA         250   Combustion Turbine   Gas      100     Summer 2001
Handsome
 Lake        Rockland Twp, PA    250   Combustion Turbine   Gas      100     Summer 2001
Big Sandy    Neal, WV            300   Combustion Turbine   Gas      100     Summer 2001
Rio
 Nogales     Seguin, TX          800   Combined Cycle       Gas      100     Summer 2002
Holland
 Energy      Shelby Co., IL      665   Combined Cycle       Gas      100     Summer 2002
Oleander     Brevard Co., FL     680   Combustion Turbine   Gas      100     Summer 2002
High
 Desert I    Victorville, CA     750   Combined Cycle       Gas      100     Summer 2003
                               -----
 Total                         3,995
</TABLE>

   We also have projects that currently are under development in other
strategic areas that include Texas, Wisconsin, Massachusetts, Florida, and
California.

--------------------------------------------------------------------------------

Planned Acquisition
On December 12, 2000, we announced that a subsidiary of Constellation Nuclear
will purchase 1,550 MW of the 1,757 MW total generating capacity of the Nine
Mile Point nuclear power plant, located in Scriba, New York. The subsidiary of
Constellation Nuclear will buy 100 percent of Unit 1 and 82 percent of Unit 2
for $815 million, including $78 million for fuel. The sale is expected to close
in mid-2001 upon receipt of all necessary regulatory approvals. Key regulatory
approvals are required from the NRC, FERC, and the New York State Public
Service Commission.
   The terms of the transaction include power purchase agreements, whereby we
have agreed to sell 90 percent of our share of the Nine Mile Point plant's
output back to the sellers for approximately 10 years at an average price of
nearly $35 per megawatt-hour (MWH) over the term of the power purchase
agreements on a unit contingent basis. We discuss this planned acquisition in
more detail in Note 10 to Consolidated Financial Statements.

Fuel Sources
Our power plants use diverse fuel sources. At December 31, 2000, our fuel mix
based on capacity owned was:

<TABLE>
<CAPTION>
Fuel                                                                  Percentage
----                                                                  ----------
<S>                                                                   <C>
Nuclear..............................................................     26%
Coal.................................................................     42
Oil..................................................................     13
Renewable and Alternative(1).........................................      8
Dual(2)..............................................................      6
Natural Gas..........................................................      5
</TABLE>

  (1) Includes solar, geothermal, hydro, biomass, and waste-to-energy.
  (2) Switches between natural gas and oil.
                                       6
<PAGE>

Nuclear
The two units at Calvert Cliffs produce electricity at a relatively low cost.
As a result, the costs of replacement energy associated with outages at these
units can be significant. If an unplanned outage were to occur during the
summer or winter when demand was at a high level, the replacement power costs
could have a material adverse impact on our financial results. We will use
appropriate risk management techniques consistent with our business plan and
policies in an effort to address this issue. The output at Calvert Cliffs over
the past five years was as follows:

<TABLE>
<CAPTION>
                                                             Generation Capacity
                                                                MWH      Factor
                                                             ---------- --------
<S>                                                          <C>        <C>
2000........................................................ 13,826,046    93%
1999........................................................ 13,309,306    91
1998........................................................ 13,326,633    91
1997........................................................ 13,133,441    90
1996........................................................ 12,069,937    82
</TABLE>

   The supply of fuel for nuclear generating stations includes the:
   . purchase of uranium concentrates,
   . conversion to uranium hexafluoride,
   . enrichment of uranium hexafluoride, and
   . fabrication of nuclear fuel assemblies.

Uranium
Concentrates:
           We have, either in inventory or under contract, sufficient
           quantities of uranium to meet 100% of our requirements through 2002
           and 25% through 2004.
Conversion:We have contractual commitments providing for the conversion of
           uranium concentrates into uranium hexafluoride that will meet
           approximately 75% of our requirements through 2004.
Enrichment:We have a contract with the U.S. Enrichment Corporation that
           provides approximately 50% of our enrichment requirements to 2004.
Fuel
Assembly
Fabrication:
           We have contracted for the fabrication of fuel assemblies for
           reloads required through 2013.

   The nuclear fuel market is competitive and we do not anticipate any problem
in meeting our requirements.

Storage of Spent Nuclear Fuel--Federal Facilities: Under the Nuclear Waste
Policy Act of 1982 (the 1982 Act), we contracted with the United States
Department of Energy (DOE) to place spent fuel discharged from Calvert Cliffs
into a federal repository. Such facilities do not currently exist, and,
consequently, must be developed and licensed. We cannot predict when such
facilities will be available. However, the 1982 Act required the DOE to accept
spent fuel starting in 1998. We cannot predict the ultimate cost of disposing
spent fuel. However, the 1982 Act assesses a 0.1 cent (one mill) per kilowatt-
hour fee on nuclear electricity generated and sold to help pay for spent fuel
disposal. We estimate this fee to be approximately $13 million for Calvert
Cliffs each year based on expected operating levels. Fees are deposited into
the Nuclear Waste Fund. These costs are paid by Calvert Cliffs Nuclear Power
Plant, Inc.
  In December 1996, the DOE notified us and other nuclear utilities that it
would not be able to meet the 1998 deadline for accepting spent fuel. We
participated in litigation, along with 36 other utilities, against the DOE. The
litigation, titled Northern States Power, et al. v. DOE, was filed January 31,
1997 in the United States Court of Appeals for the D.C. Circuit. That court has
original jurisdiction under the 1982 Act. The utilities asked the court to
allow them to pay fees that formerly went directly to the DOE for deposit into
the Nuclear Waste Fund, into escrow instead. Among other remedies, the
utilities also asked the court to force the DOE to submit a program with
milestones illustrating how it would meet the deadline for accepting spent
nuclear fuel, and a monthly report to allow the utilities to monitor the DOE's
progress.
   On November 14, 1997, the court ordered the DOE to comply with its
unconditional obligation under the 1982 Act to dispose of spent fuel. The court
did not grant the utilities the remedies sought, stating that adequate
contractual and statutory remedies already existed. The DOE and several
utilities filed separate motions for reconsideration with the court, which were
denied. The DOE's request for review to the U.S. Supreme Court was also denied.
   We are currently evaluating our contractual options in light of the court's
decision. We cannot currently estimate the total costs we will incur as a
result of the DOE's failure to meet the 1998 deadline.

Storage of Spent Nuclear Fuel--On-Site Facility: We have a license from the NRC
to operate an on-site independent spent fuel storage facility. We have storage
capacity at Calvert Cliffs that will accommodate spent fuel from operations
through the year 2006. In addition, we can expand our temporary storage
capacity to meet future requirements until federal storage is available.

Cost for Decommissioning Uranium Enrichment Facilities: The Energy Policy Act
of 1992 (the 1992 Act) contains provisions requiring domestic nuclear utilities
to contribute to a fund for decommissioning and decontaminating the DOE's
uranium enrichment

                                       7
<PAGE>

facilities. These contributions are payable by BGE generally over a fifteen-
year period with escalation for inflation and are based upon the amount of
uranium enriched by the DOE for each utility through 1992. The 1992 Act
provides that these costs are recoverable through BGE's service rates.
Information about the cost of decommissioning is discussed in Note 1 to
Consolidated Financial Statements.

Cost for Decommissioning Calvert Cliffs: Calvert Cliffs Nuclear Power Plant,
Inc., is liable for the decommissioning costs of Calvert Cliffs and costs
associated with the on-site independent spent fuel storage facilities. On July
1, 2000, BGE transferred the trust fund established to decommission Calvert
Cliffs and the on-site spent fuel storage facility to Calvert Cliffs Nuclear
Power Plant, Inc. Under the Restructuring Order issued by the Maryland Public
Service Commission (Maryland PSC), BGE is authorized to collect from customers
$520 million in 1993 dollars, adjusted for inflation, for the decommissioning
of Calvert Cliffs. BGE is passing the amount collected from its customers to
Calvert Cliffs Nuclear Power Plant, Inc. We must refund any amounts collected
from BGE customers at the time of decommissioning that is in excess of the
amount authorized to be collected by the Restructuring Order. We discuss the
Restructuring Order in the Electric Regulatory Matters and Competition--
Restructuring Order section.

Coal
We get most of our coal under supply contracts with mining operators, and we
get the rest through spot purchases. We believe that we will be able to renew
supply contracts as they expire or enter into similar contracts with other coal
suppliers. Our primary coal-burning facilities have the following requirements:

<TABLE>
<CAPTION>
                                              Annual Coal
                                              Requirement      Special Coal
                                                (tons)         Restrictions
                                              ----------- ----------------------
<S>                                           <C>         <C>

Brandon Shores                                            Sulfur content less
 Units 1 and 2 (combined)....................  3,500,000  than 0.8%

Crane                                                     Low ash melting
 Units 1 and 2 (combined)....................    800,000  temperature

Wagner                                                    Sulfur content no more
 Units 2 and 3 (combined)....................  1,000,000  than 1%
</TABLE>

   Coal deliveries to these facilities are made by rail and barge. The coal we
use is produced mostly from mines located in central and northern Appalachia.
   The majority of the annual coal requirements for the Keystone plant are
under contract from Rochester and Pittsburgh Coal Company. The remainder of the
Keystone plant and all of the Conemaugh plant annual coal requirements are
purchased from local suppliers on the open market. The sulfur restrictions on
coal are approximately 2.5% for the Keystone plant and approximately 3.5% for
the Conemaugh plant.
   The annual coal requirements for the ACE, Jasmin, and POSO plants, which are
located in California, are supplied under contracts with mining operators. Each
plant is restricted to coal with sulfur content less than 4%.

Oil
Under normal burn practices, our requirements for residual fuel oil (No. 6)
amount to approximately 1,500,000 to 2,000,000 barrels of low-sulfur oil per
year. Deliveries of residual fuel oil are made directly into our barges from
the suppliers' Baltimore Harbor marine terminal for distribution to the various
generating plant locations. We also require approximately 5,000,000 to
6,000,000 gallons of distillates (No. 2 oil and kerosene) annually. Distillates
are purchased from the suppliers' Baltimore truck terminals for distribution to
the various generating plant locations. We have contracts with various
suppliers to purchase oil at spot prices to meet our requirements.

Gas
We purchase natural gas and transportation, as necessary, for electric
generation at certain plants and to provide ignition and banking at certain
plants. Some of our gas-fired units can use residual fuel oil or distillates
instead of gas. Gas is purchased under contracts with suppliers on the spot
market. We believe that we will be able to obtain adequate quantities of gas to
meet our requirements.

Power Marketing
Constellation Power Source, Inc. (CPS), formed in 1997, provides power
marketing and risk management services to wholesale customers in North America
through the purchase and sale of electric power, other energy commodities and
related derivative contracts. CPS was ranked by Power Markets Weekly as a top
ten power marketer in the United States based on MWH sold in 2000.
   CPS purchases electric power by several methods, including:
   . through bilateral agreements with third parties,
   . from regional power pools, or
   . from affiliates in the domestic merchant energy business.
   CPS sells the electric power it purchases to customers such as utilities,
municipalities, cooperatives and other resellers, structuring the transactions
to meet each customer's diverse needs.

                                       8
<PAGE>

   CPS supplies the standard offer electric supply service to BGE as discussed
in Item 7. Management's Discussion and Analysis--Current Issues and to several
distribution utilities in New England. CPS sold 162,349,997 MWH of electric
power in 2000, including sales to BGE, 69,787,986 MWH in 1999, and 27,608,080
MWH in 1998, its first full year of operation. Excluding BGE, no one customer
or small group of customers accounts for a material portion of CPS' electric
power purchases or sales.
   CPS' goal is to be a premier provider of energy products and risk management
services to wholesale customers throughout North America. To accomplish this
goal, CPS focuses its activities on structuring transactions to meet customers'
specific energy needs and providing risk management services to wholesale
customers. This includes optimizing the value of generating assets owned by
affiliates. We believe that our energy marketing and risk management expertise
and strong risk controls are essential to maximize the value of our generating
assets in the highly competitive wholesale energy market. We expect CPS to
continue to establish itself as a leading national merchant energy company by
leveraging its marketing and risk management expertise to pursue opportunities
presented by the continuing deregulation of the North American energy markets.
   CPS engages in trading activities in order to manage its portfolio of energy
purchases and sales to customers through structured transactions, and to take
advantage of arbitrage opportunities that exist across different markets. These
activities involve the use of a variety of instruments, including:
  .forward contracts, which commit it to purchase or sell energy commodities
   in the future,
  .swap agreements, which require payments to or from counterparties based
   upon the differential between two prices for a predetermined contractual
   (notional) quantity,
  .options contracts, which convey the right to buy or sell a commodity,
   financial instrument or index at a predetermined price, and
  .futures contracts, which are exchange traded standardized commitments to
   purchase or sell a commodity or financial instrument, or make a cash
   settlement, at a specified price and future date.
   Active portfolio management allows CPS to manage and hedge its fixed price
purchase and sale commitments; provide fixed-price commitments to customers and
suppliers; reduce exposure to the volatility of market prices; and hedge fuel
requirements at power generation facilities.
   CPS' trading activities expose it to market and credit risk. CPS monitors
and controls its risk exposure through separate but complementary financial,
operational, and credit reporting systems. Our Board of Directors establishes
parameters for the risks that CPS undertakes, which are monitored daily by
management. In addition, CPS maintains a segregation of duties, with credit
review and risk monitoring functions performed by groups that are independent
from revenue producing groups.
   CPS is exposed to the risk that fluctuating market prices may adversely
affect its, or our, financial results. For additional information on market and
credit risk, see Item 7. Management's Discussion and Analysis--Market Risk.

Nuclear Consulting Services
Constellation Nuclear Services, Inc. (CNS) was formed in 1999 to provide
nuclear license renewal related services to the utility industry. In addition
to nuclear license renewal, CNS also provides plant aging mitigation services
including: spent fuel management, dry fuel storage, steam generation life
optimization, and project management and engineering.

BGE
BGE is a regulated electric and gas public utility distribution company with a
service territory that covers the City of Baltimore and all or part of ten
counties in Central Maryland. BGE's electric service territory includes an area
of approximately 2,300 square miles with an estimated population of 2.7
million. BGE's gas service territory includes an area of approximately 800
square miles with an estimated population of 2.0 million. Our electric and gas
revenues come from many customers--residential, commercial, and industrial. In
2000, our largest electric customer provided 2.4% of our total electric
revenues. In 2000, our largest gas customer provided 0.7% of our total gas
revenues. As discussed below, BGE's regulated electric business was
significantly impacted by the July 1, 2000 implementation of customer choice in
Maryland.
   Weather affects the demand for electricity and gas for our regulated
businesses. Very hot summers and very cold winters increase demand. Mild
weather reduces demand. Residential sales for our regulated businesses are
impacted more by weather than commercial and industrial sales, which are mostly
affected by business needs for electricity and gas.


                                       9
<PAGE>

Electric Business
Electric Regulatory Matters and Competition

Restructuring Order
On April 8, 1999, Maryland enacted the Electric Customer Choice and Competition
Act of 1999 (the "Act") and accompanying tax legislation that significantly
restructured Maryland's electric utility industry and modified the industry's
tax structure. In the Restructuring Order discussed below, the Maryland PSC
addressed the major provisions of the Act. The accompanying tax legislation is
discussed in detail in Note 4 to Consolidated Financial Statements.
   On November 10, 1999, the Maryland PSC issued a Restructuring Order that
resolved the major issues surrounding electric restructuring, accelerated the
timetable for customer choice, and addressed the major provisions of the Act.
The Restructuring Order also resolved the electric restructuring proceeding
(transition costs, customer price protections, and unbundled rates for electric
services) and a petition filed in September 1998 by the Office of People's
Counsel to lower our electric base rates. The major provisions of the
Restructuring Order are discussed in Note 4 to Consolidated Financial
Statements.
   As a result of the deregulation of electric generation, the following
occurred effective July 1, 2000:
  .All customers, except a few commercial and industrial companies that have
   signed contracts with BGE, can choose their electric energy supplier. BGE
   will provide a standard offer service for customers that do not select an
   alternative supplier. In either case, BGE will continue to deliver
   electricity to all customers in areas traditionally served by BGE.
  .BGE reduced residential base rates by approximately 6.5%, on average about
   $54 million a year. These rates will not change before July 2006.
  .BGE transferred, at book value, its nuclear generating assets, its nuclear
   decommissioning trust fund, and related liabilities to Calvert Cliffs
   Nuclear Power Plant, Inc. In addition, BGE transferred, at book value, its
   fossil generating assets and related liabilities and its partial ownership
   interest in two coal plants and a hydroelectric plant located in
   Pennsylvania to Constellation Power Source Generation. In total, these
   generating assets represent about 6,240 megawatts of generation capacity
   with a total net book value at June 30, 2000 of approximately $2.4
   billion.
  .BGE assigned approximately $47 million to Calvert Cliffs Nuclear Power
   Plant, Inc. and $231 million to Constellation Power Source Generation of
   tax-exempt debt related to the transferred assets. Also, Constellation
   Power Source Generation issued approximately $366 million in unsecured
   promissory notes to BGE. Repayments of the notes by Constellation Power
   Source Generation will be used exclusively to service the current
   maturities of certain BGE long-term debt.
  .BGE transferred equity associated with the generating assets to Calvert
   Cliffs Nuclear Power Plant, Inc. and Constellation Power Source
   Generation.
  .The fossil fuel and nuclear fuel inventories, materials and supplies, and
   certain purchased power contracts of BGE were also assumed by these
   subsidiaries.

Standard Offer Service
Effective July 1, 2000, BGE provides standard offer service to customers at
fixed rates over various time periods during the transition period through June
30, 2006 for those customers that do not choose an alternate supplier. In
addition, the electric fuel rate was discontinued effective July 1, 2000. CPS
provides BGE with the energy and capacity required to meet its standard offer
service obligations for the first three years of the transition period.
Thereafter, BGE will competitively bid the energy and capacity for those
customers electing to receive energy from BGE. We are evaluating alternatives
to minimize the market risk after June 30, 2003. We discuss the market risk of
our regulated electric business in more detail in Item 7. Management's
Discussion and Analysis--Market Risk.
   Prior to July 1, 2000, BGE deferred (included as an asset or liability on
the Consolidated Balance Sheets and excluded from the Consolidated Statements
of Income) the difference between its actual costs of fuel and energy and what
it collected from customers under the fuel rate in a given period. Effective
July 1, 2000, the fuel rate clause was discontinued under the terms of the
Restructuring Order. In September 2000, the Maryland PSC approved the
collection of the $54.6 million accumulated difference between BGE's actual
costs of fuel and energy and the amounts collected from customers that were
deferred under the electric fuel rate clause through June 30, 2000. BGE is
collecting this accumulated difference from customers over the twelve-month
period beginning October 2000.

                                       10
<PAGE>

   BGE's electric transmission and distribution business continues to be
regulated by the Maryland PSC although electric delivery rates are fixed until
June 30, 2004 for industrial and commercial customers and until June 30, 2006
for residential customers. However, electric transmission and distribution
utilities are facing competition from alternative energy sources that include
on-site generation and cogeneration projects. In future years, electric
transmission and distribution utilities could face competition from emerging
technologies that include fuel cells and solar panels.

Electric Load Management
BGE implemented various programs for use when system-operating conditions or
market economics indicate that a reduction in load would be beneficial. We
refer to these programs as active load management programs. These programs
include:
  .customer-owned generation and curtailable service for large commercial and
   industrial customers,
  .air conditioning control for residential and commercial customers, and
  .residential water heater control.
   BGE generally activates these programs on summer days when demand and/or
wholesale prices are relatively high. The reduction in the summer 2000 peak
load from active load management was approximately 425 MW. The potential
reduction in the summer 2001 peak load from active load management is expected
to be approximately425 MW.

Transmission Facilities
Our transmission facilities are connected to those of neighboring utility
systems as part of the PJM. Under the PJM agreement, we use the interconnected
facilities for substantial energy interchange and capacity transactions as well
as emergency assistance.
   In December 1999, FERC issued Order 2000, amending its regulations under the
Federal Power Act to advance the formation of Regional Transmission
Organizations (RTOs). The regulations require that each public utility that
owns, operates, or controls facilities for the transmission of electric energy
in interstate commerce make certain filings with respect to forming and
participating in a RTO. FERC also identified the minimum characteristics and
functions that a transmission entity must satisfy in order to be considered a
RTO.
   According to Order 2000, a public utility that is a member of an existing
transmission entity that has been approved by FERC as in conformance with the
Independent System Operator (ISO) principles set forth in the FERC Order No.
888, such as BGE through its membership in the PJM, was required to make a
filing no later than January 15, 2001. PJM and the joint transmission owners,
including BGE, made that filing on October 11, 2000. That filing explained the
extent to which PJM met the minimum characteristics and functions of a RTO, and
explained its plans with respect to conforming to these characteristics and
functions.
   As a member of PJM, an existing ISO, BGE does not expect to be materially
impacted by Order 2000. However, we are appealing two requirements of Order
2000 whereby:
  .we would have to go through PJM to make a filing with FERC to change our
   transmission rates, and
  .we would have to transfer operational control of our transmission
   facilities to PJM.
   The U.S. Supreme Court agreed to hear an appeal by others of FERC Order 888.
We cannot predict the outcome of this appeal or the impact on BGE at this time.

                                       11
<PAGE>

                         Electric Operating Statistics

<TABLE>
<CAPTION>
                                             Year Ended December 31,
                                   --------------------------------------------
                                   2000(A)    1999     1998     1997     1996
                                   -------- -------- -------- -------- --------
<S>                                <C>      <C>      <C>      <C>      <C>
Revenues (In Millions)
 Residential...................... $  922.6 $  975.2 $  948.6 $  932.5 $  958.7
 Commercial.......................    926.2    939.3    912.9    892.6    861.3
 Industrial.......................    203.6    204.3    211.5    211.9    207.6
                                   -------- -------- -------- -------- --------
  System Sales.................... $2,052.4 $2,118.8 $2,073.0 $2,037.0 $2,027.6
                                   ======== ======== ======== ======== ========
Sales (In Thousands)-- MWH:
 Residential......................   11,675   11,349   10,965   10,806   11,243
 Commercial.......................   14,042   13,565   13,219   12,718   12,591
 Industrial.......................    4,476    4,350    4,583    4,575    4,596
                                   -------- -------- -------- -------- --------
  System Sales....................   30,193   29,264   28,767   28,099   28,430
                                   ======== ======== ======== ======== ========
Customers (In Thousands)
 Residential......................  1,033.4  1,021.4  1,009.1  1,001.0    995.2
 Commercial.......................    108.9    107.7    106.5    105.9    104.5
 Industrial.......................      5.0      4.7      4.6      4.5      4.3
                                   -------- -------- -------- -------- --------
  Total...........................  1,147.3  1,133.8  1,120.2  1,111.4  1,104.0
                                   ======== ======== ======== ======== ========
</TABLE>

  (A) Electric operating results reflect generation function as part of
      regulated operations through June 30, 2000.

--------------------------------------------------------------------------------

Gas Business
Gas Regulatory Matters and Competition
Currently, no regulation exists for the wholesale price of natural gas as a
commodity, and the regulation of interstate transmission at the federal level
has been reduced. All BGE gas customers have the option to purchase gas from
other suppliers. However, the delivery of gas continues to be regulated by the
Maryland PSC.
   We buy all gas that we resell directly from various suppliers (rather than
pipeline companies) and arrange separately for transportation and storage.
Alternatively, we can transport gas for our customers. We also participate in
the interstate markets, by releasing pipeline capacity or bundling pipeline
capacity with gas for off-system sales.
   We provide all of our customers with the option for delivery service across
our distribution system so that they may make direct purchase and
transportation arrangements with suppliers and pipelines. In addition to the
delivery service, we also provide these customers with meter readings, billing,
emergency response, regular maintenance, and balancing.
   Approximately 57% of the gas on our distribution system is for customers
using delivery service. We charge all our delivery service customers fees to
recover the fixed costs for the transportation service we provide. These fees
are the same as the base rate charged for gas sales.
   Delivery service customers may choose to purchase gas from several different
suppliers, including our subsidiary, BGE Home Products & Services, Inc. The
basis of competition for delivery service customers is primarily commodity
price.
   As part of our response to the increase in competition in the natural gas
business, earnings from off-system gas sales and capacity release revenues are
shared between shareholders and customers. Off-system gas sales are low-margin
direct sales of gas to wholesale suppliers of natural gas outside our service
territory. We make these sales as part of a program to balance our supply of,
and cost of, natural gas. In addition, we have a market based rates incentive
mechanism for gas we sell on our system. Under market based rates, our actual
cost of gas is compared to a market index (a measure of the market price of gas
in a given period). The difference between our actual cost and the market index
is shared equally between shareholders and customers.
   On November 17, 1999, BGE filed an application with the Maryland PSC to
increase its gas base rates. The Maryland PSC authorized a $6.4 million annual
increase in our gas base rates effective June 22, 2000.
                                       12
<PAGE>

Gas Operations
We distribute natural gas purchased directly from many producers and marketers.
We have transportation and storage agreements as shown below. These agreements
are on file with the FERC. The gas is transported to our city gates, under
various transportation agreements, by:
   . Columbia Gas Transmission Corporation,
   . Dominion Transmission Inc., and
   . Transcontinental Gas Pipe Line Corporation.
   To transport gas from the pipelines that supply gas to the pipelines that
are connected to our city gates as mentioned above, we also have transportation
capacity under contract with:
   . Texas Gas,
   . Columbia Gulf Transmission Company, and
   . ANR Pipeline Company.
   We have storage service agreements with:
   . Columbia Gas Transmission Corporation,
   . Dominion Transmission Inc., and
   . ANR Pipeline Company.
   Our current pipeline firm transportation entitlements to serve our firm
loads are 284,053 DTH per day during the winter period and 259,053 DTH per day
during the summer period. We use the firm transportation capacity to move gas
from the Gulf of Mexico, Louisiana, south central regions of Texas, and Canada
to our city gates. We can arrange short-term contracts or exchange agreements
with other gas companies in the event of short-term emergencies.
   We have three market area storage contracts to manage weather sensitive gas
demand during the winter period. Our current maximum storage entitlements are
235,080 DTH per day. To supplement our gas supply at times of heavy winter
demands and to be available in temporary emergencies affecting gas supply, we
have:
   . a liquefied natural gas facility for the liquefaction and storage of
     natural gas with a total storage capacity of 1,000,000 DTH and a planned
     daily capacity of 287,988 DTH, and
   . a propane air facility with a mined cavern with a total storage capacity
     equivalent to 500,000 DTH and a planned daily capacity of 85,000 DTH.
   We have under contract sufficient volumes of propane for the operation of
the propane air facility and are capable of liquefying sufficient volumes of
natural gas during the summer months for operation of our liquefied natural gas
facility during winter emergencies.

                                       13
<PAGE>

                           Gas Operating Statistics

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                    --------------------------------------------
                                      2000     1999     1998     1997     1996
                                    -------- -------- -------- -------- --------
<S>                                 <C>      <C>      <C>      <C>      <C>
Gas Output (In Thousands) -- DTH:
 Purchased........................    48,518   49,082   47,972   62,988   70,260
 LNG Withdrawn from Storage.......       874      463      268      484      904
 Produced.........................       261      486       46      541      784
                                    -------- -------- -------- -------- --------
  Total Output....................    49,653   50,031   48,286   64,013   71,948
 Delivery service gas (A).........    67,658   59,494   55,608   52,629   45,964
 Off-system sales (B).............    22,456   15,543   16,724   14,759    9,968
                                    -------- -------- -------- -------- --------
  Total...........................   139,767  125,068  120,618  131,401  127,880
                                    ======== ======== ======== ======== ========
Peak Day Sendout (DTH)............   795,700  727,800  658,359  765,011  708,966
                                    ======== ======== ======== ======== ========
Capability on Peak Day (DTH)......   825,100  836,600  833,000  870,000  870,000
Revenues (In Millions)
 Residential
  Excluding Delivery Service......  $  328.4 $  298.1 $  279.2 $  321.7 $  320.1
  Delivery Service................      23.5     11.5      4.9      0.5       --
 Commercial
  Excluding Delivery Service......      97.9     79.3     75.6    113.5    125.1
  Delivery Service................      25.8     24.4     19.4     12.9      7.2
 Industrial
  Excluding Delivery Service......      10.9      8.2      8.0     11.4     17.1
  Delivery Service................      16.3     16.1     16.0     17.2     14.6
                                    -------- -------- -------- -------- --------
 System sales.....................     502.8    437.6    403.1    477.2    484.1
 Off-system sales.................     101.0     42.9     40.9     37.5     26.6
 Other............................       7.8      7.6      7.1      6.9      6.6
                                    -------- -------- -------- -------- --------
  Total...........................  $  611.6 $  488.1 $  451.1 $  521.6 $  517.3
                                    ======== ======== ======== ======== ========
Sales (In Thousands) -- DTH:
 Residential
  Excluding Delivery Service......    34,561   34,272   33,595   39,958   43,784
  Delivery Service................     9,209    4,468    1,890      205       --
 Commercial
  Excluding Delivery Service......    13,186   11,733   11,775   18,435   22,698
  Delivery Service................    22,921   20,288   16,633   12,964    8,755
 Industrial
  Excluding Delivery Service......     1,386    1,367    1,412    2,016    2,887
  Delivery Service................    32,382   33,118   34,798   38,791   36,201
                                    -------- -------- -------- -------- --------
 System sales.....................   113,645  105,246  100,103  112,369  114,325
 Off-system sales.................    22,456   15,543   16,724   14,759    9,968
                                    -------- -------- -------- -------- --------
  Total...........................   136,101  120,789  116,827  127,128  124,293
                                    ======== ======== ======== ======== ========
Customers (In Thousands)
 Residential......................     553.7    543.5    532.5    524.5    516.5
 Commercial.......................      40.1     39.9     39.6     39.3     38.9
 Industrial.......................       1.4      1.3      1.3      1.3      1.3
                                    -------- -------- -------- -------- --------
  Total...........................     595.2    584.7    573.4    565.1    556.7
                                    ======== ======== ======== ======== ========
</TABLE>
   For the periods presented, we achieved an all-time peak day sendout of
795,700 DTH on January 17, 2000.
  (A) Delivery service gas is gas purchased by customers directly from
    suppliers for which we receive a fee for transportation through our
    system.
  (B) Off-system sales are low-margin sales to wholesale suppliers of natural
    gas outside our service territory (beginning first quarter 1996).
   We discuss these programs further in the Gas Regulatory Matters and
Competition section.

                                      14
<PAGE>

Franchises
We have nonexclusive electric and gas franchises to use streets and other
highways that are adequate and sufficient to permit us to engage in our present
business. All such franchises, other than the gas franchises in Manchester,
Hampstead, Perryville, Sykesville, Havre de Grace, Mt. Airy, and Montgomery and
Frederick Counties, are unlimited

as to time. The gas franchises for these jurisdictions expire at various times
from 2015 to 2087, except for Havre de Grace which has the right, exercisable
at twenty-year intervals from 1907, to purchase all of our gas properties in
that municipality. Conditions of the franchises are satisfactory.

--------------------------------------------------------------------------------
Other Nonregulated Businesses
International Projects
At December 31, 2000, Constellation Power, Inc. had invested about $255.9
million in 10 power projects in Latin America. These investments include:
  . a 51% interest in a Panamanian electric distribution company by an
    investment group in which subsidiaries of Constellation Power hold an 80%
    interest,
  . existing electric generation facilities in Guatemala and Bolivia, and
  . an investment in an Energy Fund that has investments in Argentina, Brazil,
    and Bolivia.
   In December 1999, we decided to exit the Latin American portion of our
business as a result of our concentration on domestic merchant energy.
Currently, we are actively seeking a buyer for the Latin American portion of
our business and are working toward completing our exit strategy in 2001.

Energy Products and Services
Constellation Energy Source, Inc. offers energy products and services designed
primarily to provide solutions to the energy needs of commercial and industrial
customers. These energy products and services include:
  . a full range of heating, ventilation, air conditioning, and energy
    services,
  . energy consulting and power-quality services,
  . services to enhance the reliability of individual electric supply systems,
    and
  . customized financing alternatives.

Home Products, Commercial Building Systems, and Electric and Gas Retail
Marketing
BGE Home Products & Services, Inc. and subsidiaries offer services to
residential, commercial, and industrial customers. These services include:
  . the sale and service of electric and gas appliances,
  . home improvements,
  . the sale and service of heating, air conditioning, plumbing, electrical,
    and indoor air quality systems, and
  . electric and natural gas retail marketing.

ComfortLink
ComfortLink provides cooling services using a central chilled water
distribution system to commercial customers in Baltimore.

Financial Investments
Constellation Investments, Inc. engages in financial investments, including:
  . marketable securities, and
  . financial limited partnerships.

Real Estate and Senior-Living Facilities
Constellation Real Estate Group, Inc. develops, owns, and manages real estate
and senior-living facilities, including:
  . land under development in the Baltimore-Washington corridor,
  . a mixed-use planned-unit development,
  . senior-living facilities, and
  . an equity interest in Corporate Office Properties Trust (COPT), a real
    estate investment trust.
   We describe the real estate business and the COPT transaction further in
Item 7. Management's Discussion and Analysis and Note 3 to Consolidated
Financial Statements.
   We consider market demand, interest rates, the availability of financing,
and the strength of the economy in general when making decisions about our real
estate projects. If we were to decide to sell our real estate projects, we
could have write-downs. In addition, if we were to sell our real estate
projects in the current market, we would have losses, which could be material,
although the amount of the losses is hard to predict. Depending on market
conditions, we could also have material losses on any future sales.

                                       15
<PAGE>

Consolidated Capital Requirements
Our business requires a great deal of capital. Our total capital requirements
for 2000 were $1,877 million. Of this amount, $1,125 million was used in our
nonregulated businesses and $752 million was used in our utility operations. We
estimate our total capital requirements for the years 2001 through 2003 to be:
   . $2,529 million in 2001,
   . $1,863 million in 2002, and
   . $2,626 million in 2003.
   We continuously review and change our capital expenditure programs, so
actual expenditures may vary from the estimates for the years 2001 through
2003.
   We discuss our capital requirements further in Item 7. Management's
Discussion and Analysis-- Capital Resources.
--------------------------------------------------------------------------------
Environmental Matters
We are subject to regulation by various federal, state, and local authorities
with regard to:
   . air quality,
   . water quality,
   . chemical and waste management and disposal, and
   . other environmental matters.
   Some of the regulations require substantial expenditures for additions to
some of our older generating plants and the use of more low-sulfur fuels. We
cannot precisely estimate the total effect on our facilities and operations of
current and future environmental regulations and standards. However, our
capital expenditures (excluding allowance for funds used during construction)
were approximately $126 million during the five-year period 1996-2000 to comply
with existing environmental standards and regulations, and we estimate that the
future incremental capital expenditures (excluding allowance for funds used
during construction) necessary to comply with existing environmental standards
and regulations will be approximately:
   . $88 million in 2001,
   . $40 million in 2002, and
   . $7 million in 2003.

Clean Air
The Federal Clean Air Act regulates health and welfare standards for
concentrations of air pollutants. Under this Act, each state must set limits on
all major sources of these pollutants in its state so that the standards are
not exceeded. We have certain emission or operational limits which include
limits on sulfur content in fuel, releases of nitrogen oxides (NOx) emissions,
release of particulate matter, facility design, or operational parameters
imposed by either a federal or state agency on our generating units for the
purpose of air quality control and compliance with existing air quality
regulations.

   The Clean Air Act of 1990 contains two titles designed to reduce emissions
of sulfur dioxides and NOx from certain electric generating stations--Title IV
and Title I.
   Title IV addresses emissions of sulfur dioxides. For our older plants, we
meet the requirements of Title IV through a combination of switching fuels and
allowance trading. For newer plants, we meet the requirements of Title IV
primarily through facility design, and operational and pollution controls.
   Title I addresses emissions of NOx. The Maryland Department of the
Environment (MDE) has issued regulations, effective October 18, 1999, which
required up to 65% NOx emissions reductions by May 1, 2000. We entered into a
settlement agreement with the MDE since we could not meet this deadline. Under
the terms of the settlement agreement, we will install emissions reduction
equipment at two sites by May 2002. In the meantime, we are taking steps to
control NOx emissions at our generating plants.
   The Environmental Protection Agency (EPA) issued a final rule in September
1998 that requires up to 85% NOx emissions reductions by 22 states (including
Maryland and Pennsylvania). Maryland and Pennsylvania expect to meet the
requirements of the rule by 2003. The emissions reduction equipment
installations discussed above will allow us to meet these requirements in
Maryland. The generating plants in Pennsylvania also will install emissions
reduction equipment by 2003 to meet the 85% reduction requirements.
   We currently estimate that the additional controls needed at our generating
plants to meet the MDE's 65% NOx emission reduction requirements will cost
approximately $150 million. Through December 31, 2000, we have spent
approximately $115 million to meet the 65% reduction requirements. We estimate
the additional cost for the EPA's 85% reduction requirements to be
approximately $90 million by 2003. These amounts will be paid by our domestic
merchant energy business.
   In July 1997, the EPA published new National Ambient Air Quality Standards
for very fine particulates and revised standards for ozone attainment. In 1999,
these new standards were successfully challenged in court. The EPA appealed

                                       16
<PAGE>

the 1999 court rulings to the Supreme Court. In February 2001, the Supreme
Court upheld EPA's authority to issue the standards. However, the Supreme Court
sent the case back to the lower court and EPA for further proceedings on
implementation issues related to the revised ozone standard. The lower court
will also address remaining challenges to the fine particulate standard. While
these standards may require increased controls at the fossil generating plants
in the future, implementation, if required, would be delayed for several years.
We cannot estimate the cost of these increased controls at this time because
the states, including Maryland, Pennsylvania, and California still need to
determine what reductions in pollutants will be necessary to meet the EPA
standards.
   In December 2000, the EPA issued a determination that coal-fired power plant
mercury emissions will be controlled. Final regulations are expected to be
issued in 2004 with controls required by 2007. The costs of these controls
cannot be estimated at this time since the level of control or systems to
implement them have not yet been established.
   We received letters from the EPA requesting us to provide certain
information under Section 114 of the federal Clean Air Act regarding some of
our electric generating plants. This information is to determine compliance
with the Clean Air Act and state implementation plan requirements, including
potential application of federal New Source Performance Standards. In general,
such standards can require the installation of additional air pollution control
equipment upon the major modification of an existing plant. We have provided
the EPA the requested information. We believe our generating plants have been
operated in accordance with the Clean Air Act and the rules implementing the
Clean Air Act. However, we cannot estimate the impact of this inquiry on our
generating plants, and our financial results, at this time.

Water
Each state regulates the discharge of process wastewater and certain stormwater
discharges into its waters under the National Pollutant Discharge Elimination
System permit program. This program was established as part of the Federal
Clean Water Act. At the present time, we have the required permits under the
program for all of our electric generating plants.
   The water quality regulations require us to, among other things, define
procedures to determine compliance with each state's water quality standards.
These procedures require extensive studies involving sampling and monitoring of
the waters around affected generating plants. Each state may require changes in
plant operations. We continually perform studies to determine whether any
changes will be necessary to comply with these regulations.

Waste Disposal
The EPA has regulations for implementing the portions of the Resource
Conservation and Recovery Act that deal with the management of hazardous
wastes. These regulations, and the Hazardous and Solid Waste Amendments of
1984, identify certain spent materials as hazardous wastes and establish
standards and requirements for those who generate, transport, store, or dispose
of such wastes. States have adopted regulations governing the management of
hazardous wastes that are similar to the EPA regulations and in some cases more
stringent. We have procedures in place to comply with all applicable EPA and
state regulations governing the management of hazardous wastes. Some high
volume utility wastes, such as coal fly ash and bottom ash, are exempt from
these regulations. We currently use all of our coal fly ash and bottom ash in a
manner consistent with federal, state, and local laws and regulations. These
include the use of ash as structural fill material, and recycled material that
can be sold to the construction industry for a number of other approved uses.
We also deposit ash in landfills. We continue to evaluate various recycling
opportunities for our coal fly ash and bottom ash.
   The Federal Comprehensive Environmental Response, Compensation and Liability
Act (Superfund statute) establishes liability for the cleanup of hazardous
wastes that contaminate the soil, water, or air. Those who generated,
transported, or deposited the waste at the contaminated site are each jointly
and severally liable for the cost of the cleanup, as are the current property
owner and the owner when the contamination occurred. Many states have
implemented laws similar to the Superfund statute.
   The EPA and several state agencies have notified us that we are considered a
potentially responsible party with respect to the cleanup of certain
environmentally contaminated sites owned and operated by others. We cannot
estimate the cleanup costs for all of these sites.
   In the early 1970s, we shipped an unknown number of scrapped transformers to
Metal Bank of America, a metal reclaimer in Philadelphia. Metal Bank's scrap
and storage yard has been found to be contaminated with oil containing high
levels of PCBs (hazardous chemicals frequently used as a fire-resistant coolant
in electrical equipment). On December 7, 1987, the EPA notified us and nine
other utilities that we are considered potentially responsible parties (PRPs)
with respect to the cleanup of the site. We, along with the other PRPs,

                                       17
<PAGE>

submitted a remedial investigation and feasibility study (RI/FS) to the EPA on
October 14, 1994, and the EPA issued its Record of Decision (ROD) on December
31, 1997. On June 26, 1998, the EPA ordered us, the other utility PRPs, and the
owner/operator to implement the requirements of the ROD. The utility PRPs are
currently conducting the remedial design. Based on the ROD, our share of the
reasonably possible cleanup costs, estimated to be approximately 15.47%, could
be as much as $2.3 million higher than amounts we have recorded as a liability
on our Consolidated Balance Sheets.
   On October 16, 1989, the EPA filed a complaint in the U.S. District Court
for the District of Maryland under the Superfund statute against us and seven
other defendants to recover past and future expenditures associated with the
cleanup of a site located at Kane and Lombard Streets in Baltimore. The State
of Maryland filed a similar complaint in the same case and court on February
12, 1990. The complaints alleged that we arranged for our coal fly ash to be
deposited on the site. The Court dismissed these complaints in November 1995.
The MDE began additional investigation on the remainder of the site for the
EPA, but never completed the investigation. We, along with three other
defendants, agreed to complete the RI/FS of groundwater contamination around
the site in a July 1993 consent order. The remedial action, if any, for the
remainder of the site will not be selected until these investigations are
concluded. Therefore, we cannot estimate the total amount, or our share, of the
site cleanup costs.
   From 1985 until 1989, we shipped waste oil and other materials to the
Industrial Solvents and Chemical Company in York County, Pennsylvania for
disposal. The Pennsylvania Department of Environmental Protection (PADEP)
subsequently investigated this site and found it to be heavily contaminated by
hazardous wastes. The PADEP notified us on August 15, 1990, that approximately
1,000 other entities and we are PRPs with respect to the cost of all remedial
activities to be conducted at the site. The PRPs have performed waste
characterization, removed and disposed of all tanks and drums of waste,
completed a RI/FS at the site, and installed public water lines. In 1998, PADEP
notified BGE and other PRPs of the final remedy and requested the installation
of additional public water lines. In 1999, the PRPs installed the water lines
and PADEP approved the final report in March 2000. We have no further
obligations under the consent orders at the site.
   In December 1995, the EPA notified us that we are one of approximately 650
parties that may have incurred liability under the Superfund statute for
shipments of hazardous wastes to a site in Denver, Colorado known as the RAMP
Industries site. We, through our disposal vendor, shipped a small amount of low
level radioactive waste to the site between 1989 and 1992. The site, which was
found to have been operated improperly, was closed in 1994. That same year, the
EPA began cleaning up the site by removing drums of radioactive and hazardous
mixed wastes. BGE accepted a settlement offer from EPA in August 1999, whereby
BGE will pay an immaterial amount to resolve its liability at this site. The
consent order will be finalized in 2001.
   In September 1996, we received an information request from the EPA about the
Drumco Drum Dump Site, located in the Curtis Bay area of Maryland. This site
was the subject of an emergency drum removal action in 1991, due to a concern
about hazardous substances leaking from drums and posing a threat to human
health and the environment. According to EPA documents, approximately $2
million was spent on the drum removal action. To our knowledge, no long-term
remediation is planned for this site. In addition, we understand that the EPA
has sent information requests to approximately 17 other parties. Our records
indicate that we sold empty drums to Drumco, Inc. from approximately 1983-1990.
Although our potential liability cannot be estimated, we do not expect such
liability to be material based on our records showing that we sold only empty
storage drums to Drumco, Inc.
   On July 12, 1999, the EPA notified us, along with 19 other entities, that we
may be a potentially responsible party at the 68th Street Dump/Industrial
Enterprises Site, also known as the Robb Tyler Dump, located in Baltimore,
Maryland. The EPA indicated that it is proceeding with plans to conduct a
remedial investigation and feasibility study. This site was proposed for
listing as a federal Superfund site in January 1999, but the listing has not
been finalized. Although our potential liability cannot be estimated, we do not
expect such liability to be material based on our records showing that we did
not send waste to the site.
   In the early part of the century, predecessor gas companies (which were
later merged into BGE) manufactured coal gas for residential and industrial
use. The residue from this manufacturing process was coal tar, previously
thought to be harmless but now found to contain a number of chemicals
designated by the EPA as hazardous substances. We are coordinating an
investigation of some of these former manufacturing sites, and determining
what, if any, remedial action may be required by MDE.
  In late December 1996, we signed a consent order with the MDE that requires
us to implement remedial action plans for contamination at and around the
Spring Gardens site, located in Baltimore,

                                       18
<PAGE>

Maryland. We submitted the required remedial action plans and they have been
approved by the MDE. Based on the remedial action plans, the costs we consider
to be probable to remedy the contamination are estimated to total $47 million
in nominal dollars (including inflation). We have recorded these costs as a
liability on our Consolidated Balance Sheets and have deferred these costs, net
of accumulated amortization and amounts we recovered from insurance companies,
as a regulatory asset. We discuss this further in Note 5 to Consolidated
Financial Statements. Through December 31, 2000, we have spent approximately
$35 million for remediation at this site.
   We are also required by accounting rules to disclose additional costs we
consider to be less likely than probable, but still "reasonably possible" of
being incurred at these sites. Because of the results of studies at these
sites, it is reasonably possible that these additional costs could exceed the
amount we recognized by approximately $14 million in nominal dollars ($7
million in current dollars, plus the impact of inflation at 3.1% over a period
of up to 36 years).

Employees
As of December 31, 2000, we employed about 7,800 people.
--------------------------------------------------------------------------------

Item 2. Properties
We lease several properties that are used for Constellation Energy's
headquarters, various offices, and services. We own BGE's principal
headquarters building in downtown Baltimore.
   We describe our electric generation properties in the Domestic Merchant
Energy Business section.
   We own the following propane air and liquefied natural gas facilities:
   . a liquefied natural gas facility for the liquefaction and storage of
     natural gas with a total storage capacity of 1,000,000 DTH and a planned
     daily capacity of 287,988 DTH, and
   . a propane air facility with a mined cavern with a total storage capacity
     of 500,000 DTH and a planned daily capacity of 85,000 DTH.
     We also have rights-of-way to maintain 26-inch natural gas mains across
certain Baltimore City owned property (principally parks) which expire in 2004.
These rights-of-way can be renewed during their last year for an additional
period of 25 years based on a fair revaluation. Conditions of the grants are
satisfactory.
     property.
   All of BGE's property and the electric generation assets that were
transferred by BGE to our domestic merchant energy business as part of
deregulation, are subject to the lien of BGE's mortgage securing its mortgage
bonds.
--------------------------------------------------------------------------------

Item 3. Legal Proceedings
In the normal course of business, we are involved in various legal proceedings.
We discuss our legal proceedings in Note 10 to Consolidated Financial
Statements.

                                       19
<PAGE>

Item 4. Submission of Matters to Vote of Security Holders
Not applicable.

Executive Officers of the Registrant
   BGE meets the conditions set forth in General Instruction I(1)(a) and (b) of
Form 10-K for a reduced disclosure format. Accordingly, the executive officers
of BGE are not presented below.

   Executive Officers of Constellation Energy Group at the date of this report
are:

<TABLE>
<CAPTION>
                                                                 Other Offices or Positions
 Name                    Age           Present Office            Held During Past Five Years
 ----                    ---           --------------            ---------------------------
<S>                      <C> <C>                                <C>
Christian H. Poindexter   62 Chairman of the Board and Chief    Chairman of the Board,
                              Executive Officer (A) (Since       President, and Chief
                              formation of Constellation         Executive Officer--
                              Energy Group as the holding        Constellation Energy and
                              company on April 30, 1999; since   BGE
                              March 1, 1998 for BGE)


Edward A. Crooke          62 Vice Chairman (B) (Since October   Vice Chairman--Constellation
                              20, 2000)                          Energy, Chairman of the
                                                                 Board, President and Chief
                                                                 Executive Officer--
                                                                 Constellation Enterprises,
                                                                 Inc., Chairman of the
                                                                 Board--Constellation
                                                                 Holdings, Inc., and
                                                                 President and Chief
                                                                 Operating Officer--BGE


Eric P. Grubman           43 Co-President (Since October 20,    Partner and Managing
                              2000)                              Director, Co-Head of Energy
                                                                 & Power--Goldman Sachs &
                                                                 Co.


Charles W. Shivery        55 Co-President (Since October 20,    Chairman of the Board and
                              2000)                              Chief Executive Officer--
                              President and Chief Executive      Constellation Energy
                              Officer, Constellation Power       Source, Inc., Vice
                              Source Holdings, Inc. (since       President, Chief Financial
                              July 1, 2000),                     Officer & Secretary--BGE
                              CEO and President, Constellation
                              Enterprises, Inc. (since 1998),
                              Chairman of the Board,
                              President, and Chief Executive
                              Officer, Constellation Power
                              Source, Inc. (since 1997)


Robert E. Denton          58 President and Chief Executive      Executive Vice President,
                              Officer of Constellation           Generation--BGE, Senior
                              Nuclear, LLC (since July 1, 2000)  Vice President,
                                                                 Generation--BGE


Frank O. Heintz           57 President and Chief Executive      Executive Vice President,
                              Officer of Baltimore Gas and       Utility Operations--BGE,
                              Electric Company (since July 1,    Vice President, Gas--BGE.
                              2000)


Thomas F. Brady           51 Vice President Corporate Strategy  Vice President, Retail
                              and Development (Since formation   Services--BGE, Vice
                              of Constellation Energy Group as   President, Customer Service
                              the holding company on April 30,   and Distribution--BGE
                              1999; since January 1, 1999 for
                              BGE)


David A. Brune            60 Vice President Finance and         General Counsel--BGE
                              Accounting, Chief Financial
                              Officer and Secretary (Since
                              formation of Constellation
                              Energy Group as the holding
                              company on April 30, 1999; since
                              February 25, 1997 for BGE)
</TABLE>



                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                             Other Offices or Positions
 Name                Age           Present Office            Held During Past Five Years
 ----                ---           --------------            ---------------------------
<S>                  <C> <C>                                <C>
Robert S. Fleishman   47 Vice President Corporate Affairs   General Counsel--BGE,
                          and General Counsel (Since         Associate General Counsel--
                          formation of Constellation         Regulatory at BGE
                          Energy Group as the holding
                          company on April 30, 1999; since
                          May 1, 1998 for BGE)


Janet E. McHugh       43 Vice President Human Resources     Deputy General Counsel and
                          (Since June 1, 2000)               Manager, Legal Department--
                                                             Constellation Energy,
                                                             Associate General Counsel--
                                                             Commercial Unit--BGE
</TABLE>
  (A) Chief Executive Officer, Director, and member of the Executive
      Committee.
  (B) Director and member of the Executive Committee, Long-Range Strategy
      Committee, and Risk Management Committee.

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

--------------------------------------------------------------------------------

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

Stock Trading
Constellation Energy's common stock is traded under the ticker symbol CEG. It
is listed on the New York, Chicago, and Pacific stock exchanges. It has
unlisted trading privileges on the Boston, Cincinnati, and Philadelphia
exchanges.
   As of February 28, 2001, there were 58,650 common shareholders of record.

Dividend Policy
Constellation Energy pays dividends on its common stock after its Board of
Directors declares them. There is no limitation on Constellation Energy paying
common stock dividends.
   BGE pays dividends on its common stock after its Board of Directors declares
them. There is no limitation on BGE paying common stock dividends unless:
   . BGE elects to defer interest payments on the 7.16% Deferrable Interest
     Subordinated Debentures due June 30, 2038, and any deferred interest
     remains unpaid; or
   . all dividends (and any redemption payments) due on BGE's preference stock
     have not been paid.
   Dividends have been paid on the common stock continuously since 1910. Future
dividends depend upon future earnings, our financial condition, and other
factors. Effective April 2001, our annual dividend is expected to be set at
$.48 per share ($.12 quarterly). Upon separation, BGE Corp. expects to pay
initial annual dividends of $.48 per share, and Constellation Energy Group, as
a growing merchant energy company, initially expects to reinvest its earnings
in order to fund its growth plans and not to pay a dividend.
   Quarterly dividends were declared on the common stock during 2000 and 1999
in the amounts set forth below. Dividends paid prior to April 30, 1999 were on
BGE common stock. As a result of the share exchange, Constellation Energy is
the successor of BGE.
--------------------------------------------------------------------------------

                    Common Stock Dividends and Price Ranges

<TABLE>
<CAPTION>
                                            2000                   1999
                                   ---------------------- ----------------------
                                               Price*                 Price*
                                   Dividend ------------- Dividend -------------
                                   Declared  High   Low   Declared  High   Low
                                   -------- ------ ------ -------- ------ ------
<S>                                <C>      <C>    <C>    <C>      <C>    <C>
First Quarter.....................  $ .42   $33.81 $27.06  $ .42   $31.13 $24.69
Second Quarter....................    .42    35.69  31.25    .42    31.38  25.13
Third Quarter.....................    .42    52.06  32.06    .42    30.88  27.19
Fourth Quarter....................    .42    50.50  37.88    .42    31.50  27.50
                                    -----                  -----
Total.............................  $1.68                  $1.68
                                    =====                  =====
</TABLE>
* Based on New York Stock Exchange Composite Transactions as reported in THE
  WALL STREET JOURNAL.

                                       21
<PAGE>


Item 6. SELECTED FINANCIAL DATA

Constellation Energy Group Inc., and Subsidiaries

<TABLE>
<CAPTION>
                                                                    2000       1999        1998       1997        1996
----------------------------------------------------------------------------------------------------------------------------
                                                               (Dollar amounts in millions, except per share amounts)
<S>                                                            <C>         <C>         <C>        <C>         <C>
Summary of Operations
  Total Revenues                                               $ 3,878.5   $3,786.2    $3,386.4   $3,307.6    $3,153.2
  Total Expenses                                                 3,038.3    3,026.3     2,647.9    2,584.0     2,483.7
----------------------------------------------------------------------------------------------------------------------------
  Income From Operations                                           840.2      759.9       738.5      723.6       669.5
  Other Income (Expense)                                             6.6        7.9         5.7      (52.8)        6.1
----------------------------------------------------------------------------------------------------------------------------
  Income Before Fixed Charges and Income Taxes                     846.8      767.8       744.2      670.8       675.6
  Fixed Charges                                                    271.4      255.0       260.6      258.7       237.0
----------------------------------------------------------------------------------------------------------------------------
  Income Before Income Taxes                                       575.4      512.8       483.6      412.1       438.6
  Income Taxes                                                     230.1      186.4       177.7      158.0       166.3
----------------------------------------------------------------------------------------------------------------------------
  Income Before Extraordinary Item                                 345.3      326.4       305.9      254.1       272.3
  Extraordinary Loss, Net of Income Taxes                             --      (66.3)         --         --          --
----------------------------------------------------------------------------------------------------------------------------
  Net Income                                                   $   345.3   $  260.1    $  305.9   $  254.1    $  272.3
============================================================================================================================
  Earnings Per Share of Common Stock and
   Earnings Per Share of Common Stock--
   Assuming Dilution Before Extraordinary Item                 $    2.30   $   2.18    $   2.06   $   1.72    $   1.85
  Extraordinary Loss, Net of Income Taxes                             --       (.44)         --         --          --
----------------------------------------------------------------------------------------------------------------------------
  Earnings Per Share of Common Stock and
   Earnings Per Share of Common Stock--
   Assuming Dilution                                           $    2.30   $   1.74    $   2.06   $   1.72    $   1.85
============================================================================================================================
  Dividends Declared Per Share of Common Stock                 $    1.68   $   1.68    $   1.67   $   1.63    $   1.59
============================================================================================================================


Summary of Financial Condition
  Total Assets                                                 $12,384.6   $9,683.8    $9,434.1   $8,900.0    $8,678.2
============================================================================================================================
  Capitalization
   Long-term debt                                              $ 3,159.3   $2,575.4    $3,128.1   $2,988.9    $2,758.8
   Redeemable preference stock                                        --         --          --       90.0       134.5
   Preference stock not subject to mandatory
    redemption                                                     190.0      190.0       190.0      210.0       210.0
   Common shareholders' equity                                   3,153.0    2,993.0     2,981.5    2,870.4     2,854.7
----------------------------------------------------------------------------------------------------------------------------
  Total Capitalization                                         $ 6,502.3   $5,758.4    $6,299.6   $6,159.3    $5,958.0
============================================================================================================================


Financial Statistics at Year End
  Ratio of Earnings to Fixed Charges                                2.78       2.87        2.60       2.35        2.44
  Book Value Per Share of Common Stock                         $   20.95   $  20.01    $  19.98   $  19.44    $  19.33
  Number of Common Shareholders (In Thousands)                      60.1       66.1        69.9       73.7        77.6
</TABLE>

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


                                      22
<PAGE>

Baltimore Gas and Electric Company and Subsidiaries
<TABLE>
<CAPTION>
                                                                    2000       1999        1998       1997        1996
----------------------------------------------------------------------------------------------------------------------------
                                                               (Dollar amounts in millions, except per share amounts)
<S>                                                            <C>         <C>         <C>        <C>         <C>
Summary of Operations
 Total Revenues                                                $ 2,746.8   $3,092.2    $3,386.4   $3,307.6    $3,153.2
 Total Expenses                                                  2,336.7    2,387.9     2,647.9    2,584.0     2,483.7
----------------------------------------------------------------------------------------------------------------------------
 Income From Operations                                            410.1      704.3       738.5      723.6       669.5
 Other Income (Expense)                                              9.8        8.4         5.7      (52.8)        6.1
----------------------------------------------------------------------------------------------------------------------------
 Income Before Fixed Charges and Income Taxes                      419.9      712.7       744.2      670.8       675.6
 Fixed Charges                                                     184.0      205.9       238.8      230.0       198.5
----------------------------------------------------------------------------------------------------------------------------
 Income Before Income Taxes                                        235.9      506.8       505.4      440.8       477.1
 Income Taxes                                                       92.4      178.4       177.7      158.0       166.3
----------------------------------------------------------------------------------------------------------------------------
 Income Before Extraordinary Item                                  143.5      328.4       327.7      282.8       310.8
 Extraordinary Loss, Net of Income Taxes                              --      (66.3)         --         --          --
----------------------------------------------------------------------------------------------------------------------------
 Net Income                                                        143.5      262.1       327.7      282.8       310.8
 Preference Stock Dividends                                         13.2       13.5        21.8       28.7        38.5
----------------------------------------------------------------------------------------------------------------------------
 Earnings Applicable to Common Stock                           $   130.3   $  248.6    $  305.9   $  254.1    $  272.3
============================================================================================================================


Summary of Financial Condition
 Total Assets                                                  $ 4,654.2   $7,272.6    $9,434.1   $8,900.0    $8,678.2
============================================================================================================================
 Capitalization
  Long-term debt                                               $ 1,864.4   $2,206.0    $3,128.1   $2,988.9    $2,758.8
  Redeemable preference stock                                         --         --          --       90.0       134.5
  Preference stock not subject to mandatory
   redemption                                                      190.0      190.0       190.0      210.0       210.0
  Common shareholders' equity                                      802.3    2,355.4     2,981.5    2,870.4     2,854.7
----------------------------------------------------------------------------------------------------------------------------
 Total Capitalization                                          $ 2,856.7   $4,751.4    $6,299.6   $6,159.3    $5,958.0
============================================================================================================================


Financial Statistics at Year End
 Ratio of Earnings to Fixed Charges                                 2.27       3.45        2.94       2.78        3.10
 Ratio of Earnings to Combined Fixed Charges and
  Preferred and Preference Stock Dividends                          2.03       3.14        2.60       2.35        2.44
</TABLE>

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


                                      23
<PAGE>


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


INTRODUCTION

On April 30, 1999, Constellation Energy(R) Group, Inc. (Constellation Energy)
became the holding company for Baltimore Gas and Electric Company (BGE(R)) and
Constellation(R) Enterprises, Inc. Constellation Enterprises was previously
owned by BGE.

  This report 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. Reference in this report to the "utility business"
is to BGE.

  Constellation Energy's subsidiaries primarily include a domestic merchant
energy business focused mostly on power marketing and merchant generation in
North America, and BGE.

  We realigned our organization in response to the deregulation of electric
generation in Maryland. In the first quarter of 2000, we combined our wholesale
power marketing operation with our domestic plant development and operation
activities to form a domestic merchant energy business. At the same time, we
revised our operating segments to reflect those realignments as presented in
Note 2.

  On July 1, 2000, as a result of the deregulation of electric generation, BGE
transferred its generating assets and related liabilities at book value to new
nonregulated subsidiaries -- Calvert Cliffs Nuclear Power Plant, Inc. and
Constellation Power Source Generation, Inc. We discuss the deregulation of
electric generation in the Current Issues--Electric Competition section.

  Effective July 1, 2000, we formed a nonregulated holding company,
Constellation Power Source Holdings, Inc., that oversees:

  . the wholesale power marketing and risk management activities of
    Constellation Power Source,(TM) Inc.,
  . the domestic power projects of Constellation Investments,(TM) Inc. and
    Constellation Power,(TM) Inc., and subsidiaries, and
  . the generating assets of Constellation Power Source Generation, Inc.

  As a result of these changes, our domestic merchant energy business includes
the operations of Constellation Power Source Holdings, the nuclear generation of
Calvert Cliffs Nuclear Power Plant, Inc., and the nuclear consulting services of
Constellation Nuclear,(TM) LLC.

  Also, effective July 1, 2000, the financial results of the electric generation
portion of our business are included in the domestic merchant energy business.
Prior to that date, the financial results of electric generation were included
in BGE's regulated electric business.

  BGE remains a regulated electric and gas public utility distribution company
with a service territory in the City of Baltimore and all or part of ten
counties in Central Maryland.

  Our other nonregulated businesses include the:

  . Latin American power projects of Constellation Power, and subsidiaries,
  . energy products and services of Constellation Energy Source,(TM) Inc.,
  . home products, commercial building systems, and residential and commercial
    electric and gas retail marketing of BGE Home Products & Services,(TM) Inc.
    and subsidiaries,
  . general partnership, in which BGE is a partner, of District Chilled Water
    General Partnership (ComfortLink(R)) that provides cooling services for
    commercial customers in Baltimore,
  . financial investments of Constellation Investments, and
  . real estate holdings and senior-living facilities of Constellation Real
    Estate Group,(TM) Inc.

  As discussed further in the Strategy section, on October 23, 2000, we
announced initiatives to separate our domestic merchant energy business from our
remaining businesses. These remaining businesses include BGE and the other
nonregulated businesses described above.

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

  . what factors affect our businesses,
  . what our earnings and costs were in 2000 and 1999,
  . why our earnings and costs changed from the year before,
  . where our earnings come from,
  . how all of this affects our overall financial condition,
  . what our expenditures for capital projects were for 1998 through 2000, and
    what we expect them to be through 2003, and
  . where we expect to get cash for future capital expenditures.

  As you read this discussion and analysis, refer to our Consolidated Statements
of Income, which present the results of our operations for 2000, 1999, and 1998.
We analyze and explain the differences between periods by operating segment. Our
analysis is important in making decisions about your investments in
Constellation Energy and/or BGE.

  Also, this discussion and analysis is based on the operation of the electric
generation portion of our utility business under rate regulation through June
30, 2000. Our regulated electric business changed as we transferred our electric
generation assets and related liabilities to our domestic merchant energy
business and we entered into retail customer choice for electric generation
effective July 1, 2000. In addition, we announced our intention to separate our
domestic merchant energy business from our remaining businesses. Accordingly,
the results of operations and financial condition described in this discussion
and analysis are not necessarily indicative of future performance.


                                      24
<PAGE>

STRATEGY

Customer choice and regulatory change significantly impact our business. In
response to these, we regularly evaluate our strategies with two goals in mind:
to improve our competitive position, and to anticipate and adapt to regulatory
change. Prior to July 1, 2000, the majority of our earnings were from BGE. Going
forward, prior to separating into two companies, we expect to derive almost two-
thirds of our earnings from our domestic merchant energy business.

  While BGE continues to be regulated and to deliver electricity and natural gas
through its core distribution business, our primary growth strategies center on
the nonregulated domestic merchant energy business with the objective of
providing new sources of earnings growth.

  On October 23, 2000, we announced three initiatives to advance our growth
strategies. The first initiative is that we entered into an agreement (the
"Agreement") with an affiliate of The Goldman Sachs Group, Inc. ("Goldman
Sachs"). Under the terms of the Agreement, Goldman Sachs will acquire up to a
17.5% equity interest in our domestic merchant energy business, which will be
consolidated under a single holding company ("Holdco"). Goldman Sachs will also
acquire a ten-year warrant for up to 13% of Holdco's common stock (subject to
certain adjustments). The warrant is exercisable six months after Holdco's
common stock becomes publicly available. The amount of common stock which
Goldman Sachs may receive upon exercise will be equal to the excess of the
market price of Holdco's common stock at the time of exercise over the exercise
price of $60 per share for all the stock subject to the warrant, divided by the
market price. Holdco may at its option pay Goldman Sachs such excess in cash.
Goldman Sachs is acquiring its interest and the warrant in exchange for $250
million in cash (subject to adjustment in certain instances) and certain assets
related to our power marketing operation. At closing, Goldman Sachs' existing
services agreement with our power marketing operation will terminate.

  The second initiative is a plan to separate our domestic merchant energy
business from our remaining businesses as discussed in the introduction. The
separation will create two stand-alone, publicly traded energy companies. One
will be a merchant energy business engaged in wholesale power marketing and
generation under the name "Constellation Energy Group" after the separation. The
other will be a regional retail energy delivery and energy services company, BGE
Corp., which will include BGE, our other nonregulated businesses, and our
investment in Orion Power Holdings, Inc. ("Orion").

  As a result of the separation, shareholders will continue to own all of
Constellation Energy's current businesses through their ownership of the stock
of the new Constellation Energy Group and of BGE Corp.

  The third initiative is a change in our common stock dividend policy effective
April 2001. In a move closely aligned with our separation plan, effective April
2001, our annual dividend is expected to be set at $.48 per share. After the
separation, BGE Corp. expects to pay initial annual dividends of $.48 per share.
Constellation Energy Group, as a growing merchant energy company, initially
expects to reinvest its earnings in order to fund its growth plans and not to
pay a dividend.

  The closing of the transaction with Goldman Sachs and the separation are
subject to customary closing conditions and contingent upon obtaining regulatory
approvals and a Private Letter Ruling from the Internal Revenue Service
regarding certain tax matters. The transaction and separation are expected to be
completed by mid to late 2001. At the date of this report, we received approval
from the Federal Energy Regulatory Commission (FERC).

  We discuss these strategic initiatives further in our Report on Form 8-K and
exhibits filed with the Securities and Exchange Commission (SEC)on October 23,
2000.

  Currently, our domestic merchant energy business controls over 9,000 megawatts
of generation. In December 2000, we announced that a subsidiary of Constellation
Nuclear will purchase 1,550 megawatts of the 1,757 megawatts total generating
capacity of the Nine Mile Point nuclear power plant located in Scriba, New York.
The total purchase price, including fuel, is $815 million. We discuss the
planned acquisition of the Nine Mile Point power plant in more detail in Note
10.

  We also are constructing generating facilities representing 1,100 megawatts of
natural gas-fired peaking capacity in the Mid-Atlantic and Mid-West regions
which are expected to be operational by the summer of 2001. An additional 6,700
megawatts of natural gas-fired peaking and combined cycle production facilities
in various regions of North America are scheduled for completion in 2002 and
beyond. By 2005, our domestic merchant energy business expects to control
approximately 30,000 megawatts through the construction or purchase of
additional nuclear and non-nuclear generation assets and through contractual
arrangements.

  We decided to exit the Latin American portion of our operation as a result of
our concentration on domestic merchant energy. Currently, we are actively
seeking a buyer for the Latin American portion of our business and are working
toward completing our exit strategy in 2001.

  We also might consider one or more of the following strategies:

  . the complete or partial separation of our transmission and distribution
    functions,
  . mergers or acquisitions of utility or non-utility businesses, and
  . sale of generation assets or one or more businesses.


                                      25
<PAGE>


CURRENT ISSUES

With the shift toward customer choice, competition, and the growth of our
domestic merchant energy business, various factors will affect our financial
results in the future. These factors include, but are not limited to, operating
our generation assets in a deregulated market without the benefit of a fuel rate
adjustment clause, the timing and implications of deregulation in other regions
where our domestic merchant energy business will operate, the loss of revenues
due to customers choosing alternative suppliers, higher volatility of earnings
and cash flows, and increased financial requirements of our domestic merchant
energy business. Please refer to the Forward Looking Statements section for
additional factors.

  In this section, we discuss in more detail several issues that affect our
businesses.

Electric Competition
--------------------
We are facing electric competition on various fronts, including:

  . the construction of generating units to meet increased demand for
    electricity,
  . the sale of electricity in wholesale power markets,
  . competing with alternative energy suppliers, and
  . electric sales to retail customers.

Maryland
--------
On April 8, 1999, Maryland enacted the Electric Customer Choice and Competition
Act of 1999 (the "Act") and accompanying tax legislation that significantly
restructured Maryland's electric utility industry and modified the industry's
tax structure.

  In the Restructuring Order discussed below, the Maryland Public Service
Commission (Maryland PSC) addressed the major provisions of the Act. The
accompanying tax legislation is discussed in detail in Note 4.

  On November 10, 1999, the Maryland PSC issued a Restructuring Order that
resolved the major issues surrounding electric restructuring, accelerated the
timetable for customer choice, and addressed the major provisions of the Act.
The Restructuring Order also resolved the electric restructuring proceeding
(transition costs, customer price protections, and unbundled rates for electric
services) and a petition filed in September 1998 by the Office of People's
Counsel (OPC) to lower our electric base rates. The major provisions of the
Restructuring Order are discussed in Note 4.

  We believe that the Restructuring Order provided sufficient details of the
transition plan to competition for BGE's electric generation business to require
BGE to discontinue the application of Statement of Financial Accounting
Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of
Regulation for that portion of its business. Accordingly, in the fourth quarter
of 1999, we adopted the provisions of SFAS No. 101, Regulated Enterprises--
Accounting for the Discontinuation of FASB Statement No. 71 and Emerging Issues
Task Force Consensus (EITF) No. 97-4, Deregulation of the Pricing of
Electricity--Issues Related to the Application of FASB Statements No. 71 and 101
for BGE's electric generation business. BGE's transmission and distribution
business continues to meet the requirements of SFAS No. 71 as that business
remains regulated. We describe the effect of applying these accounting
requirements in Note 4.

  Please refer to Note 10 for a discussion regarding appeals of the
Restructuring Order.

  As a result of the deregulation of electric generation, the following occurred
effective July 1, 2000:

  . All customers, except a few commercial and industrial companies that have
    signed contracts with BGE, can choose their electric energy supplier. BGE
    will provide a standard offer service for customers that do not select an
    alternative supplier. In either case, BGE will continue to deliver
    electricity to all customers in areas traditionally served by BGE.
  . BGE reduced residential base rates by approximately 6.5%, on average about
    $54 million a year. These rates will not change before July 2006.
  . BGE transferred, at book value, its nuclear generating assets, its nuclear
    decommissioning trust fund, and related liabilities to Calvert Cliffs
    Nuclear Power Plant, Inc. In addition, BGE transferred, at book value, its
    fossil generating assets and related liabilities and its partial ownership
    interest in two coal plants and a hydroelectric plant located in
    Pennsylvania to Constellation Power Source Generation. In total, these
    generating assets represent about 6,240 megawatts of generation capacity
    with a total net book value at June 30, 2000 of approximately $2.4 billion.
  . BGE assigned approximately $47 million to Calvert Cliffs Nuclear Power
    Plant, Inc. and $231 million to Constellation Power Source Generation of
    tax-exempt debt related to the transferred assets. Also, Constellation Power
    Source Generation issued approximately $366 million in unsecured promissory
    notes to BGE. Repayments of the notes by Constellation Power Source
    Generation will be used exclusively to service the current maturities of
    certain BGE long-term debt.
  . BGE transferred equity associated with the generating assets to Calvert
    Cliffs Nuclear Power Plant, Inc. and Constellation Power Source Generation.
  . The fossil fuel and nuclear fuel inventories, materials and supplies, and
    certain purchased power contracts of BGE were also assumed by these
    subsidiaries.

                                      26

<PAGE>

  Effective July 1, 2000, BGE provides standard offer service to customers at
fixed rates over various time periods during the transition period for those
customers that do not choose an alternate supplier. In addition, the electric
fuel rate was discontinued effective July 1, 2000. Constellation Power Source
provides BGE with the energy and capacity required to meet its standard offer
service obligations for the first three years of the transition period.
Thereafter, BGE will competitively bid the energy and capacity.

  Constellation Power Source obtains the energy and capacity to supply BGE's
standard offer service obligations from affiliates that own Calvert Cliffs
Nuclear Power Plant (Calvert Cliffs) and BGE's former fossil plants,
supplemented with energy and capacity purchased from the wholesale market as
necessary.

Other States
------------
Our domestic merchant energy business is focused on expanding its business
through marketing energy products to wholesale customers and acquiring control
of additional generating facilities. This business will focus on states with
strong growth in energy demand and that provide opportunities through ongoing
deregulation and the creation of competitive markets. Delays in, or the ultimate
form of, deregulation of electric generation in various states may affect our
domestic merchant energy business strategy.

  Our domestic merchant energy business has $297.9 million invested in power
projects that sell 142 megawatts of electricity in California under power
purchase agreements as discussed in the California Power Purchase Agreements
section. The counterparties to the agreements are two California investor-owned
utilities. Due to various factors, including shortage of generation and the high
cost of natural gas, these utilities' financial condition was severely impacted
because they were paying more for power than they were allowed to recover from
their customers under the deregulation plan in California. As a result, these
utilities have not been able to maintain current payments for the power they
purchased to meet their customers' energy needs and the credit ratings of these
utilities were downgraded below investment grade. The governor and legislature
of California have undertaken emergency actions to stabilize the financial
condition of the two utilities by purchasing power on behalf of these utilities
and pursuing legislation that should permit the utilities to pay their power
costs.

  In the meantime, these utilities have not been paying our California projects
in full for power supplied to them from December 2000. As of the date of this
report, our portion of the amount due from these utilities is approximately $42
million. While we expect to be paid for this power, we cannot predict when
payment will occur or if full payment will be received. We have taken reserves
in amounts we believe to be reasonable under the circumstances. On March 27,
2001, the California Public Utilities Commission issued an order for an
immediate retail rate increase. Accordingly, we expect that this order should
enable these utilities to pay us for all future power supplied to these
utilities. However, if the ultimate resolution of the events in California
prevents collection of unpaid balances under power purchase agreements by some
or all of our projects, it could have a material impact on our financial
results. Additionally, if the events in California result in a modification or
termination of these agreements that reduces future cash flows, we would have to
evaluate whether our investments in the power projects that are parties to the
agreements are impaired. An impairment of these investments could have a
material impact on our financial results. Our domestic merchant energy business
does not have any other direct agreements with these utilities. However, we may
be impacted if one or more of our other counterparties is significantly affected
by the events in California, or by the operation of the California Power
Exchange.

Gas Competition
---------------
Currently, no regulation exists for the wholesale price of natural gas as a
commodity, and the regulation of interstate transmission at the federal level
has been reduced. All BGE gas customers have the option to purchase gas from
other suppliers.

Regulation by the Maryland PSC
------------------------------
In addition to electric restructuring which was discussed earlier, regulation by
the Maryland PSC influences BGE's businesses.

  Under traditional rate regulation that continues after July 1, 2000 for BGE's
electric transmission and distribution, and gas businesses, the Maryland PSC
determines the rates we can charge our customers. Prior to July 1, 2000, BGE's
regulated electric rates consisted primarily of a "base rate" and a "fuel rate."
Effective July 1, 2000, BGE discontinued its electric fuel rate and unbundled
its rates to show separate components for delivery service, competitive
transition charges, standard offer services (generation), transmission,
universal service, and taxes. The rates for BGE's regulated gas business
continue to consist of a "base rate" and a "fuel rate."

Base Rate
---------
The base rate is the rate the Maryland PSC allows BGE to charge its customers
for the cost of providing them service, plus a profit. BGE has both an electric
base rate and a gas base rate. Higher electric base rates apply during the
summer when the demand for electricity is higher. Gas base rates are not
affected by seasonal changes.

  BGE may ask the Maryland PSC to increase base rates from time to time. The
Maryland PSC historically has allowed BGE to increase base rates to recover
increased utility fixed asset costs, plus a profit, beginning at the time of
replacement. Generally, rate increases improve our utility earnings because they
allow us to collect more revenue. However, rate increases are normally granted
based on historical data and those increases may not always keep pace with
increasing costs. Other parties may petition the Maryland PSC to decrease base
rates.


                                      27

<PAGE>

  On November 17, 1999, BGE filed an application with the Maryland PSC to
increase its gas base rates. On June 19, 2000, the Maryland PSC authorized a
$6.4 million annual increase in our gas base rates effective June 22, 2000. As a
result of the Restructuring Order, BGE's residential electric base rates are
frozen until 2006.

  Electric delivery service rates are frozen for a four-year period for
commercial and industrial customers. The generation and transmission components
of rates are frozen for different time periods depending on the service options
selected by those customers.

Fuel Rate
---------
Through June 30, 2000, we charged our electric customers separately for the fuel
we used to generate electricity (nuclear fuel, coal, gas, or oil) and for the
net cost of purchases and sales of electricity. We charged the actual cost of
these items to the customer with no profit to us. If these fuel costs went up,
the Maryland PSC permitted us to increase the fuel rate.

  Under the Restructuring Order, BGE's electric fuel rate was frozen until July
1, 2000, at which time the fuel rate clause was discontinued. We deferred the
difference between our actual costs of fuel and energy and what we collected
from customers under the fuel rate through June 30, 2000.

  In September 2000, the Maryland PSC approved the collection of the $54.6
million accumulated difference between our actual costs of fuel and energy and
the amounts collected from customers that were deferred under the electric fuel
rate clause through June 30, 2000. We are collecting this accumulated difference
from customers over the twelve-month period beginning October 2000. Effective
July 1, 2000, our earnings are affected by the changes in the cost of fuel and
energy.

  We charge our gas customers separately for the natural gas they purchase from
us. The price we charge for the natural gas is based on a market based rates
incentive mechanism approved by the Maryland PSC. We discuss market based rates
in more detail in the Gas Cost Adjustments section and in Note 1.

FERC Regulation--Regional Transmission Organizations
----------------------------------------------------
In December 1999, FERC issued Order 2000, amending its regulations under the
Federal Power Act to advance the formation of Regional Transmission
Organizations (RTOs). The regulations require that each public utility that
owns, operates, or controls facilities for the transmission of electric energy
in interstate commerce make certain filings with respect to forming and
participating in a RTO. FERC also identified the minimum characteristics and
functions that a transmission entity must satisfy in order to be considered a
RTO.

  According to Order 2000, a public utility that is a member of an existing
transmission entity that has been approved by FERC as in conformance with the
Independent System Operator (ISO) principles set forth in the FERC Order No.
888, such as BGE, through its membership in PJM (Pennsylvania-New Jersey-
Maryland) Interconnection, was required to make a filing no later than January
15, 2001. PJM and the joint transmission owners, including BGE, made the filing
on October 11, 2000. That filing explained the extent to which PJM met the
minimum characteristics and functions of a RTO and explained its plans to
conform to these characteristics and functions.

  As a member of PJM, an existing ISO, BGE does not expect to be materially
impacted by Order 2000. However, we are appealing two requirements of Order 2000
whereby:

  . we would have to go through PJM to make a filing with FERC to change our
    transmission rates, and
  . we would have to transfer operational control of our transmission facilities
    to PJM.

  The U.S. Supreme Court agreed to hear an appeal by others of FERC Order 888.
We cannot predict the outcome of this appeal or the impact on BGE at this time.

Weather
-------
Domestic Merchant Energy Business
---------------------------------
Weather conditions in the different regions of North America influence the
financial results of our domestic merchant energy business. Typically, demand
for electricity and its price are higher in the summer and the winter, when
weather is more extreme. However, all regions of North America typically do not
experience extreme weather conditions at the same time. Since the majority of
our generating plants currently are located in PJM, our financial results are
affected, to a greater extent, by weather conditions in this area. However, by
2005, we expect to control approximately 30,000 megawatts of generation
throughout various regions of North America.

  Current weather conditions also can affect the forward market price of energy
commodity and derivative contracts used by our power marketing operation that
are accounted for on a mark-to-market basis. To the extent that our power
marketing operation purchases and sells such contracts, our financial results
could be influenced by the impact that weather conditions have on the market
price of such contracts.

BGE
---
Weather affects the demand for electricity and gas for our regulated businesses.
Very hot summers and very cold winters increase demand. Mild weather reduces
demand. Residential sales for our regulated businesses are impacted more by
weather than commercial and industrial sales, which are mostly affected by
business needs for electricity and gas.

  However, the Maryland PSC allows us to record a monthly adjustment to our
regulated gas business revenues to eliminate the effect of abnormal weather
patterns. We discuss this further in the Weather Normalization section.

  We measure the weather's effect using "degree days." A degree day is the
difference between the average daily actual temperature and a baseline
temperature of 65 degrees.


                                      28
<PAGE>

Cooling degree days result when the average daily actual temperature exceeds the
65 degree baseline. Heating degree days result when the average daily actual
temperature is less than the baseline.

  During the cooling season, hotter weather is measured by more cooling degree
days and results in greater demand for electricity to operate cooling systems.
During the heating season, colder weather is measured by more heating degree
days and results in greater demand for electricity and gas to operate heating
systems.

  We show the number of cooling and heating degree days in 2000 and 1999, the
percentage change in the number of degree days from the prior year, and the
number of degree days in a "normal" year as represented by the 30-year average
in the following table.

                                               30-year
                              2000     1999    Average
--------------------------------------------------------
Cooling degree days            736      845        840
Percentage change from
 prior year                  (12.9)%   (7.7)%
Heating degree days          4,936    4,585      4,771
Percentage change from
 prior year                    7.7%    11.3%

Other Factors
-------------
Other factors, aside from weather, impact the demand for electricity and gas in
our regulated businesses. These factors include the "number of customers" and
"usage per customer" during a given period. We use these terms later in our
discussions of regulated electric and gas operations. In those sections, we
discuss how these and other factors affected electric and gas sales during the
periods presented.

  The number of customers in a given period is affected by new home and
apartment construction and by the number of businesses in our service territory.
Under the Restructuring Order, BGE's electric customers can become delivery
service customers only and can purchase their electricity from other sources. We
will collect a delivery service charge to recover the fixed costs for the
service we provide. The remaining electric customers will receive standard offer
service from BGE at the fixed rates provided by the Restructuring Order. Usage
per customer refers to all other items impacting customer sales that cannot be
measured separately. These factors include the strength of the economy in our
service territory. When the economy is healthy and expanding, customers tend to
consume more electricity and gas. Conversely, during an economic downtrend, our
customers tend to consume less electricity and gas.

Environmental and Legal Matters
-------------------------------
You will find details of our environmental and legal matters in Note 10. You
will find additional details of our environmental matters under Item 1.
Business -- Environmental Matters. Some of the information is about costs that
may be material to our financial results.

Accounting Standards Issued
---------------------------
We discuss recently issued accounting standards in Note 1.



RESULTS OF OPERATIONS

In this section, we discuss our earnings and the factors affecting them. We
begin with a general overview, then separately discuss earnings for our
operating segments. Changes in fixed charges and income taxes are discussed in
the aggregate for all segments in the Consolidated Nonoperating Income and
Expenses section.

Overview
--------
Total Earnings Per Share of Common Stock
                                               2000*    1999     1998
------------------------------------------------------------------------
Earnings before nonrecurring
 charges included in operations:
  Domestic merchant energy                    $1.48    $ .44    $ .36
  Regulated electric                            .71     1.81     1.75
  Regulated gas                                 .20      .22      .18
  Other nonregulated                            .04      .01     (.09)
------------------------------------------------------------------------
Total earnings per share before
 nonrecurring charges included
 in operations:                                2.43     2.48     2.20
Nonrecurring charges included
 in operations (see Note 2):
  Deregulation transition
   cost                                        (.10)      --       --
  TVSERP                                       (.03)      --       --
  Hurricane Floyd                                --     (.03)      --
  Write-downs of power
   projects                                      --     (.12)      --
  Write-off of energy
   services investment                           --       --     (.04)
  Write-down of financial
   investment                                    --     (.11)      --
  Write-down of real estate
   and senior-living
   investments                                   --     (.04)    (.10)
------------------------------------------------------------------------
Total earnings per share before
 extraordinary item                            2.30     2.18     2.06
Extraordinary loss (see Note 4)                  --     (.44)      --
------------------------------------------------------------------------
Total earnings per share                      $2.30    $1.74    $2.06
========================================================================

*Earnings for the years presented reflect a significant shift from the regulated
electric business to the domestic merchant energy business as a result of the
transfer of BGE's electric generation assets to nonregulated subsidiaries on
July 1, 2000 in accordance with the Restructuring Order. We discuss the
Restructuring Order in more detail in Note 4.


                                      29
<PAGE>

2000
----
Our 2000 total earnings increased $85.2 million, or $.56 per share, compared to
1999 mostly because we recorded an extraordinary charge of $66.3 million, or
$.44 per share, associated with the deregulation of the electric generation
portion of our business in 1999. In addition, we recorded several nonrecurring
charges in 1999 that had a negative impact in that year as discussed below. In
2000, we recorded the following nonrecurring charges in operations:

  . $15.0 million after-tax, or $.10 per share, deregulation transition cost in
    June 2000 to a third party incurred by our power marketing operation to
    provide BGE's standard offer service requirements, and
  . $4.2 million after-tax, or $.03 per share, expense during the first and
    second quarters of 2000 for BGE employees that elected to participate in a
    Targeted Voluntary Special Early Retirement Program (TVSERP).

  Earnings before nonrecurring charges included in operations decreased $7.3
million, or $.05 per share, mostly because we recognized $29.9 million, or $18.1
million after-tax, of the 6.5% annual residential rate reduction that was
effective July 1, 2000 and we had higher interest costs in 2000 compared to
1999. We also recognized $5.7 million after-tax, or $.04 per share, for
contributions to the universal service fund relating to the deregulation of
electric generation. These decreases were offset partially by higher earnings in
our domestic merchant energy and our other nonregulated businesses.

  In 2000, earnings from our domestic merchant energy business before
nonrecurring charges increased compared to 1999 because of higher earnings in
both our power marketing and domestic generation operations.

  In 2000, earnings from our other nonregulated businesses increased mostly
because of higher earnings in our financial investments operation.

1999
----
Our 1999 total earnings decreased $45.8 million, or $.32 per share, compared to
1998. Our total earnings decreased mostly because we recorded an extraordinary
charge associated with the deregulation of the electric generation portion of
our business. We discuss the extraordinary charge in Note 4. Our 1999 total
earnings also include the following nonrecurring items included in our
operations:

  . Our regulated electric business recorded $4.9 million after-tax, or $.03 per
    share, of expenses related to Hurricane Floyd.
  . Our domestic generation operation recorded write-downs of certain power
    projects for $14.2 million after-tax, or $.09 per share, and our Latin
    American operation recorded a $4.5 million after-tax, or $.03 per share,
    write-down of a power project.
  . Our financial investments operation recorded a $16.0 million after-tax, or
    $.11 per share, write-down of a financial investment.
  . Our real estate and senior-living facilities operation recorded a $5.8
    million after-tax, or $.04 per share, write-down of certain senior-living
    facilities.

  These decreases were offset partially by higher earnings from regulated
utility, domestic merchant energy, and other nonregulated business operations
excluding nonrecurring charges.

  In 1999, regulated utility earnings before the extraordinary charge increased
compared to 1998 mostly because we had higher electricity and gas system sales
that year, and we settled a capacity contract with PECO Energy Company in 1998
that had a negative impact on earnings in that year. This increase was offset
partially by higher depreciation and amortization expense mostly due to the
$75.0 million amortization of the regulatory asset recorded in 1999 for the
reduction of our generation plant under the Restructuring Order, which reduced
1999 earnings by $48.8 million.

  In 1999, earnings from our domestic merchant energy business before
nonrecurring charges increased compared to 1998 mostly because of higher
earnings from our power marketing operation.

  In 1999, earnings from our other nonregulated businesses before nonrecurring
charges increased compared to 1998 mostly because of higher earnings from our
Latin American and real estate and senior-living facilities operations.

  In the following sections, we discuss our earnings by business segment in
greater detail.

Domestic Merchant Energy Business
---------------------------------
Our domestic merchant energy business engages primarily in power marketing and
domestic power generation. As discussed in the Current Issues--Electric
Competition section, our domestic merchant energy business was significantly
impacted by the July 1, 2000 implementation of customer choice in Maryland. At
that time, BGE's generating assets became part of our nonregulated domestic
merchant energy business, and Constellation Power Source began selling to BGE
the energy and capacity required to meet its standard offer service obligations
for the first three years of the transition period.

  Constellation Power Source obtains the energy and capacity to supply BGE's
standard offer service obligations from affiliates that own Calvert Cliffs and
BGE's former fossil plants, supplemented with energy and capacity purchased from
the wholesale market as necessary. Constellation Power Source also manages our
wholesale market price risk.

  In addition, effective July 1, 2000, domestic merchant energy business
revenues include 90% of the competitive transition charges BGE collects from its
customers (CTC revenues) and the portion of BGE's revenues providing for nuclear
decommissioning costs.

                                      30
<PAGE>

  Our earnings are exposed to various market risks as discussed in the Market
Risk section. For example, our earnings are exposed to the risks of the
competitive wholesale electricity market to the extent that our domestic
merchant energy business has to purchase energy and/or capacity to meet
obligations to supply power or meet other energy-related contractual
arrangements at prices which may approach or exceed the applicable fixed sales
price obligations. If the price of obtaining energy in the wholesale market
exceeds the fixed sales price, our earnings would be adversely affected. We also
are affected by operational risk, that is, the risk that a generating plant will
not be available to produce energy when the energy is required. Imbalances in
demand and supply can occur not only because of plant outages, but also because
of transmission constraints, or extreme temperatures (hot or cold) causing
demand to exceed available supply.

  We cannot estimate the impact of the increased financial risks associated with
the competitive wholesale electricity market. However, these financial risks
could have a material impact on our financial results.

Earnings
                                               2000      1999      1998
--------------------------------------------------------------------------
                                (In millions, except per share amounts)
Revenues                                     $992.0    $212.9    $147.3
Operating expenses                            534.3     111.1      47.8
Depreciation and amortization                  80.9       5.0       3.0
Taxes other than income taxes                  24.1        --        --
--------------------------------------------------------------------------
Income from operations                       $352.7    $ 96.8    $ 96.5
==========================================================================
Net income                                   $206.8    $ 52.4    $ 53.1
==========================================================================
Total earnings per share before
   nonrecurring charges
   included in operations:                   $ 1.48    $  .44    $  .36
     Deregulation transition cost              (.10)       --        --
     Write-down of power projects                --      (.09)       --
--------------------------------------------------------------------------
Earnings per share                           $ 1.38    $  .35    $  .36
==========================================================================

Above amounts include intercompany transactions eliminated in our Consolidated
Financial Statements. Note 2 provides a reconciliation of operating results by
segment to our Consolidated Financial Statements.


Revenues
--------
Our 2000 domestic merchant energy revenues increased $779.1 million compared to
1999 mostly because of:

  . a $581.0 million increase related to providing BGE the energy and capacity
    required to meet its standard offer service obligation effective July 1,
    2000,
  . a $110.0 million increase related to CTC and decommissioning revenues
    included in the domestic merchant energy business effective July 1, 2000,
    and
  . higher revenues from our power marketing and domestic generation operations.

  Our 1999 domestic merchant energy revenues increased $65.6 million compared to
1998 mostly because of higher revenues from our power marketing operation offset
partially by lower revenues from our domestic generation operation.

  We discuss the revenues for our power marketing and domestic generation
operations in the sections below.

Power Marketing
---------------
Power marketing revenues increased during 2000 compared to 1999 mostly because
of higher transaction volumes in the Mid-Atlantic, Texas, and West regions,
offset partially by lower margins.

  Power marketing revenues increased during 1999 compared to 1998 mostly because
of higher transaction margins and volumes.

  Constellation Power Source uses the mark-to-market method of accounting. We
discuss the mark-to-market method of accounting and Constellation Power Source's
activities in more detail in Note 1. As a result of the nature of its operations
and the use of mark-to-market accounting, Constellation Power Source's revenues
and earnings will fluctuate. We cannot predict these fluctuations, but the
effect on our revenues and earnings could be material. The primary factors that
cause these fluctuations are:

  . the number and size of new transactions,
  . the magnitude and volatility of changes in commodity prices and interest
    rates, and
  . the number and size of open commodity and derivative positions Constellation
    Power Source holds or sells.

  Constellation Power Source's management uses its best estimates to determine
the fair value of commodity and derivative positions it holds and sells. These
estimates consider various factors including closing exchange and over-the-
counter price quotations, time value, volatility factors, and credit exposure.
However, it is possible that future market prices could vary from those used in
recording assets and liabilities from power marketing and trading activities,
and such variations could be material. Assets and liabilities from energy
trading activities (as shown in our Consolidated Balance Sheets) increased
significantly at December 31, 2000 compared to December 31, 1999 because of
business growth during the period and increased market prices at the end of
2000.

                                      31
<PAGE>

Domestic Generation
-------------------
Our domestic generation revenues increased during 2000 compared to 1999 mostly
because of three factors:

  . Our domestic generation operation recognized $13.3 million on the
    termination of an operating arrangement and the sale of certain
    subsidiaries. In April 2000, Constellation Operating Services, Inc. (COSI),
    a subsidiary of Constellation Power, Inc., ended its exclusive arrangement
    with Orion to operate Orion's facilities. Orion purchased from COSI the four
    subsidiary companies formed to operate power plants owned by Orion.
  . In November 2000, our domestic generation operation recorded a $19.2 million
    gain on the sale of approximately 3.2 million shares of Orion stock.
  . In 1999, our domestic generation operation recorded a write-off of two
    geothermal power projects as discussed below, which had a negative impact in
    that year.

  In 1999, our domestic generation revenues decreased compared to 1998 mostly
because of three factors:

  . Our domestic generation operation wrote-off two geothermal power projects
    that totaled $21.4 million. These write-offs occurred because the expected
    future cash flows from the projects were less than the investment in the
    projects. For the first project, this resulted from the inability to
    restructure certain project agreements. For the second project, the water
    temperature of the geothermal resource used by one of the plants for
    production declined.
  . In 1998, our domestic generation operation recorded a $17.2 million gain for
    its share of earnings in a partnership. The partnership recognized a gain on
    the sale of its ownership interest in a power purchase agreement.
  . Revenues from our California power purchase agreements decreased as
    discussed below.

California Power Purchase Agreements
------------------------------------
Our domestic generation operation has $297.9 million invested in 14 projects
that sell electricity in California under power purchase agreements called
"Interim Standard Offer No. 4" agreements.

  Under these agreements, the electricity rates changed from fixed rates to
variable rates beginning in 1996. In 2000, the last four projects transitioned
to variable rates. In 1999 and prior years, the projects that transitioned to
variable rates had lower revenues under variable rates than they did under fixed
rates. In 2000, the prices received under these agreements were higher due to
increases in the variable-rate pricing terms. However, due to the uncertainties
in California, the recent increases in prices may not be indicative of future
prices. We discuss the developments in California in the Current Issues--
Electric Competition section.

  We also describe these projects and the transition process in Note 3 and Note
10.

Operating Expenses
------------------
During 2000, domestic merchant energy operating expenses increased $423.2
million compared to 1999 mostly because of three factors:

  . An increase of $191.6 million in fuel costs and $157.2 million in operations
    and maintenance costs. These costs were associated with the generation
    plants that were transferred from BGE effective July 1, 2000.
  . A $24.0 million deregulation transition cost in June 2000 to a third party
    incurred by our power marketing operation to provide BGE's standard offer
    service requirements.
  . An increase in power marketing operating expenses due to the growth of the
    operation.

  During 1999, domestic merchant energy operating expenses increased $63.3
million compared to 1998 mostly because of the growth in our power marketing
operation.

Depreciation and Amortization Expense
-------------------------------------
In 2000, domestic merchant energy depreciation and amortization expense
increased $75.9 million compared to 1999 mostly because of $73.8 million of
expenses associated with the generation plants that were transferred from BGE
effective July 1, 2000.

  In 1999, domestic merchant energy depreciation and amortization expense was
about the same compared to 1998.

Taxes Other than Income Taxes
-----------------------------
In 2000, domestic merchant energy taxes other than income taxes increased $24.1
million compared to 1999 because of $23.8 million of taxes other than income
taxes associated with the generation plants that were transferred from BGE
effective July 1, 2000.

  In 1999, domestic merchant energy taxes other than income taxes were the same
compared to 1998.


                                      32
<PAGE>

Regulated Electric Business
---------------------------
As previously discussed, our regulated electric business was significantly
impacted by the July 1, 2000 implementation of customer choice. These changes
include BGE's generating assets and related liabilities becoming part of our
nonregulated domestic merchant energy business on that date.


Earnings
                                                 2000        1999        1998
------------------------------------------------------------------------------
                                      (In millions, except per share amounts)

Electric revenues                            $2,135.2    $2,260.0    $2,220.8
Electric fuel and
   purchased energy                             870.7       487.7       516.7
Operations and maintenance                      454.2       629.6       630.5
Depreciation and amortization                   319.9       376.4       313.0
Taxes other than income taxes                   157.8       188.9       182.3
------------------------------------------------------------------------------
Income from operations                       $  332.6    $  577.4    $  578.3
==============================================================================
Net income                                   $  102.3    $  198.8    $  259.6
==============================================================================
Total earnings per share
   before nonrecurring charges
   included in operations:                   $    .71    $   1.81    $   1.75
     TVSERP                                      (.03)         --          --
     Hurricane Floyd                               --        (.03)         --
     Extraordinary loss                            --        (.44)         --
------------------------------------------------------------------------------
Earnings per share                           $    .68    $   1.34    $   1.75
==============================================================================

Above amounts include intercompany transactions eliminated in our Consolidated
Financial Statements. Note 2 provides a reconciliation of operating results by
segment to our Consolidated Financial Statements.


Electric Revenues
-----------------
The changes in electric revenues in 2000 and 1999 compared to the respective
prior year were caused by:

                                          2000      1999
--------------------------------------------------------
                                          (In millions)

Electric system sales volumes          $  40.9     $41.3
Rates                                   (119.9)      4.5
Fuel rate surcharge                       12.6        --
--------------------------------------------------------
Total change in electric revenues
 from electric system sales              (66.4)     45.8
Interchange and other sales              (58.3)     (8.7)
Other                                     (0.1)      2.1
--------------------------------------------------------
Total change in electric revenues      $(124.8)    $39.2
========================================================

Electric System Sales Volumes
-----------------------------
"Electric system sales volumes" are sales to customers in our service territory
at rates set by the Maryland PSC. These sales do not include interchange sales
and sales to others.

  The percentage changes in our electric system sales volumes, by type of
customer, in 2000 and 1999 compared to the respective prior year were:

                              2000    1999
------------------------------------------
Residential                   2.9%    3.5%
Commercial                    3.5     2.6
Industrial                    2.9    (5.1)

  In 2000, we sold more electricity to residential customers compared to 1999
due to the colder winter weather, higher usage per customer, and an increased
number of customers, offset partially by mild summer weather. We sold more
electricity to commercial customers mostly due to higher usage per customer and
an increased number of customers. We sold more electricity to industrial
customers due to higher usage by Bethlehem Steel and an increased number of
customers, offset partially by lower usage by other industrial customers. Usage
was higher at Bethlehem Steel as a result of a 1999 shut down for a planned
upgrade to their facilities that temporarily reduced their electricity
consumption.

  In 1999, we sold more electricity to residential customers due to higher usage
per customer, colder winter weather, and an increased number of customers
compared to 1998. This increase was offset partially by milder spring and early
summer weather. We sold more electricity to commercial customers mostly due to
higher usage per customer, an increased number of customers, and colder winter
weather. We sold less electricity to industrial customers mostly because usage
by Bethlehem Steel and other industrial customers decreased. This decrease was
offset partially by an increase in the number of industrial customers.

Rates
-----
Prior to July 1, 2000, our rates primarily consisted of an electric base rate
and an electric fuel rate. Effective July 1, 2000, BGE discontinued its electric
fuel rate and unbundled its rates to show separate components for delivery
service, competitive transition charges, standard offer service (generation),
transmission, universal service, and taxes. BGE's rates also were frozen in
total except for the implementation of a residential base rate reduction
totaling approximately $54 million annually. In addition, 90% of the CTC
revenues BGE collects and the portion of its revenues providing for
decommissioning costs, are included in revenues of the domestic merchant energy
business effective July 1, 2000.

  In 2000, rate revenues decreased compared to 1999 mostly because of the $29.9
million decrease caused by the 6.5% annual residential rate reduction, and the
$110.0 million transfer of revenues to the domestic merchant energy business
discussed above. This was offset partially by higher fuel rate revenues during
the first half of 2000.

  In 1999, rate revenues increased compared to 1998 because of higher fuel rate
revenues. Fuel rate revenues increased mostly because we sold more electricity.


                                      33
<PAGE>


Fuel Rate Surcharge
-------------------
In September 2000, the Maryland PSC approved the collection of the $54.6 million
accumulated difference between our actual costs of fuel and energy and the
amounts collected from customers that were deferred under the electric fuel rate
clause through June 30, 2000. We discuss this further in the Electric Fuel Rate
Clause section below.

Interchange and Other Sales
---------------------------
"Interchange and other sales" are sales in the PJM energy market and to others.
PJM is an ISO that operates a regional power pool with members that include many
wholesale market participants, as well as BGE, and other utility companies.
Prior to the implementation of customer choice, BGE sold energy to PJM members
and to others after it had satisfied the demand for electricity in its own
system.

  Effective July 1, 2000, BGE no longer engages in interchange sales. These
activities are now included in our domestic merchant energy business which
resulted in a decrease in interchange and other sales for the second half of
2000 compared to 1999. In addition, BGE had lower interchange and other sales
during the first half of 2000 when increased demand for system sales reduced the
amount of energy BGE had available for off-system sales.

  In 1999, interchange and other sales revenues decreased compared to 1998
mostly because higher demand for system sales reduced the amount of energy BGE
had available for off-system sales.


Electric Fuel and Purchased Energy Expenses
-------------------------------------------
                                          2000     1999      1998
-----------------------------------------------------------------
                                              (In millions)

Actual costs                            $868.0   $558.0    $525.7
Net recovery (deferral) of costs
 under electric fuel rate clause           2.7    (70.3)     (9.0)
-----------------------------------------------------------------
Total electric fuel and purchased
 energy expense                         $870.7   $487.7    $516.7
=================================================================

Actual Costs
------------
In 2000, our actual costs of fuel and purchased energy were higher compared to
1999 mostly because of the deregulation of our electric generation. As discussed
in the Current Issues--Electric Competition section, effective July 1, 2000, BGE
transferred its generating assets to, and began purchasing substantially all of
the energy and capacity required to provide electricity to standard offer
service customers from, the domestic merchant energy business. In 2000, the cost
of energy BGE purchased from our domestic merchant energy business was $581.0
million. The higher amount paid for purchased energy is offset by the absence of
$191.6 million in fuel costs, and lower operations and maintenance,
depreciation, taxes, and other costs at BGE as a result of no longer owning and
operating the transferred electric generation plants.

  Prior to July 1, 2000, BGE's purchased fuel and energy costs only included
actual costs of fuel to generate electricity (nuclear fuel, coal, gas, or oil)
and electricity we bought from others.

  In 1999, our actual costs of fuel to generate electricity and electricity we
bought from others were higher compared to 1998 mostly because the price of
electricity we bought from others was higher. The price of electricity changes
based on market conditions and contract terms. This increase was offset
partially by our settlement of a capacity contract with PECO in 1998.

Electric Fuel Rate Clause
-------------------------
Prior to July 1, 2000, we deferred (included as an asset or liability on the
Consolidated Balance Sheets and excluded from the Consolidated Statements of
Income) the difference between our actual costs of fuel and energy and what we
collected from customers under the fuel rate in a given period. Effective July
1, 2000, the fuel rate clause was discontinued under the terms of the
Restructuring Order. In September 2000, the Maryland PSC approved the collection
of the $54.6 million accumulated difference between our actual costs of fuel
and energy and the amounts collected from customers that were deferred under the
electric fuel rate clause through June 30, 2000. We are collecting this
accumulated difference from customers over the twelve-month period beginning
October 2000.

  In 2000, the net deferral of costs under the electric fuel rate clause
decreased compared to 1999 due to the discontinuation of the fuel rate clause
effective July 1, 2000.

  In 1999, the net deferral of costs under the electric fuel rate clause
increased compared to 1998 because the 1999 deferral reflected higher purchased
power costs, especially during record-setting summer peak loads.

Electric Operations and Maintenance Expenses
--------------------------------------------
In 2000, regulated electric operations and maintenance expenses decreased $175.4
million compared to 1999 mostly because effective July 1, 2000, $157.2 million
of costs were no longer incurred by this business segment. These costs were
associated with the electric generation assets that were transferred to the
domestic merchant energy business. In addition, 1999 operations and maintenance
expenses included costs for system restoration activities related to Hurricane
Floyd and a major winter ice storm, and costs associated with the preparation
for the year 2000 (Y2K). These costs had a negative impact in that year. These
decreases are offset partially by the $7.0 million of expense recognized in 2000
for electric business employees that elected to participate in the TVSERP.


                                      34
<PAGE>


  In 1999, regulated electric operations and maintenance expenses were about the
same compared to 1998. In 1999, operations and maintenance expenses included the
costs for system restoration activities related to Hurricane Floyd and a major
winter ice storm. This was offset by lower employee benefit costs in 1999 and a
1998 $6.0 million write-off of contributions to a third party for a low-level
radiation waste facility that was never completed.

Electric Depreciation and Amortization Expense
----------------------------------------------
In 2000, regulated electric depreciation and amortization expense decreased
$56.5 million compared to 1999 mostly because of the absence of $73.8 million of
depreciation and amortization expense associated with the transfer of the
generation assets. This decrease was offset partially by more electric plant in
service (as our level of plant in service changes, the amount of depreciation
and amortization expense changes) and higher amortization associated with
regulatory assets.

  In 1999, regulated electric depreciation and amortization expense increased
$63.4 million compared to 1998 mostly because of the $75.0 million amortization
of the regulatory asset for the reduction in generation plant provided for in
the Restructuring Order. This increase was offset partially by lower
amortization of deferred electric conservation expenditures due to the write-off
of a portion of these expenditures that will not be recovered under the
Restructuring Order. We discuss the accounting implications of the Restructuring
Order further in Note 4.

Electric Taxes Other Than Income Taxes
--------------------------------------
In 2000, regulated electric taxes other than income taxes decreased $31.1
million compared to 1999. This was mostly due to two factors:

  . regulated electric taxes other than income taxes reflect the absence of
    $23.8 million of taxes other than income taxes associated with the
    generation assets that were transferred to the domestic merchant energy
    business effective July 1, 2000, and
  . comprehensive changes to the tax laws.

  The comprehensive tax law changes are discussed further in Note 4.

  In 1999, regulated electric taxes other than income taxes increased slightly
due to higher property and franchise taxes associated with increased electric
revenues.

Regulated Gas Business
----------------------
Earnings
                                               2000     1999     1998
----------------------------------------------------------------------
                              (In millions, except per share amounts)
Gas revenues                                 $611.6   $488.1   $451.1
Gas purchased for resale                      350.6    233.8    209.4
Operations and maintenance                    100.6     97.7     97.7
Depreciation and amortization                  46.2     44.9     45.4
Taxes other than income taxes                  34.8     34.5     32.5
----------------------------------------------------------------------
Income from operations                       $ 79.4   $ 77.2   $ 66.1
======================================================================
Net income                                   $ 30.6   $ 33.0   $ 26.1
======================================================================
Earnings per share                           $  .20   $  .22   $  .18
======================================================================

Above amounts include intercompany transactions eliminated in our Consolidated
Financial Statements. Note 2 provides a reconciliation of operating results by
segment to our Consolidated Financial Statements.

  All BGE customers have the option to purchase gas from other suppliers. To
date, customer choice has not had a material effect on our, and BGE's, financial
results.

Gas Revenues
------------
The changes in gas revenues in 2000 and 1999 compared to the respective prior
year were caused by:

                                    2000     1999
-------------------------------------------------
                                   (In millions)
Gas system sales volumes          $ 34.5    $ 8.0
Base rates                           2.7      2.2
Weather normalization              (26.7)     4.5
Gas cost adjustments                54.7     19.8
-------------------------------------------------
Total change in gas revenues
 from gas system sales              65.2     34.5
Off-system sales                    58.1      2.0
Other                                0.2      0.5
-------------------------------------------------
Total change in gas revenues      $123.5    $37.0
=================================================


                                      35
<PAGE>

Gas System Sales Volumes
------------------------
The percentage changes in our gas system sales volumes, by type of customer, in
2000 and 1999 compared to the respective prior year were:

                                       2000    1999
---------------------------------------------------
Residential                           13.0%    9.2%
Commercial                            12.8    12.7
Industrial                            (2.1)   (4.8)

  In 2000, we sold more gas to residential and commercial customers compared to
1999 due to higher usage per customer, colder weather, and an increased number
of customers. We sold less gas to industrial customers mostly because of lower
usage by Bethlehem Steel and other industrial customers, offset partially by an
increased number of customers.

  In 1999, we sold more gas to residential customers mostly for two reasons:
colder winter weather and an increased number of customers. This was offset
partially by lower usage per customer. We sold more gas to commercial customers
mostly because of higher usage per customer, colder winter weather, and an
increased number of customers. We sold less gas to industrial customers mostly
because of lower usage by Bethlehem Steel and other industrial customers.

Base Rates
----------
In 2000, base rate revenues increased slightly compared to 1999 mostly because
the Maryland PSC authorized a $6.4 million annual increase in our base rates
effective June 22, 2000.

  In 1999, base rate revenues increased compared to 1998 mostly because of the
$16.0 million annual increase in our base rates approved by the Maryland PSC
effective March 1, 1998.

Weather Normalization
---------------------
The Maryland PSC allows us to record a monthly adjustment to our gas revenues to
eliminate the effect of abnormal weather patterns on our gas system sales
volumes. This means our monthly gas revenues are based on weather that is
considered "normal" for the month and, therefore, are not affected by actual
weather conditions.

Gas Cost Adjustments
--------------------
We charge our gas customers for the natural gas they purchase from us using gas
cost adjustment clauses set by the Maryland PSC as described in Note 1. However,
under market based rates, our actual cost of gas is compared to a market index
(a measure of the market price of gas in a given period). The difference between
our actual cost and the market index is shared equally between shareholders and
customers, and does not significantly impact earnings.

  Delivery service customers, including Bethlehem Steel, are not subject to the
gas cost adjustment clauses because we are not selling gas to them. We charge
these customers fees to recover the fixed costs for the transportation service
we provide. These fees are the same as the base rate charged for gas sales and
are included in gas system sales volumes.

  In 2000 and 1999, gas cost adjustment revenues increased compared to the
respective prior year mostly because we sold more gas at a higher price. In
2000, the revenue increase reflects the significant increase in natural gas
prices.

Off-System Sales
----------------
Off-system gas sales are low-margin direct sales of gas to wholesale suppliers
of natural gas outside our service territory. Off-system gas sales, which occur
after we have satisfied our customers' demand, are not subject to gas cost
adjustments. The Maryland PSC approved an arrangement for part of the margin
from off-system sales to benefit customers (through reduced costs) and the
remainder to be retained by BGE (which benefits shareholders).

  In 2000, revenues from off-system gas sales increased compared to 1999 mostly
because we sold more gas off-system at significantly higher prices.

  In 1999, revenues from off-system gas sales were about the same compared to
1998.

Gas Purchased For Resale Expenses
---------------------------------
Actual costs include the cost of gas purchased for resale to our customers and
for off-system sales. Actual costs do not include the cost of gas purchased by
delivery service customers.

  In 2000, our gas costs increased compared to 1999 mostly because we bought
more gas for off-system sales and all of the gas purchased was at a higher price
due to the significant increase in natural gas prices during the year.

  In 1999, actual gas costs increased compared to 1998 mostly because we sold
more gas.

Other Gas Operating Expenses
----------------------------
In 2000 and 1999, other gas operating expenses were about the same compared to
the respective prior year.


                                      36
<PAGE>

Other Nonregulated Businesses
-----------------------------
Earnings
                                               2000      1999       1998
-------------------------------------------------------------------------
                                 (In millions, except per share amounts)

Revenues                                     $740.3    $858.1     $583.0
Operating expenses                            638.0     821.5      569.4
Depreciation and amortization                  23.0      23.5       13.9
Taxes other than income taxes                   4.3       3.9        4.6
-------------------------------------------------------------------------
Income (loss) from operations                $ 75.0    $  9.2     $ (4.9)
=========================================================================
Net income (loss)                            $  5.6    $(24.1)    $(32.9)
=========================================================================
Total earnings per share before
 nonrecurring charges included
 in operations:                              $  .04    $  .01     $ (.09)
  Write-down of power project                    --      (.03)        --
  Write-down of financial
   investment                                    --      (.11)        --
  Write-down of real estate and
   senior-living investments                     --      (.04)      (.10)
  Write-off of energy services
   investment                                    --        --       (.04)
-------------------------------------------------------------------------
Earnings per share                           $  .04    $ (.17)    $ (.23)
=========================================================================

Above amounts include intercompany transactions eliminated in our Consolidated
Financial Statements. Note 2 provides a reconciliation of operating results by
segment to our Consolidated Financial Statements.

  In 2000, earnings from our other nonregulated businesses increased compared to
1999 mostly because of better market performance of certain of our financial
investments. In addition, in 1999, we wrote-down a financial investment, our
investment in a generating company in Bolivia, and certain senior-living
facilities, which had negative impacts in that year. These increases were offset
partially by lower earnings from our Latin American operation primarily due to
increased operating expenses in Guatemala.

  In 1999, earnings from our other nonregulated businesses increased compared to
1998 mostly because of higher earnings from our Latin American and real estate
and senior-living facilities operations. This increase was offset partially by
lower earnings from our financial investments operation.

  In 1999, earnings from our Latin American operation increased mostly because
of higher earnings from the electric distribution company in Panama compared to
1998. In October 1998, an investment group, in which subsidiaries of our Latin
American operation hold an 80% interest, purchased 51% of the Panamanian
company. This was offset partially by a $4.5 million after-tax write-down of our
investment in a generating company in Bolivia to reflect the current fair value
of this investment. This write-down was a result of our December 1999 decision
to exit the Latin American portion of our business as part of our strategy to
improve our competitive position.

  In 1999, earnings from our real estate and senior-living facilities operation
increased compared to 1998 mostly because of:

  . a $15.4 million after-tax write-down of its investment in Church Street
    Station, an entertainment, dining, and retail complex in Orlando, Florida in
    1998 that negatively impacted earnings that year, and
  . an increase in earnings from its investment in Corporate Office Properties
    Trust (COPT) in 1999. We discuss the investment in COPT in Note 3.

  This increase was offset partially by a $5.8 million after-tax write-down of
certain senior-living facilities related to the proposed sale of these
facilities in 1999 as discussed below.

  Additionally, in 1998, our energy products and services operation recorded a
$5.5 million after-tax write-off of an investment in, and certain of our product
inventory from, an automated electric distribution equipment company.

  In 1999, our financial investments operation announced that it would exchange
its shares of common stock in Capital Re, an insurance company, for common stock
of ACE, another insurance company, as part of a business combination whereby ACE
would acquire all of the outstanding capital stock of Capital Re. As a result,
our financial investments operation wrote-down its $94.2 million investment in
Capital Re stock by $16.0 million after-tax to reflect the closing price of the
business combination. This write-down of Capital Re was offset partially by
better market performance of other financial investments in 1999 compared to
1998.

  In 1999, our senior-living facilities operation entered into an agreement to
sell all but one of its senior-living facilities to Sunrise Assisted Living,
Inc. Under the terms of the agreement, Sunrise was to acquire twelve of our
existing senior-living facilities, three facilities under construction, and
several sites under development for $72.2 million in cash and $16.0 million in
debt assumption. We could not reach an agreement on financing issues that
subsequently arose, and the agreement was terminated in November 1999. As a
result, our senior-living facilities operation engaged a third-party management
company to manage its portfolio. However, our senior-living facilities operation
recorded a $5.8 million after-tax write-down related to the proposed sale.

  Most of Constellation Real Estate Group's real estate and senior-living
projects are in the Baltimore-Washington corridor. The area has had a surplus of
available land in recent years and as a result these projects have been
economically hurt.


                                      37
<PAGE>


  Constellation Real Estate's projects have continued to incur carrying costs
and depreciation over the years. Additionally, this operation has been charging
interest payments to expense rather than capitalizing them for some undeveloped
land where development activities have stopped. These carrying costs,
depreciation, and interest expenses have decreased earnings and are expected to
continue to do so.

  Cash flow from real estate and senior-living operations has not been enough to
make the monthly loan payments on some of these projects. Cash shortfalls have
been covered by cash obtained from the cash flows of, or additional borrowings
by, other nonregulated subsidiaries.

  We consider market demand, interest rates, the availability of financing, and
the strength of the economy in general when making decisions about our real
estate and senior-living projects. If we were to decide to sell our projects, we
could have write-downs. In addition, if we were to sell our projects in the
current market, we would have losses which could be material, although the
amount of the losses is hard to predict. Depending on market conditions, we
could also have material losses on any future sales.

  Our current real estate and senior-living strategy is to hold each project
until we can realize a reasonable value for it. Under accounting rules, we are
required to write down the value of a project to market value in either of two
cases. The first is if we change our intent about a project from an intent to
hold to an intent to sell and the market value of that project is below book
value. The second is if the expected cash flow from the project is less than the
investment in the project.

Consolidated Nonoperating Income and Expenses
--------------------------------------------
Fixed Charges
-------------
In 2000, fixed charges increased $16.4 million compared to 1999 mostly because
we had more debt outstanding.

  In 1999, fixed charges decreased $5.6 million compared to 1998 mostly because
we had less BGE preference stock outstanding.

Income Taxes
------------
In 2000, our total income taxes increased $43.7 million compared to 1999 mostly
because we had higher taxable income from our nonregulated businesses and an
increase in state and local taxes as a result of comprehensive changes to these
laws. This increase was offset partially by lower taxable income at BGE. We
discuss the comprehensive tax law changes in Note 4.

  In 1999, income taxes increased $8.7 million compared to 1998 because we had
higher taxable income from both our regulated utility operations and our
nonregulated businesses.

FINANCIAL CONDITION

Cash Flows
                                           2000       1999       1998
----------------------------------------------------------------------
                                                 (In millions)
Cash provided by (used in):
 Operating activities                  $   850.9   $ 679.0    $ 799.8
 Investing activities                   (1,106.5)   (615.1)    (711.3)
 Financing activities                      345.6    (144.9)     (77.4)

  In 2000 and 1999, cash provided by operations changed compared to the
respective prior year mostly because of changes in working capital requirements.

  In 2000, we used more cash for investing activities compared to 1999 mostly
due to substantial increases in our domestic merchant energy capital
expenditures to support our growth initiatives.

  In 1999, we used less cash for investing activities compared to 1998 mostly
due to lower investments in Latin American power projects and in the real estate
and senior-living facilities operation. This was offset partially by a $97.7
million increase in the investment in Orion, an increase in our investment in
domestic power projects, and an increase in capital expenditures by our
regulated utility business.

  In 2000, we had more cash from financing activities compared to 1999 mostly
because we issued more long-term debt and common stock. This was offset
partially by an increase in net maturities of short-term borrowings and we
repaid more long-term debt.

  In 1999, we used more cash for financing activities compared to 1998 mostly
because we repaid more long-term debt and issued less long-term debt and common
stock. This was offset partially by a decrease in the redemption of BGE
preference stock and an increase in our net short-term borrowings.

Security Ratings
----------------
Independent credit-rating agencies rate Constellation Energy 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 how much it will cost each company to
sell these securities. The better the rating, the lower the cost of the
securities to each company when they sell them. Constellation Energy and BGE's
securities ratings at December 31, 2000 were:

                                 Standard
                                 & Poors     Moody's
                                  Rating    Investors         Fitch
                                  Group      Service          IBCA
---------------------------------------------------------------------
Constellation Energy
--------------------
 Unsecured Debt                     A-         A3              A-
BGE
---
 Mortgage Bonds                    AA-         A1              A+
 Unsecured Debt                     A          A2              A
 Trust Originated Preferred
  Securities and
  Preference Stock                  A-        "a2"             A-



                                      38
<PAGE>


CAPITAL RESOURCES

Our business requires a great deal of capital. Our actual consolidated capital
requirements for the years 1998 through 2000, along with the estimated annual
amounts for the years 2001 through 2003, are shown in the table below.

  We will continue to have cash requirements for:

  . working capital needs including the payments of interest, distributions, and
    dividends,
  . capital expenditures, and
  . the retirement of debt and redemption of preference stock.

  Capital requirements for 2001 through 2003 include estimates of funding 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 factors including:

  . regulation, legislation, and competition,
  . BGE load requirements,
  . environmental protection standards,
  . the type and number of projects selected for development,
  . the effect of market conditions on those projects,
  . the cost and availability of capital, and
  . the availability of cash from operations.

  Our estimates are also subject to additional factors. Please see the Forward
Looking Statements section.

  Effective July 1, 2000, all of BGE's generation assets were transferred to
nonregulated subsidiaries of Constellation Energy. The discussion and table for
capital requirements below include these generation assets as part of the
utility's regulated electric business through June 30, 2000. After that date,
the capital requirements are included in the domestic merchant energy business.

<TABLE>
<CAPTION>
                                                               1998     1999     2000      2001     2002     2003
-----------------------------------------------------------------------------------------------------------------
                                                                                (In millions)
<S>                                                          <C>      <C>      <C>       <C>      <C>      <C>
Nonregulated Capital Requirements:
 Investment requirements:
  Domestic merchant energy                                   $  318   $  260   $  801*   $1,420   $1,000   $1,790
  Other                                                           7       18       29        50       79      105
-----------------------------------------------------------------------------------------------------------------
  Total investment requirements                                 325      278      830     1,470    1,079    1,895
 Retirement of long-term debt                                   232      189      295       406**    215      200
-----------------------------------------------------------------------------------------------------------------
 Total nonregulated capital requirements                        557      467    1,125     1,876    1,294    2,095

Utility Capital Requirements:
 Capital expenditures:
  Regulated electric
   Generation (including nuclear fuel)                          154      170       95        --       --       --
   Transmission and distribution                                161      173      170       174      171      173
-----------------------------------------------------------------------------------------------------------------
   Total regulated electric                                     315      343      265       174      171      173
  Regulated gas                                                  55       59       55        53       52       52
  Common                                                         35       34       30        32       26       20
-----------------------------------------------------------------------------------------------------------------
 Total capital expenditures                                     405      436      350       259      249      245
 Retirement of long-term debt and redemption
  of preference stock                                           222      342      402       394      320      286
-----------------------------------------------------------------------------------------------------------------
 Total utility capital requirements                             627      778      752       653      569      531
-----------------------------------------------------------------------------------------------------------------
Total capital requirements                                   $1,184   $1,245   $1,877    $2,529   $1,863   $2,626
=================================================================================================================
</TABLE>

 *Effective July 1, 2000, includes $110.6 million for electric generation and
  nuclear fuel formerly part of BGE's regulated electric business.
**Amount does not include $1.2 billion in Constellation Energy debt that would
  be redeemed at or prior to business separation.

                                      39
<PAGE>

Capital Requirements
--------------------
Domestic Merchant Energy Business
---------------------------------
Our domestic merchant energy business will require additional funding for
growing its power marketing operation and developing and acquiring power
projects.

  Our domestic merchant energy business investment requirements include the
planned purchase of the Nine Mile Point nuclear power plant for $815 million,
including fuel, and the planned construction of 1,100 megawatts of peaking
capacity in the Mid-Atlantic and Mid-West regions which are expected to be
operational by the summer of 2001. An additional 6,700 megawatts of peaking and
combined cycle production facilities are scheduled for completion in 2002 and
beyond in various regions of North America. Longer range, our plans are to
control approximately 30,000 megawatts of generation capacity by 2005. For
further information see the Strategy section.

Electric Generation
-------------------
Electric construction expenditures for our regulated electric business include
improvements to generating plants and costs for replacing the steam generators
at Calvert Cliffs through June 30, 2000. Thereafter, these expenditures are
reflected in our domestic merchant energy business.

  In March 2000, we received the license extension from the Nuclear Regulatory
Commission (NRC) that extends our operating licenses at Calvert Cliffs to 2034
for Unit 1 and 2036 for Unit 2. If we do not replace the steam generators, we
will not be able to operate these units through our operating license periods.
We expect the steam generator replacement to occur during the 2002 refueling
outage for Unit 1 and during the 2003 refueling outage for Unit 2. We estimate
these Calvert Cliffs' costs to be:

  . $ 63 million in 2001,
  . $ 91 million in 2002, and
  . $ 60 million in 2003.

  Additionally, our estimates of future electric generation construction
expenditures include the costs of complying with Environmental Protection Agency
(EPA) and State of Maryland nitrogen oxides emissions (NOx) reduction
regulations as follows:

  . $ 85 million in 2001,
  . $ 37 million in 2002, and
  . $  7 million in 2003.

  We discuss the NOx regulations and timing of expenditures in Note 10.

Regulated Electric Transmission and Distribution and Gas
--------------------------------------------------------
Regulated electric transmission and distribution and gas construction
expenditures primarily include new business construction needs and improvements
to existing facilities.

Funding for Capital Requirements
--------------------------------
On October 23, 2000, we announced initiatives designed to advance our growth
strategies in the domestic merchant energy business and a change in our common
stock dividend policy effective April 2001, as discussed in the Strategy
section.

  As part of these initiatives, we expect to redeem all of the outstanding debt
at Constellation Energy at or prior to the separation of our domestic merchant
energy business and remaining businesses. The redemption will occur through a
combination of open market purchases, tender offers, and redemption calls. We
expect to fund this redemption with short-term debt or other credit facilities,
and to refinance this debt longer term after the separation.

  On March 26, 2001, we issued 12 million shares of common stock with net
proceeds of $471.4 million.

Domestic Merchant Energy Business
---------------------------------
Funding for the expansion of our domestic merchant energy business is expected
from internally generated funds, commercial paper, long-term debt, equity,
leases, and other financing instruments issued by Constellation Energy and its
subsidiaries. Specifically related to the Nine Mile Point acquisition, one-half
of the purchase price, or $407.5 million, is due at the closing of the
transaction and the remainder is being financed through the sellers in a note to
be repaid over five years with an interest rate of 11.0%. We expect to close the
transaction with funds from available sources at that time. Payments on the note
over the five years are expected to come from internally generated funds. Longer
term, we expect to fund our growth and operating objectives with a mixture of
debt and equity with an overall goal of maintaining an investment grade credit
profile.

  When our domestic merchant energy business separates from our remaining
businesses, it initially expects to reinvest its earnings to fund its growth and
not to pay a dividend.

  Constellation Energy has a commercial paper program where it can issue up to
$500 million in short-term notes to fund its nonregulated businesses. To support
its commercial paper program, Constellation Energy maintains two revolving
credit agreements totaling $565 million, of which one facility can also issue
letters of credit. In addition, Constellation Energy has access to interim lines
of credit as required from time to time to support its outstanding commercial
paper.

BGE
---
Funding for utility capital expenditures is expected from internally generated
funds, commercial paper issuances, available capacity under credit facilities,
the issuance of long-term debt, trust securities, or preference stock, and/or
from time to time equity contributions from Constellation Energy.

  At December 31, 2000, FERC authorized BGE to issue up to $700 million of
short-term borrowings, including commercial paper. In addition, BGE maintains
$193 million in annual committed bank lines of credit and has $25 million in
bank

                                      40
<PAGE>

revolving credit agreements to support the commercial paper program. In
addition, BGE has access to interim lines of credit as required from time to
time to support its outstanding commercial paper.

  During the three years from 2001 through 2003, we expect our regulated utility
business to provide at least 110% of the cash needed to meet the capital
requirements for its operations, excluding cash needed to retire debt.

Other Nonregulated Businesses
-----------------------------
BGE Home Products & Services may meet capital requirements through sales of
receivables. ComfortLink has a revolving credit agreement totaling $50 million
to provide liquidity for short-term financial needs.

  If we can get a reasonable value for our real estate projects, senior-living
facilities, Latin American operation, and other investments, additional cash may
be obtained by selling them. Our ability to sell or liquidate assets will depend
on market conditions, and we cannot give assurances that these sales or
liquidations could be made. We discuss the real estate and senior-living
facilities operation and market conditions in the Other Nonregulated Businesses
section.

  We discuss our short-term borrowings in Note 7 and long-term debt in Note 8.

MARKET RISK

We are exposed to market risk, including changes in interest rates, certain
commodity prices, equity prices, and foreign currency. To manage our market
risk, we may enter into various derivative instruments including swaps, forward
contracts, futures contracts, and options. Effective July 1, 2000, we are
subject to additional market risk associated with the purchase and sale of
energy as discussed in the Current Issues section. We discuss our market risk
further in Note 1. In this section, we discuss our current market risk and the
related use of derivative instruments.

Interest Rate Risk
------------------
We are exposed to changes in interest rates as a result of financing through our
issuance of variable-rate and fixed-rate debt. The following table provides
information about our obligations that are sensitive to interest rate changes:

Principal Payments and Interest Rate Detail by Contractual Maturity Date

<TABLE>
<CAPTION>
                                                                                                               Fair value at
                                     2001      2002      2003      2004      2005    Thereafter       Total    Dec. 31, 2000
-----------------------------------------------------------------------------------------------------------------------------
                                                                 (Dollar amounts in millions)
<S>                                <C>       <C>       <C>       <C>       <C>       <C>           <C>         <C>
Long-term debt
--------------
Variable-rate debt                 $317.6    $208.0    $200.2    $  7.6    $  5.4      $  593.0    $1,331.8         $1,243.3
Average interest rate                6.97%     7.30%     7.26%     8.42%     8.62%         5.99%       6.64%
Fixed-rate debt                    $482.5    $327.1    $286.3    $156.0    $347.6      $1,140.0    $2,739.5         $2,819.9
Average interest rate                7.08%     7.01%     6.50%     5.80%     7.72%         6.85%       6.92%
</TABLE>

Commodity Price Risk
--------------------
We are exposed to the impact of market fluctuations in the price and
transportation costs of electricity, natural gas, and other commodities.

Domestic Merchant Energy Business
---------------------------------
Our domestic merchant energy business is exposed to market risk from the power
marketing operation of Constellation Power Source and from our electric
generation operations. Constellation Power Source manages the commodity price
risk inherent in its power marketing activities on a portfolio basis, subject to
established trading and risk management policies. Commodity price risk arises
from the potential for changes in the value of energy commodities and related
derivatives due to: changes in commodity prices, volatility of commodity prices,
and fluctuations in interest rates. A number of factors associated with the
structure and operation of the electricity market significantly influence the
level and volatility of prices for energy commodities and related derivative
products. These factors include:

  . seasonal changes in demand,
  . hourly fluctuations in demand due to weather conditions,
  . available supply resources,
  . transportation availability and reliability within and between regions,
  . procedures used to maintain the integrity of the physical electricity system
    during extreme conditions, and
  . changes in the nature and extent of federal and state regulations.


                                      41
<PAGE>

  These factors can affect energy commodity and derivative prices in different
ways and to different degrees. These effects may vary throughout the country as
a result of regional differences in:

  . weather conditions,
  . market liquidity,
  . capability and reliability of the physical electricity and gas systems, and
  . the nature and extent of electricity deregulation.

  Constellation Power Source uses various methods, including a value at risk
model, to measure its exposure to market risk. Value at risk is a statistical
model that attempts to predict risk of loss based on historical market price and
volatility data. Constellation Power Source calculates value at risk using a
variance/covariance technique that models option positions using a linear
approximation of their value. Additionally, Constellation Power Source estimates
variances and correlation using historical market movements over the most recent
rolling three-month period.

  The value at risk amount represents the potential loss in the fair value of
assets and liabilities from trading activities over a one-day holding period
with a 99.6% confidence level. Using this confidence level, Constellation Power
Source would expect a one-day change in fair value greater than or equal to the
daily value at risk at least once per year. Constellation Power Source's value
at risk was $13.7 million as of December 31, 2000 compared to $7.2 million as of
December 31, 1999. The average, high, and low value at risk for the year ended
December 31, 2000 was $13.1 million, $24.3 million, and $6.3 million,
respectively.

  Constellation Power Source's value at risk calculation includes all assets and
liabilities from its power marketing and trading activities, including energy
commodities and derivatives that do not require cash settlements. We believe
that this represents a more complete calculation of our value at risk.

  Due to the inherent limitations of statistical measures such as value at risk,
the relative immaturity of the competitive market for electricity and related
derivatives, and the seasonality of changes in market prices, the value at risk
calculation may not reflect the full extent of our commodity price risk
exposure. Additionally, actual changes in the value of options may differ 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 assets and
liabilities from power marketing and trading activities could differ from the
calculated value at risk, and such changes could have a material impact on our
financial results. Please refer to the Forward Looking Statements section.

  We discuss Constellation Power Source's operation in the Domestic Merchant
Energy Business section and in Note 1.

  Our domestic merchant energy business conducts electric generation operations
primarily through Constellation Power Source Generation, Calvert Cliffs, and
Constellation Power. Presently, the majority of the generating capacity
controlled by our domestic merchant energy business is used to provide standard
offer service to BGE. However, beginning in July 2002, we expect approximately
1,000 megawatts of industrial customer load will leave standard offer service.
The remainder of the standard offer service arrangement with BGE terminates on
June 30, 2003. Additionally, we plan to expand our generation operations as
discussed in the Strategy section.

  As a result, our domestic merchant energy business has a substantial and
increasing amount of generating capacity that is subject to future changes in
wholesale electricity prices and has fuel requirements that are subject to
future changes in coal, natural gas, and oil prices. Additionally, if one or
more of our generating facilities is not able to produce electricity when
required due to operational factors, we may have to forego sales opportunities
or fulfill fixed price sale commitments through the operation of other more
costly generating facilities or through the purchase of energy in the wholesale
market at higher prices.

  Constellation Power Source manages the commodity price risk of our electric
generation operations as part of its overall portfolio. Additionally, the
domestic merchant energy business may enter into fixed-price contracts to hedge
a portion of its exposure to future electricity and fuel commodity price risk.

Regulated Electric Business
---------------------------
The standard offer service arrangement between BGE and Constellation Power
Source ends June 30, 2003. Under the Restructuring Order, effective July 1,
2000, BGE's residential rates are frozen for a six-year period and its
commercial and industrial rates are frozen for four to six years. As a result,
BGE will be subject to commodity price risk beginning July 1, 2003 upon
termination of the existing standard offer arrangement. In accordance with the
Restructuring Order, BGE will competitively bid the standard offer service
supply for the remaining period of the rate freeze subsequent to June 30, 2003.
During the remaining period of BGE's rate freeze, BGE will be unable to pass
through to its customers any increase in the market price of electricity it must
purchase to meet the standard offer service load. Our regulated electric
business is evaluating various alternatives to minimize the market risk after
June 30, 2003.

Regulated Gas Business
----------------------
Our regulated gas business may enter into gas futures, options, and swaps to
hedge its price risk under our market based rate incentive mechanism and our
off-system gas sales program. We discuss this further in Note 1. At December 31,
2000 and 1999, our exposure to commodity price risk for our regulated gas
business was not material.


                                      42
<PAGE>

Credit Risk
-----------
We are exposed to credit risk, primarily through Constellation Power Source.
Credit risk is the loss that may result from a counterparty's nonperformance.
Constellation Power Source uses credit policies to control its credit risk,
including utilizing an established credit approval process, monitoring
counterparty limits, employing credit mitigation measures such as margin,
collateral or prepayment arrangements, and using master netting agreements.
However, due to the possibility of extreme volatility in the prices of
electricity commodities and derivatives, the market value of contractual
positions with individual counterparties could exceed established credit limits
or collateral provided by those counterparties. If such a counterparty were then
to fail to perform its obligations under its contract (for example, fail to
deliver the electricity Constellation Power Source had contracted for),
Constellation Power Source could sustain a loss that could have a material
impact on our financial results.

  Our domestic merchant energy business sells electricity to two California
investor-owned utilities under long-term power purchase agreements that recently
were downgraded by rating agencies to below investment grade. We discuss the
credit and other exposures under these agreements in the Current Issues section.

Equity Price Risk
-----------------
We are exposed to price fluctuations in equity markets primarily through our
financial investments operation and our nuclear decommissioning trust fund. We
are required by the NRC to maintain a trust to fund the costs of decommissioning
Calvert Cliffs. We believe our exposure to fluctuations in equity prices will
not have a material impact on our financial results. We discuss our nuclear
decommissioning trust fund in more detail in Note 1. We also describe our
financial investments in more detail in Note 3.

Foreign Currency Risk
---------------------
We are exposed to foreign currency risk primarily through our Latin American
operation. Our Latin American operation has $255.9 million invested in
international power generation and distribution projects as of December 31,
2000. To manage our exposure to foreign currency risk, the majority of our
contracts are denominated in or indexed to the U.S. dollar. At December 31, 2000
and 1999, foreign currency risk was not material. We discuss our international
projects in the Other Nonregulated Businesses section.

--------------------------------------------------------------------------------

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The information required by this item with respect to market risk is set forth
in Item 7 of Part II of this Form 10-K under the heading Market Risk.


                                      43
<PAGE>

Item 8. Financial Statements and Supplementary Data

REPORT OF MANAGEMENT

  The management of the Companies is responsible for the information and
representations in the Companies' financial statements. The Companies prepare
the financial statements in accordance with accounting principles generally
accepted in the United States of America based upon available facts and
circumstances and management's best estimates and judgments of known conditions.

  The Companies maintain an accounting system and related system of internal
controls designed to provide reasonable assurance that the financial records are
accurate and that the Companies' assets are protected. The Companies' staff of
internal auditors, which reports directly to the Chairman of the Board, conducts
periodic reviews to maintain the effectiveness of internal control procedures.
PricewaterhouseCoopers LLP, independent accountants, audit the financial
statements and express their opinion on them. They perform their audit in
accordance with auditing standards generally accepted in the United States of
America.

  The Audit Committee of the Board of Directors, which consists of four outside
Directors, meets periodically with management, internal auditors, and
PricewaterhouseCoopers LLP to review the activities of each in discharging their
responsibilities. The internal audit staff and PricewaterhouseCoopers LLP have
free access to the Audit Committee.


/s/ Christian H. Poindexter        /s/ David A. Brune
-------------------------------    ------------------
Christian H. Poindexter            David A. Brune
Chairman of the Board              Chief Financial Officer
and Chief Executive Officer




REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of Constellation Energy Group, Inc. and Baltimore Gas and
Electric Company

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) 1. present fairly, in all material respects, the
financial position of Constellation Energy Group, Inc. and Subsidiaries and of
Baltimore Gas and Electric Company and Subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a) 2. of this Form 10-K present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of the Companies' management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

  We have also previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheets and statement of capitalization of Baltimore Gas and Electric Company as
of December 31, 1998, 1997 and 1996, and the related consolidated statements of
income, comprehensive income, cash flows, common shareholders' equity and income
taxes for the years ended December 31, 1997 and 1996 (none of which are
presented herein); and we expressed unqualified opinions on those consolidated
financial statements. In our opinion, the information set forth in the Summary
of Operations and Summary of Financial Condition of Constellation Energy Group,
Inc. included in the Selected Financial Data for each of the five years in the
period ended December 31, 2000, and the information set forth in the Summary of
Operations and Summary of Financial Condition of Baltimore Gas and Electric
Company included in the Selected Financial Data for each of the five years in
the period ended December 31, 2000, is fairly stated, in all material respects,
in relation to the consolidated financial statements from which it has been
derived.



/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 17, 2001


                                      44
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME -- CONSTELLATION ENERGY GROUP INC. AND SUBSIDIARIES

Year Ended December 31,                                                2000       1999        1998
-------------------------------------------------------------------------------------------------------
                                                                (In millions, except per share amounts)
<S>                                                                <C>        <C>         <C>
Revenues
 Nonregulated revenues                                             $1,140.0   $1,050.9    $  717.8
 Regulated electric revenues                                        2,134.7    2,258.8     2,219.2
 Regulated gas revenues                                               603.8      476.5       449.4
-------------------------------------------------------------------------------------------------------
 Total revenues                                                     3,878.5    3,786.2     3,386.4
Expenses
 Operating expenses                                                 2,347.3    2,349.2     2,053.0
 Depreciation and amortization                                        470.0      449.8       375.5
 Taxes other than income taxes                                        221.0      227.3       219.4
-------------------------------------------------------------------------------------------------------
 Total expenses                                                     3,038.3    3,026.3     2,647.9
-------------------------------------------------------------------------------------------------------
Income from Operations                                                840.2      759.9       738.5
Other Income                                                            6.6        7.9         5.7
-------------------------------------------------------------------------------------------------------
Income Before Fixed Charges and Income Taxes                          846.8      767.8       744.2
Fixed Charges
 Interest expense (net)                                               258.2      241.5       238.8
 BGE preference stock dividends                                        13.2       13.5        21.8
-------------------------------------------------------------------------------------------------------
 Total fixed charges                                                  271.4      255.0       260.6
-------------------------------------------------------------------------------------------------------
Income Before Income Taxes                                            575.4      512.8       483.6
Income Taxes                                                          230.1      186.4       177.7
-------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item                                      345.3      326.4       305.9
Extraordinary Loss, Net of Income Taxes of $30.4 (see Note 4)            --      (66.3)         --
-------------------------------------------------------------------------------------------------------
Net Income                                                         $  345.3   $  260.1    $  305.9
=======================================================================================================
Earnings Applicable to Common Stock                                $  345.3   $  260.1    $  305.9
=======================================================================================================

Average Shares of Common Stock Outstanding                            150.0      149.6       148.5
Earnings Per Common Share and Earnings Per Common Share--
 Assuming Dilution Before Extraordinary Item                       $   2.30   $   2.18    $   2.06
Extraordinary Loss                                                       --       (.44)         --
-------------------------------------------------------------------------------------------------------
Earnings Per Common Share and
 Earnings Per Common Share--Assuming Dilution                      $   2.30   $   1.74    $   2.06
=======================================================================================================
<CAPTION>

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME -- CONSTELLATION ENERGY GROUP INC. AND SUBSIDIARIES

Year Ended December 31,                                                2000       1999        1998
-------------------------------------------------------------------------------------------------------
                                                                             (In millions)
<S>                                                                  <C>        <C>         <C>
Net Income                                                           $345.3     $260.1      $305.9
Other comprehensive income/(loss), net of taxes                        22.1       (6.2)        1.2
-------------------------------------------------------------------------------------------------------
Comprehensive Income                                                 $367.4     $253.9      $307.1
=======================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.
Certain prior-year amounts have been reclassified to conform with the current
year's presentation.


                                      45
<PAGE>

CONSOLIDATED BALANCE SHEETS -- CONSTELLATION ENERGY GROUP INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

At December 31,                                                      2000         1999
-----------------------------------------------------------------------------------------
                                                                       (In millions)
<S>                                                             <C>          <C>
Assets
 Current Assets
  Cash and cash equivalents                                     $   182.7    $    92.7
  Accounts receivable (net of allowance for uncollectibles
   of $21.3 and $34.8, respectively)                                738.5        578.5
  Trading securities                                                189.3        136.5
  Assets from energy trading activities                           2,056.5        312.1
  Fuel stocks                                                        78.2         94.9
  Materials and supplies                                            151.3        149.1
  Prepaid taxes other than income taxes                              73.5         72.4
  Other                                                              32.7         54.0
-----------------------------------------------------------------------------------------
  Total current assets                                            3,502.7      1,490.2
-----------------------------------------------------------------------------------------

 Investments and Other Assets
  Real estate projects and investments                              290.3        310.1
  Investments in power projects                                     517.5        513.9
  Financial investments                                             161.0        145.4
  Nuclear decommissioning trust fund                                228.7        217.9
  Net pension asset                                                  93.2         99.5
  Investment in Orion Power Holdings, Inc.                          192.0        105.7
  Other                                                             123.0        154.3
-----------------------------------------------------------------------------------------
  Total investments and other assets                              1,605.7      1,546.8
-----------------------------------------------------------------------------------------

 Property, Plant and Equipment
  Regulated property, plant and equipment
   Plant in service                                               4,780.3      8,620.1
   Construction work in progress                                     75.3        222.3
   Plant held for future use                                          4.5         13.0
-----------------------------------------------------------------------------------------
   Total regulated property, plant and equipment                  4,860.1      8,855.4
  Nonregulated generation property, plant and equipment           5,279.9        374.7
  Other nonregulated property, plant and equipment                  173.8        152.7
  Nuclear fuel (net of amortization)                                128.3        133.8
  Accumulated depreciation                                       (3,798.1)    (3,559.1)
-----------------------------------------------------------------------------------------
  Net property, plant and equipment                               6,644.0      5,957.5
-----------------------------------------------------------------------------------------

 Deferred Charges
  Regulatory assets (net)                                           514.9        637.4
  Other                                                             117.3         51.9
-----------------------------------------------------------------------------------------
  Total deferred charges                                            632.2        689.3
-----------------------------------------------------------------------------------------

 Total Assets                                                   $12,384.6    $ 9,683.8
=========================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.
Certain prior-year amounts have been reclassified to conform with the current
year's presentation.


                                      46
<PAGE>

CONSOLIDATED BALANCE SHEETS--CONSTELLATION ENERGY GROUP INC. AND SUBSIDIARIES

At December 31,                                       2000       1999
---------------------------------------------------------------------
                                                       (In millions)
Liabilities and Capitalization
 Current Liabilities
  Short-term borrowings                           $  243.6   $  371.5
  Current portion of long-term debt                  906.6      808.3
  Accounts payable                                   695.9      365.1
  Liabilities from energy trading activities       1,586.8      163.8
  Dividends declared                                  66.5       66.1
  Accrued taxes                                       38.2       19.2
  Other                                              212.6      209.4
---------------------------------------------------------------------
  Total current liabilities                        3,750.2    2,003.4
---------------------------------------------------------------------



Deferred Credits and Other Liabilities
  Deferred income taxes                             1,339.5   1,288.8
  Postretirement and postemployment benefits          265.2     269.8
  Deferred investment tax credits                     101.4     109.6
  Other                                               426.0     253.8
---------------------------------------------------------------------
  Total deferred credits and other liabilities      2,132.1   1,922.0
---------------------------------------------------------------------



Capitalization
  Long-term debt                                    3,159.3   2,575.4
  BGE preference stock not subject to mandatory
   redemption                                         190.0     190.0
  Common shareholders' equity                       3,153.0   2,993.0
---------------------------------------------------------------------
  Total capitalization                              6,502.3   5,758.4
---------------------------------------------------------------------


 Commitments, Guarantees, and Contingencies (see Note 10)



 Total Liabilities and Capitalization             $12,384.6  $9,683.8
=====================================================================


See Notes to Consolidated Financial Statements.
Certain prior-year amounts have been reclassified to conform with the current
year's presentation.


                                      47
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS--CONSTELLATION ENERGY GROUP INC. AND
SUBSIDIARIES

<TABLE>
<CAPTION>

  Year Ended December 31,                                                        2000            1999       1998
-----------------------------------------------------------------------------------------------------------------
                                                                                             (In millions)
<S>                                                                         <C>          <C>             <C>
Cash Flows From Operating Activities
 Net income                                                                 $   345.3         $ 260.1    $ 305.9
 Adjustments to reconcile to net cash provided by operating activities
  Extraordinary loss                                                               --            66.3         --
  Depreciation and amortization                                                 524.8           505.9      427.8
  Deferred income taxes                                                          42.0            13.0       17.5
  Investment tax credit adjustments                                              (8.3)           (8.6)      (8.8)
  Deferred fuel costs                                                             2.8           (61.1)      (8.3)
  Accrued pension and postemployment benefits                                    27.9            36.1       41.6
  Gain on sale of subsidiaries                                                  (13.3)             --         --
  Gain on sale of Orion Power Holdings, Inc. stock                              (19.2)             --         --
  Deregulation transition cost                                                   24.0              --         --
  Write-downs of real estate investments                                           --             9.6       23.7
  Write-down of financial investment                                               --            26.2         --
  Write-downs of power projects                                                    --            28.5         --
  Equity in earnings of affiliates and joint ventures (net)                      (5.3)           (7.6)     (54.5)
  Changes in assets from energy trading activities                           (1,744.4)         (179.1)    (123.6)
  Changes in liabilities from energy trading activities                       1,423.0            64.8       90.4
  Changes in other current assets                                              (176.6)         (216.4)      18.3
  Changes in other current liabilities                                          352.1           121.0       77.0
  Other                                                                          76.1            20.3       (7.2)
-----------------------------------------------------------------------------------------------------------------
  Net cash provided by operating activities                                     850.9           679.0      799.8
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
 Purchases of property, plant and equipment and
  other capital expenditures                                                 (1,079.0)         (616.5)    (730.2)
 Investment in Orion                                                           (101.5)          (97.7)        --
 Contributions to nuclear decommissioning trust fund                            (13.2)          (17.6)     (17.6)
 Purchases of marketable equity securities                                      (80.8)          (27.3)     (33.3)
 Sales of marketable equity securities                                          110.2            34.9       32.8
 Other investments                                                               57.8           109.1       37.0
-----------------------------------------------------------------------------------------------------------------
 Net cash used in investing activities                                       (1,106.5)         (615.1)    (711.3)
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
 Net (maturity) issuance of short-term borrowings                              (127.9)          371.5     (316.1)
 Proceeds from issuance of
  Long-term debt                                                              1,374.0           302.8      831.3
  Common stock                                                                   35.9             9.6       51.8
 Reacquisition of long-term debt                                               (697.0)         (584.4)    (355.2)
 Redemption of preference stock                                                    --            (7.0)    (127.9)
 Common stock dividends paid                                                   (250.7)         (251.1)    (246.0)
 Other                                                                           11.3            13.7       84.7
-----------------------------------------------------------------------------------------------------------------
 Net cash provided by (used in) financing activities                            345.6          (144.9)     (77.4)
-----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                             90.0           (81.0)      11.1
Cash and Cash Equivalents at Beginning of Year                                   92.7           173.7      162.6
-----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                                    $   182.7         $  92.7    $ 173.7
=================================================================================================================

Other Cash Flow Information
 Cash paid during the year for:
  Interest (net of amounts capitalized)                                     $   268.2         $ 245.3    $ 236.7
  Income taxes                                                              $   184.7         $ 165.6    $ 164.3
</TABLE>

Noncash Investing and Financing Activities:

 In 1998, Corporate Office Properties Trust (COPT) assumed approximately $62
 million of Constellation Real Estate Group's (CREG) debt and issued to CREG 7.0
 million common shares and 985,000 convertible preferred shares. In exchange,
 COPT received 14 operating properties and two properties under development from
 CREG.

See Notes to Consolidated Financial Statements.
Certain prior-year amounts have been reclassified to conform with the current
year's presentation.


                                      48
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY--CONSTELLATION ENERGY
GROUP INC. AND SUBSIDIARIES

                                                                                    Accumulated
                                                                                        Other
                                                     Common Stock       Retained   Comprehensive     Total
Years Ended December 31, 2000, 1999, and 1998      Shares    Amount     Earnings       Income        Amount
-----------------------------------------------------------------------------------------------------------
                                                 (Dollar amounts in millions, number of shares in thousands)
<S>                                               <C>      <C>          <C>                <C>     <C>
Balance at December 31, 1997                      147,667  $1,433.0     $1,432.5           $ 4.9   $2,870.4


Net income                                                                 305.9                      305.9
Common stock dividend declared ($1.67 per share)                          (248.1)                    (248.1)
Common stock issued                                 1,579      51.8                                    51.8
Other                                                           0.3                                     0.3
Net unrealized gain on securities                                                            1.8        1.8
Deferred taxes on net unrealized gain on securities                                         (0.6)      (0.6)
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                      149,246   1,485.1      1,490.3             6.1    2,981.5


Net income                                                                 260.1                      260.1
Common stock dividend declared ($1.68 per share)                          (251.3)                    (251.3)
Common stock issued                                   310       9.6                                     9.6
Other                                                          (0.7)                                   (0.7)
Net unrealized loss on securities                                                           (9.6)      (9.6)
Deferred taxes on net unrealized loss on securities                                          3.4        3.4
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                      149,556   1,494.0      1,499.1            (0.1)   2,993.0


Net income                                                                 345.3                      345.3
Common stock dividend declared ($1.68 per share)                          (251.8)                    (251.8)
Common stock issued                                   976      35.9                                    35.9
Other                                                           8.8         (0.3)                       8.5
Net unrealized gain on securities                                                           33.9       33.9
Deferred taxes on net unrealized gain on securities                                        (11.8)     (11.8)
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                      150,532  $1,538.7     $1,592.3           $22.0   $3,153.0
===========================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      49
<PAGE>

CONSOLIDATED STATEMENTS OF CAPITALIZATION -- CONSTELLATION ENERGY GROUP INC. AND
SUBSIDIARIES

<TABLE>
<CAPTION>

At December 31,                                                                                          2000        1999
---------------------------------------------------------------------------------------------------------------------------
                                                                                                           (In millions)
<S>                                                                                                  <C>         <C>
Long-Term Debt
 Long-term debt of Constellation Energy
  7 7/8% Notes, due April 1, 2005                                                                    $  300.0    $     --
  Floating rate notes, due April 4, 2003                                                                200.0          --
  Extendible notes, due June 21, 2010                                                                   300.0          --
  Floating rate reset notes, due March 15, 2002                                                         200.0          --
---------------------------------------------------------------------------------------------------------------------------
  Total long-term debt of Constellation Energy                                                        1,000.0          --
---------------------------------------------------------------------------------------------------------------------------
 Long-term debt of nonregulated businesses
  Tax-exempt debt transferred from BGE effective July 1, 2000
   Pollution control loan, due July 1, 2011                                                              36.0          --
   Port facilities loan, due June 1, 2013                                                                48.0          --
   Adjustable rate pollution control loan, due July 1, 2014                                              20.0          --
   5.55% Pollution control revenue refunding loan, due July 15, 2014                                     47.0          --
   Economic development loan, due December 1, 2018                                                       35.0          --
   6.00% Pollution control revenue refunding loan, due April 1, 2024                                     75.0          --
   Floating rate pollution control loan, due June 1, 2027                                                 8.8          --
   5 1/2% Installment series, due July 15, 2002                                                           7.6          --
  Loan under revolving credit agreement                                                                  34.0        33.0
  Mortgage and construction loans
   Floating rate mortgage notes and construction loans, due through 2005                                 51.3       112.0
   Other mortgage notes ranging from 4.25% to 9.65% due July 31, 2001 to November 1, 2033                20.3        30.8
  Unsecured notes                                                                                       287.0       511.0
---------------------------------------------------------------------------------------------------------------------------
  Total long-term debt of nonregulated businesses                                                       670.0       686.8
---------------------------------------------------------------------------------------------------------------------------
 First Refunding Mortgage Bonds of BGE
  5 1/2% Series, due July 15, 2000 transferred to nonregulated businesses effective July 1, 2000           --       124.3
  8 3/8% Series, due August 15, 2001                                                                    122.2       122.3
  7 1/4% Series, due July 1, 2002                                                                       124.0       124.5
  6 1/2% Series, due February 15, 2003                                                                  124.8       124.8
  6 1/8% Series, due July 1, 2003                                                                       124.9       124.9
  5 1/2% Series, due April 15, 2004                                                                     125.0       125.0
  Remarketed floating rate series, due September 1, 2006                                                111.5       125.0
  7 1/2% Series, due January 15, 2007                                                                   123.5       123.5
  6 5/8% Series, due March 15, 2008                                                                     124.9       124.9
  7 1/2% Series, due March 1, 2023                                                                      109.9       109.9
  7 1/2% Series, due April 15, 2023                                                                      84.0        84.1
  Tax-exempt debt transferred to nonregulated businesses effective July 1, 2000                           --          8.5
---------------------------------------------------------------------------------------------------------------------------
  Total First Refunding Mortgage Bonds of BGE                                                         1,174.7     1,321.7
---------------------------------------------------------------------------------------------------------------------------
 Other long-term debt of BGE
  Floating rate reset notes, due October 19, 2001                                                       200.0          --
  Medium-term notes, Series B                                                                            23.1        60.0
  Medium-term notes, Series C                                                                            25.5       101.0
  Medium-term notes, Series D                                                                           128.0       128.0
  Medium-term notes, Series E                                                                           200.0       200.0
  Medium-term notes, Series G                                                                           200.0       200.0
  Medium-term notes, Series H                                                                            27.0       177.0
  6.75% Remarketable or redeemable securities, due December 15, 2012                                    173.0          --
  Tax-exempt debt transferred to nonregulated businesses effective July 1, 2000                            --       269.8
---------------------------------------------------------------------------------------------------------------------------
  Total other long-term debt of BGE                                                                     976.6     1,135.8
---------------------------------------------------------------------------------------------------------------------------
 BGE obligated mandatorily redeemable trust preferred securities of subsidiary
  trust holding solely 7.16% debentures of BGE due June 30, 2038                                        250.0       250.0
Unamortized discount and premium                                                                         (5.4)      (10.6)
Current portion of long-term debt                                                                      (906.6)     (808.3)
---------------------------------------------------------------------------------------------------------------------------
Total long-term debt                                                                                 $3,159.3    $2,575.4
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.
Certain prior-year amounts have been reclassified to conform with the current
year's presentation.
                                                          continued on next page

                                      50
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CAPITALIZATION -- CONSTELLATION ENERGY GROUP INC. AND
SUBSIDIARIES

At December 31,                                                                                        2000       1999
----------------------------------------------------------------------------------------------------------------------
                                                                                                        (In millions)
<S>                                                                                                <C>        <C>
BGE Preference Stock
 Cumulative preference stock not subject to mandatory redemption, 6,500,000 shares authorized
  7.125%, 1993 Series, 400,000 shares outstanding, not callable prior to July 1, 2003              $   40.0   $   40.0
  6.97%, 1993 Series, 500,000 shares outstanding, not callable prior to October 1, 2003                50.0       50.0
  6.70%, 1993 Series, 400,000 shares outstanding, not callable prior to January 1, 2004                40.0       40.0
  6.99%, 1995 Series, 600,000 shares outstanding, not callable prior to October 1, 2005                60.0       60.0
----------------------------------------------------------------------------------------------------------------------
  Total preference stock not subject to mandatory redemption                                          190.0      190.0
----------------------------------------------------------------------------------------------------------------------
Common Shareholders' Equity
 Common stock without par value, 250,000,000 shares authorized; 150,531,716 and
  149,556,416 shares issued and outstanding at December 31, 2000 and
  1999, respectively. (At December 31, 2000 166,893 shares were reserved
  for the Employee Savings Plan and 12,061,756 shares were reserved for the
  Shareholder Investment Plan.)                                                                     1,538.7    1,494.0
 Retained earnings                                                                                  1,592.3    1,499.1
 Accumulated other comprehensive income (loss)                                                         22.0       (0.1)
----------------------------------------------------------------------------------------------------------------------
 Total common shareholders' equity                                                                  3,153.0    2,993.0
----------------------------------------------------------------------------------------------------------------------
Total Capitalization                                                                               $6,502.3   $5,758.4
======================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.
Certain prior-year amounts have been reclassified to conform with the current
year's presentation.


                                      51
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME TAXES -- CONSTELLATION ENERGY GROUP INC. AND
SUBSIDIARIES

<TABLE>
<CAPTION>

Year Ended December 31,                                                          2000        1999        1998
-------------------------------------------------------------------------------------------------------------
                                                                                 (Dollar amounts in millions)
<S>                                                                            <C>       <C>         <C>
Income Taxes
 Current                                                                    $   196.4    $  182.0    $  169.0
-------------------------------------------------------------------------------------------------------------
 Deferred
  Change in tax effect of temporary differences                                  50.4         9.6        14.2
  Change in income taxes recoverable through future rates                         3.4          --         3.9
  Deferred taxes credited (charged) to shareholders' equity                     (11.8)        3.4        (0.6)
-------------------------------------------------------------------------------------------------------------
  Deferred taxes charged to expense                                              42.0        13.0        17.5
 Investment tax credit adjustments                                               (8.3)       (8.6)       (8.8)
-------------------------------------------------------------------------------------------------------------
 Income taxes per Consolidated Statements of Income                         $   230.1    $  186.4    $  177.7
=============================================================================================================

Reconciliation of Income Taxes Computed at Statutory
Federal Rate to Total Income Taxes
 Income before income taxes (excluding BGE preference stock dividends)      $   588.6    $  526.3    $  505.4
  Statutory federal income tax rate                                                35%         35%         35%
-------------------------------------------------------------------------------------------------------------
  Income taxes computed at statutory federal rate                               206.0       184.2       176.9
  Increases (decreases) in income taxes due to
   Depreciation differences not normalized on regulated activities               12.6        15.3        13.6
   Allowance for equity funds used during construction                           (0.9)       (2.2)       (2.2)
   Amortization of deferred investment tax credits                               (8.3)       (8.6)       (8.8)
   Tax credits flowed through to income                                          (6.5)       (3.2)       (0.3)
   Amortization of deferred tax rate differential on regulated activities        (2.9)       (3.0)       (2.3)
   State income taxes                                                            34.0         8.9         9.8
   Other                                                                         (3.9)       (5.0)       (9.0)
-------------------------------------------------------------------------------------------------------------
  Total income taxes                                                        $   230.1    $  186.4    $  177.7
=============================================================================================================
  Effective income tax rate                                                      39.1%       35.4%       35.2%

<CAPTION>
At December 31,                                                                              2000        1999
-------------------------------------------------------------------------------------------------------------
                                                                                 (Dollar amounts in millions)
<S>                                                                                      <C>         <C>
Deferred Income Taxes
 Deferred tax liabilities
  Net property, plant and equipment                                                      $1,121.1    $1,102.6
  Income taxes recoverable through future rates                                              32.8        35.7
  Deferred termination and postemployment costs                                              13.6        14.7
  Deferred fuel costs                                                                        24.9        25.8
  Leveraged leases                                                                           17.0        19.9
  Energy trading activities                                                               1,691.8        71.4
  Deferred electric generation-related regulatory assets                                     93.7       100.3
  Other                                                                                     161.7       192.6
-------------------------------------------------------------------------------------------------------------
  Total deferred tax liabilities                                                          3,156.6     1,563.0
-------------------------------------------------------------------------------------------------------------
 Deferred tax assets
  Accrued pension and postemployment benefit costs                                           76.5        63.6
  Deferred investment tax credits                                                            35.5        38.3
  Nuclear decommissioning liability                                                          28.2        25.4
  Energy trading activities                                                               1,510.6        15.1
  Other                                                                                     166.3       131.8
-------------------------------------------------------------------------------------------------------------
  Total deferred tax assets                                                               1,817.1       274.2
-------------------------------------------------------------------------------------------------------------
 Deferred tax liability, net                                                             $1,339.5    $1,288.8
=============================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.
Certain prior-year amounts have been reclassified to conform with the current
year's presentation.


                                      52
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

Baltimore Gas and Electric Company and Subsidiaries

<TABLE>
<CAPTION>

Year Ended December 31,                                                     2000                   1999                1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (In millions)
<S>                                                                     <C>                   <C>                  <C>
Revenues
 Electric revenues                                                        $ 2,135.2                $2,259.5           $ 2,219.2
 Gas revenues                                                                 611.6                   485.3               449.4
 Nonregulated revenues                                                           --                   347.4               717.8
------------------------------------------------------------------------------------------------------------------------------------
 Total revenues                                                             2,746.8                 3,092.2             3,386.4
Expenses
 Operating Expenses:
  Electric fuel and purchased energy                                          870.5                   486.8               505.7
  Gas purchased for resale                                                    350.7                   233.7               208.6
  Operations and maintenance                                                  554.4                   728.8               731.6
  Nonregulated--selling, general, and administrative                             --                   286.0               607.1
 Depreciation and amortization                                                367.9                   427.9               375.5
 Taxes other than income taxes                                                193.2                   224.7               219.4
------------------------------------------------------------------------------------------------------------------------------------
 Total operating expenses                                                   2,336.7                 2,387.9             2,647.9
------------------------------------------------------------------------------------------------------------------------------------
Income from Operations                                                        410.1                   704.3               738.5
Other Income                                                                    9.8                     8.4                 5.7
------------------------------------------------------------------------------------------------------------------------------------
Income Before Fixed Charges and Income Taxes                                  419.9                   712.7               744.2
Fixed Charges
 Interest expense (net)                                                       187.2                   209.7               242.2
 Allowance for borrowed funds used during construction                         (3.2)                   (3.8)               (3.4)
------------------------------------------------------------------------------------------------------------------------------------
 Total fixed charges                                                          184.0                   205.9               238.8
------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes                                                    235.9                   506.8               505.4
Income Taxes
 Current                                                                      142.1                   192.1               169.0
 Deferred                                                                     (44.4)                   (5.2)               17.5
 Investment tax credit adjustments                                             (5.3)                   (8.5)               (8.8)
------------------------------------------------------------------------------------------------------------------------------------
 Total income taxes                                                            92.4                   178.4               177.7
------------------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item                                              143.5                   328.4               327.7
Extraordinary Loss, Net of Income Taxes of $30.4 (see Note 4)                    --                   (66.3)                 --
------------------------------------------------------------------------------------------------------------------------------------
Net Income                                                                    143.5                   262.1               327.7
Preference Stock Dividends                                                     13.2                    13.5                21.8
------------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock                                       $   130.3                $  248.6           $   305.9
====================================================================================================================================

<CAPTION>

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Baltimore Gas and Electric Company and Subsidiaries

Year Ended December 31,                                                     2000                   1999                1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (In millions)
<S>                                                                     <C>                   <C>                  <C>
Net Income                                                                $   143.5                $  262.1           $   327.7
Other comprehensive income/(loss), net of taxes                                  --                    (3.4)                1.2
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income                                                      $   143.5                $  258.7           $   328.9
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.

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

                                      53
<PAGE>

CONSOLIDATED BALANCE SHEETS
Baltimore Gas and Electric Company and Subsidiaries

<TABLE>
<CAPTION>

At December 31,                                                                  2000                           1999
----------------------------------------------------------------------------------------------------------------------
                                                                                             (In millions)
<S>                                                                           <C>                           <C>
Assets
 Current Assets
  Cash and cash equivalents                                                   $    21.3                      $    23.5
  Accounts receivable (net of allowance for uncollectibles
   of $13.4 and $13.0 respectively)                                               413.0                          311.6
  Accounts receivable, affiliated companies                                       133.2                            4.5
  Note receivable, affiliated company                                              87.0                             --
  Fuel stocks                                                                      34.1                           94.9
  Materials and supplies                                                           37.3                          139.1
  Prepaid taxes other than income taxes                                            44.9                           72.4
  Other                                                                             4.7                            9.0
----------------------------------------------------------------------------------------------------------------------
  Total current assets                                                            775.5                          655.0
----------------------------------------------------------------------------------------------------------------------

 Investments and Other Assets
  Nuclear decommissioning trust fund                                                 --                          217.9
  Net pension asset                                                               100.2                           99.8
  Safe Harbor Water Power Corporation                                                --                           34.5
  Other                                                                            68.7                           61.6
----------------------------------------------------------------------------------------------------------------------
  Total investments and other assets                                              168.9                          413.8
----------------------------------------------------------------------------------------------------------------------

 Utility Plant
  Plant in service
   Electric                                                                     3,259.0                        7,088.6
   Gas                                                                            988.4                          962.0
   Common                                                                         532.9                          569.5
----------------------------------------------------------------------------------------------------------------------
   Total plant in service                                                       4,780.3                        8,620.1
  Accumulated depreciation                                                     (1,700.3)                      (3,466.1)
----------------------------------------------------------------------------------------------------------------------
  Net plant in service                                                          3,080.0                        5,154.0
  Construction work in progress                                                    75.3                          222.3
  Nuclear fuel (net of amortization)                                                 --                          133.8
  Plant held for future use                                                         4.5                           13.0
----------------------------------------------------------------------------------------------------------------------
  Net utility plant                                                             3,159.8                        5,523.1
----------------------------------------------------------------------------------------------------------------------

 Deferred Charges
  Regulatory assets (net)                                                         514.9                          637.4
  Other                                                                            35.1                           43.3
----------------------------------------------------------------------------------------------------------------------
  Total deferred charges                                                          550.0                          680.7
----------------------------------------------------------------------------------------------------------------------
 Total Assets                                                                 $ 4,654.2                      $ 7,272.6
======================================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

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


                                      54
<PAGE>

CONSOLIDATED BALANCE SHEETS
Baltimore Gas and Electric Company and Subsidiaries
<TABLE>
<CAPTION>


At December 31,                                                                 2000             1999
----------------------------------------------------------------------------------------------------------
                                                                                    (In millions)
<S>                                                                             <C>              <C>
Liabilities and Capitalization
  Current Liabilities
    Short-term borrowings                                                       $    32.1        $   129.0
    Current portions of long-term debt and preference stock                         567.6            523.9
    Accounts payable                                                                119.3            218.1
    Accounts payable, affiliated companies                                          103.5              4.7
    Customer deposits                                                                44.4             40.6
    Accrued taxes                                                                    25.0              9.2
    Accrued interest                                                                 43.4             48.2
    Accrued vacation costs                                                           20.8             35.7
    Other                                                                            29.6             69.1
----------------------------------------------------------------------------------------------------------
    Total current liabilities                                                       985.7          1,078.5
----------------------------------------------------------------------------------------------------------

  Deferred Credits and Other Liabilities
    Deferred income taxes                                                           508.7          1,032.0
    Postretirement and postemployment benefits                                      231.2            231.0
    Deferred investment tax credits                                                  25.0            109.6
    Decommissioning of federal uranium enrichment facilities                         23.7             27.2
    Other                                                                            23.2             42.9
----------------------------------------------------------------------------------------------------------
    Total deferred credits and other liabilities                                    811.8          1,442.7
----------------------------------------------------------------------------------------------------------

  Long-term Debt
    First refunding mortgage bonds of BGE                                         1,174.7          1,321.7
    Other long-term debt of BGE                                                     976.6          1,135.8
    Company obligated mandatorily redeemable trust preferred
      securities of subsidiary trust holding solely 7.16% debentures
      of BGE due June 30, 2038                                                      250.0            250.0
    Long-term debt of nonregulated businesses                                        34.0             33.0
    Unamortized discount and premium                                                 (3.3)           (10.6)
    Current portion of long-term debt                                              (567.6)          (523.9)
----------------------------------------------------------------------------------------------------------
    Total long-term debt                                                          1,864.4          2,206.0
----------------------------------------------------------------------------------------------------------

  Preference Stock Not Subject to Mandatory Redemption                              190.0            190.0
  Common Shareholder's Equity
    Common stock                                                                    465.1          1,494.0
    Retained earnings                                                               337.2            861.4
----------------------------------------------------------------------------------------------------------
    Total common shareholder's equity                                               802.3          2,355.4
----------------------------------------------------------------------------------------------------------
    Total capitalization                                                          2,856.7          4,751.4
----------------------------------------------------------------------------------------------------------

  Commitments, Guarantees, and Contingencies (see Note 10)
  Total Liabilities and Capitalization                                          $ 4,654.2        $ 7,272.6
==========================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

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


                                      55
<PAGE>
<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS
Baltimore Gas and Electric Company and Subsidiaries

Year Ended December 31,                                                         2000                  1999                1998
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                  (In millions)
<S>                                                                           <C>                   <C>               <C>
Cash Flows From Operating Activities
 Net income                                                                   $   143.5             $  262.1          $   327.7
 Adjustments to reconcile to net cash provided by operating activities
  Extraordinary loss                                                                 --                 66.3                 --
  Depreciation and amortization                                                   393.6                480.4              427.8
  Deferred income taxes                                                           (44.4)                (5.2)              17.5
  Investment tax credit adjustments                                                (5.3)                (8.5)              (8.8)
  Deferred fuel costs                                                               2.8                (61.1)              (8.3)
  Accrued pension and postemployment benefits                                      23.1                 35.5               41.6
  Write-downs of real estate investments                                             --                   --               23.7
  Allowance for equity funds used during construction                              (2.6)                (6.2)              (6.3)
  Equity in earnings of affiliates and joint ventures (net)                         1.3                 29.1              (54.5)
  Changes in assets from energy trading activities                                   --               (133.0)            (123.6)
  Changes in liabilities from energy trading activities                              --                 99.0               90.4
  Changes in other current assets                                                (189.7)               (15.1)              18.3
  Changes in other current liabilities                                             68.7                 22.7               77.0
  Other                                                                             5.7                 16.7               (1.7)
-------------------------------------------------------------------------------------------------------------------------------
  Net cash provided by operating activities                                       396.7                782.7              820.8
-------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
 Utility construction expenditures (excluding AFC)                               (309.5)              (385.7)            (338.1)
 Nuclear fuel expenditures                                                        (39.5)               (49.2)             (50.5)
 Deferred conservation expenditures                                                (0.6)                (1.1)             (16.2)
 Contributions to nuclear decommissioning trust fund                               (8.8)               (17.6)             (17.6)
 Purchases of marketable equity securities                                           --                 (9.2)             (33.3)
 Sales of marketable equity securities                                               --                  6.0               32.8
 Power projects                                                                      --                (17.9)            (252.5)
 Other                                                                              0.7                 14.0              (35.9)
-------------------------------------------------------------------------------------------------------------------------------
 Net cash used in investing activities                                           (357.7)              (460.7)            (711.3)
-------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
 Net (maturity) issuance of short-term borrowings                                 (96.9)               129.0             (316.1)
 Proceeds from issuance of
  Long-term debt                                                                  377.3                257.2              831.3
  Common stock                                                                       --                  9.6               51.8
 Reacquisition of long-term debt                                                 (121.7)              (466.3)            (355.2)
 Redemption of preference stock                                                      --                 (7.0)            (127.9)
 Common stock dividends paid                                                         --                (62.7)            (246.0)
 Preferred and preference stock dividends paid                                    (13.2)               (13.6)             (21.0)
 Distributions to Constellation Energy                                           (188.5)              (316.6)                --
 Other                                                                              1.8                 (1.8)              84.7
-------------------------------------------------------------------------------------------------------------------------------
 Net cash used in financing activities                                            (41.2)              (472.2)             (98.4)
-------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents                               (2.2)              (150.2)              11.1
Cash and Cash Equivalents at Beginning of Year                                     23.5                173.7              162.6
-------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                                      $    21.3             $   23.5          $   173.7
===============================================================================================================================

Other Cash Flow Information
 Cash paid during the year for:
  Interest (net of amounts capitalized)                                       $   184.7             $  200.2          $   236.7
  Income taxes                                                                $   127.6             $  178.8          $   164.3
</TABLE>

Noncash Investing and Financing Activities:

 On July 1, 2000, BGE transferred $1,578.4 million of generation assets, net of
 associated liabilities, to nonregulated affiliates of Constellation Energy
 pursuant to the Maryland PSC's Restructuring Order.

 In 1998, Corporate Office Properties Trust (COPT) assumed approximately $62
 million of Constellation Real Estate Group's (CREG) debt and issued to CREG 7.0
 million common shares and 985,000 convertible   preferred shares. In exchange,
 COPT received 14 operating properties and two properties under development from
 CREG.

See Notes to Consolidated Financial Statements.

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

                                      56
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


   1 SIGNIFICANT ACCOUNTING POLICIES

Nature of Our Business
----------------------
Constellation Energy(R) Group, Inc. (Constellation Energy) is a diversified
North American energy company. Constellation Energy conducts its business
through various subsidiaries that primarily include a domestic merchant energy
business and Baltimore Gas and Electric Company (BGE(R)). Our domestic merchant
energy business is focused mostly on power marketing and merchant generation in
North America. BGE is an electric and gas public utility distribution company
with a service territory that covers the City of Baltimore and all or part of
ten counties in Central Maryland. We describe our operating segments in Note 2.

   References in this report to "we" and "our" are to Constellation Energy and
its subsidiaries, collectively. Reference in this report to the "utility
business" is to BGE.

   On April 30, 1999, Constellation Energy became the holding company for BGE
and Constellation(R) Enterprises, Inc. Constellation Enterprises was previously
owned by BGE. BGE's outstanding common stock automatically became shares of
common stock of Constellation Energy. BGE's debt securities, obligated
mandatorily redeemable trust preferred securities, and preference stock remain
securities of BGE, or its subsidiaries.

Consolidation Policy
--------------------
We use three different accounting methods to report our investments in our
subsidiaries or other companies: consolidation, the equity method, and the cost
method.

Consolidation
-------------
We use consolidation when we own a majority of the voting stock of the
subsidiary. This means the accounts of our subsidiaries are combined with our
accounts. We eliminate intercompany balances and transactions when we
consolidate these accounts.

   This report is a combined report of Constellation Energy and BGE. The
consolidated financial statements of Constellation Energy include the accounts
of:

   . Constellation Energy,
   . BGE and its subsidiaries,
   . Constellation Enterprises, Inc. and its subsidiaries, and
   . Constellation Nuclear, LLC and its subsidiaries.

   The consolidated financial statements of BGE include the accounts of:

   . BGE
   . ComfortLink, and
   . BGE Capital Trust I.

   As Constellation Enterprises and its subsidiaries were subsidiaries of BGE
prior to April 30, 1999, they are included in the consolidated financial
statements of BGE through that date.

The Equity Method
-----------------
We usually use the equity method to report investments, corporate joint
ventures, partnerships, and affiliated companies (including power projects)
where we hold a 20% to 50% voting interest. Under the equity method, we report:

   . our interest in the entity as an investment in our Consolidated Balance
     Sheets, and
   . our percentage share of the earnings from the entity in our Consolidated
     Statements of Income.

  The only time we do not use this method is if we can exercise control over the
operations and policies of the company. If we have control, accounting rules
require us to use consolidation.

The Cost Method
---------------
We usually use the cost method if we hold less than a 20% voting interest in an
investment. Under the cost method, we report our investment at cost in our
Consolidated Balance Sheets. The only time we do not use this method is when we
can exercise significant influence over the operations and policies of the
company. If we have significant influence, accounting rules require us to use
the equity method.

Regulation of Utility Business
------------------------------
The Maryland Public Service Commission (Maryland PSC) provides the final
determination of the rates we charge our customers for our regulated businesses.
Generally, we use the same accounting policies and practices used by
nonregulated companies for financial reporting under accounting principles
generally accepted in the United States of America. However, sometimes the
Maryland PSC orders an accounting treatment different from that used by
nonregulated companies to determine the rates we charge our customers. When this
happens, we must defer certain utility expenses and income in our Consolidated
Balance Sheets as regulatory assets and liabilities. We have recorded these
regulatory assets and liabilities in our Consolidated Balance Sheets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of Regulation. We summarize and
discuss our regulatory assets and liabilities further in Note 5.

   In 1997, the Financial Accounting Standards Board (FASB) through its Emerging
Issues Task Force (EITF) issued EITF 97-4, Deregulation of the Pricing of
Electricity--Issues Related to the Application of FASB Statements No. 71
and 101. The EITF concluded that a company should cease to apply SFAS No. 71
when either legislation is passed or a regulatory body issues an order that
contains sufficient detail to determine how the transition plan will affect the
deregulated portion of the business. Additionally, a company would continue to
recognize regulatory assets and liabilities in the Consolidated Balance Sheets
to the extent that the transition plan provides for their recovery.

   On November 10, 1999, the Maryland PSC issued a Restructuring Order that we
believe provided sufficient details of the transition plan to competition for
BGE's electric generation business to require BGE to discontinue the application
of SFAS No. 71 for that portion of its business. Accordingly, in the fourth
quarter of 1999, we adopted the provisions of SFAS No. 101, Regulated
Enterprises--Accounting for the Discontinuation of FASB Statement No. 71 and
EITF No. 97-4 for BGE's electric generation business. BGE's transmission and
distribution business continues to meet the requirements of SFAS No. 71 as that
business remains regulated. We discuss this further in Note 4.


                                      57
<PAGE>

Revenues
--------
Nonregulated Businesses
-----------------------
We record nonregulated revenues in our Consolidated Statements of Income in the
period earned for services rendered, commodities or products delivered, or
contracts settled.

   Our subsidiary, Constellation Power Source, engages in power marketing
activities, which include trading electricity, other energy commodities, and
related derivatives (such as futures, forwards, options, and swaps).
Constellation Power Source accounts for its activities using the mark-to-market
method of accounting in accordance with EITF Issue 98-10, Accounting for
Contracts Involved in Energy Trading and Risk Management Activities.

   Under the mark-to-market method of accounting, we report:

   . commodity positions and derivatives at fair value as "Assets from energy
     trading activities" or "Liabilities from energy trading activities" in our
     Consolidated Balance Sheets, and
   . changes in fair value and net gains and losses from realized transactions
     as components of "Nonregulated revenues" in our Consolidated Statements of
     Income.

   Changes in fair value result primarily from new transactions and the impact
of price and interest rate movements.

Regulated Utility
-----------------
We record utility revenues when we provide service to customers.

Fuel and Purchased Energy Costs
-------------------------------
We incur costs for:

   . the fuel we use to generate electricity,
   . purchases of electricity from others, and
   . natural gas that we resell.

   These costs are included in "Operating expenses" in our Consolidated
Statements of Income. We discuss each of these separately below.

Fuel Used to Generate Electricity and Purchases of Electricity From Others
--------------------------------------------------------------------------
Effective July 1, 2000, these costs are recorded as incurred. Historically and
until July 1, 2000, we were allowed to recover our costs of electric fuel under
the electric fuel rate clause set by the Maryland PSC. Under the electric fuel
rate clause, we charged our electric customers for:

   . the fuel we use to generate electricity (nuclear fuel, coal, gas, or oil),
     and
   . the net cost of purchases and sales of electricity.

   We charged the actual costs of these items to customers with no profit to us.
To do this, we had to keep track of what we spent and what we collected from
customers under the fuel rate in a given period. Usually these two amounts were
not the same because there was a difference between the time we spent the money
and the time we collected it from our customers.

   Under the electric fuel rate clause, we deferred (included as an asset or
liability in our Consolidated Balance Sheets and excluded from our Consolidated
Statements of Income) the difference between our actual costs of fuel and energy
and what we collected from customers under the fuel rate in a given period. We
either billed or refunded our customers that difference in the future. As a
result of the Restructuring Order, the fuel rate was discontinued effective July
1, 2000. We discuss this further in Note 5.

Natural Gas
-----------
We charge our gas customers for the natural gas they purchase from us using "gas
cost adjustment clauses" set by the Maryland PSC. These clauses operate
similarly to the electric fuel rate clause described earlier in this note.
However, the Maryland PSC approved a modification of the gas cost adjustment
clauses to provide a market based rates incentive mechanism. Under market based
rates our actual cost of gas is compared to a market index (a measure of the
market price of gas in a given period). The difference between our actual cost
and the market index is shared equally between shareholders and customers.

Risk Management
---------------
We are exposed to the impact of market fluctuations in the price and
transportation costs of electricity, natural gas, and other commodities. Our
domestic merchant energy and regulated gas businesses use derivative instruments
to manage changes in their respective commodity prices. We discuss our risk
management activities in more detail below.

Domestic Merchant Energy Business
---------------------------------
Our domestic merchant energy business is exposed to market risk from the power
marketing operation of Constellation Power Source and from our electric
generation operations. Constellation Power Source manages the market risk
inherent in its power marketing activities on a portfolio basis, subject to
established trading and risk management policies. Constellation Power Source
uses a variety of derivative instruments, including:

   . forward contracts, which commit us to purchase or sell energy commodities
     in the future;
   . futures contracts, which are exchange-traded standardized commitments to
     purchase or sell a commodity or financial instrument, or to make a cash
     settlement, at a specific price and future date;
   . swap agreements, which require payments to or from counterparties based
     upon the differential between two prices for a predetermined contractual
     (notional) amount; and
   . option contracts, which convey the right to buy or sell a commodity,
     financial instrument, or index at a predetermined price.


                                      58
<PAGE>

   Market risk arises from the potential for changes in the value of energy
commodities and related derivatives due to: changes in commodity prices,
volatility of commodity prices, and fluctuations in interest rates. A number of
factors associated with the structure and operation of the electricity market
significantly influence the level and volatility of prices for energy
commodities and related derivative products. These factors include:

   . seasonal changes in demand,
   . hourly fluctuations in demand due to weather conditions,
   . available supply resources,
   . transportation availability and reliability within and between regions,
   . procedures used to maintain the integrity of the physical electricity
     system during extreme conditions, and
   . changes in the nature and extent of federal and state regulations.

   These factors can affect energy commodity and derivative prices in different
ways and to different degrees. These effects may vary throughout the country as
a result of regional differences in:

   . weather conditions,
   . market liquidity,
   . capability and reliability of the physical electricity and gas systems, and
   . the nature and extent of electricity deregulation.

   Our domestic merchant energy business conducts electric generation operations
primarily through Constellation Power Source Generation, Calvert Cliffs, and
Constellation Power. Presently, the majority of the generating capacity
controlled by our domestic merchant energy business is used to provide standard
offer service to BGE. However, beginning in July 2002, we expect approximately
1,000 megawatts of industrial customer load will leave standard offer service.
The remainder of the standard offer service arrangement with BGE terminates on
June 30, 2003. Additionally, we plan to expand our generation operations.

   As a result, our domestic merchant energy business has a substantial and
increasing amount of generating capacity that is subject to future changes in
wholesale electricity prices and has fuel requirements that are subject to
future changes in coal, natural gas, and oil prices. Additionally, if one or
more of our generating facilities is not able to produce electricity when
required due to operational factors, we may have to forego sales opportunities
or fulfill fixed price sale commitments through the operation of other more
costly generating facilities or through the purchase of energy in the wholesale
market at higher prices.

   Constellation Power Source manages the commodity price risk of our electric
generation operations as part of its overall portfolio. Additionally, the
domestic merchant energy business may enter into fixed-price contracts to hedge
a portion of its exposure to future electricity and fuel commodity price risk.

   At December 31, 2000, our domestic merchant energy business has several
contracts to sell electricity for each calendar year beginning 2003 through 2010
at fixed prices to hedge a portion of the forecasted sales of electricity by our
domestic merchant energy plants during these periods. At December 31, 2000, we
recorded deferred hedge losses of $58 million in "Other deferred charges" in our
Consolidated Balance Sheets. We will reclassify these deferred hedge losses to
"Accumulated other comprehensive income" when we adopt SFAS No. 133 in 2001.

Regulated Electric Business
---------------------------
The standard offer service arrangement between BGE and Constellation Power
Source ends June 30, 2003. Under the Restructuring Order, effective July 1,
2000, BGE's residential rates are frozen for a six-year period and its
commercial and industrial rates are frozen for four to six years. As a result,
BGE will be subject to commodity price risk beginning July 1, 2003 upon
termination of the existing standard offer arrangement. In accordance with the
Restructuring Order, BGE will competitively bid the standard offer service
supply for the remaining period of the rate freeze subsequent to June 30, 2003.
During the remaining period of BGE's rate freeze, BGE will be unable to pass
through to its customers any increase in the market price of electricity it must
purchase to meet the standard offer service load. Our regulated electric
business is evaluating various alternatives to minimize the market risk after
June 30, 2003.

Regulated Gas Business
----------------------
We use basis swaps in the winter months (November through March) to hedge our
price risk associated with natural gas purchases under our market based rates
incentive mechanism. We also use fixed-to-floating and floating-to-fixed swaps
to hedge our price risk associated with our off-system gas sales. The fixed
portion represents a specific dollar amount that we will pay or receive and the
floating portion represents a fluctuating amount based on a published index that
we will receive or pay. Our regulated gas business internal guidelines do not
permit the use of swap agreements for any purpose other than to hedge price
risk.

   BGE's off-system gas sales activities represent trading activities under EITF
98-10. Accordingly, we use mark-to-market accounting to record these
transactions. The trading activities relating to our off-system gas sales were
not material at December 31, 2000 and 1999.

   We defer, as unrealized gains or losses, the changes in fair value of the
swap agreements under the market based rates incentive mechanism and the
customers' portion of off-system gas sales in our Consolidated Balance Sheets.
When amounts are paid under the agreements, we report the payments as gas costs
in our Consolidated Statements of Income. We report the changes in fair value
for the shareholders' portion of off-system gas sales in earnings as a component
of gas costs.


                                      59
<PAGE>

Credit Risk
-----------
We are exposed to credit risk, primarily through Constellation Power Source.
Credit risk is the loss that may result from a counterparty's nonperformance.
Constellation Power Source uses credit policies to control its credit risk,
including utilizing an established credit approval process, monitoring
counterparty limits, employing credit mitigation measures such as margin,
collateral or prepayment arrangements, and using master netting agreements.
However, due to the possibility of extreme volatility in the prices of
electricity commodities and derivatives, the market value of contractual
positions with individual counterparties could exceed established credit limits
or collateral provided by those counterparties. If such a counterparty were then
to fail to perform its obligations under its contract (for example, fail to
deliver the electricity Constellation Power Source had contracted for),
Constellation Power Source could sustain a loss that could have a material
impact on our financial results.

Taxes
-----
We summarize our income taxes in our Consolidated Statements of Income Taxes. As
you read this section, it may be helpful to refer to those statements.

Income Tax Expense
------------------
We have two categories of income taxes in our Consolidated Statements of Income-
-current and deferred. We describe each of these below.

   Our current income tax expense consists solely of regular tax less applicable
tax credits.

   Our deferred income tax expense is equal to the changes in the net deferred
income tax liability, excluding amounts charged or credited to common
shareholders' equity. Our deferred income tax expense is increased or reduced
for changes to the "Income taxes recoverable through future rates (net)"
regulatory asset (described later in this note) during the year.

Investment Tax Credits
----------------------
We have deferred the investment tax credit associated with our regulated utility
business and assets previously held by our regulated utility business in our
Consolidated Balance Sheets. The investment tax credit is amortized evenly to
income over the life of each property. We reduce income tax expense in our
Consolidated Statements of Income for the investment tax credit and other tax
credits associated with our nonregulated businesses, other than leveraged
leases.

Deferred Income Tax Assets and Liabilities
------------------------------------------
We must report some of our revenues and expenses differently for our financial
statements than we do for income tax purposes. The tax effects of the
differences in these items are reported as deferred income tax assets or
liabilities in our Consolidated Balance Sheets. We measure the assets and
liabilities using income tax rates that are currently in effect.

   A portion of our total deferred income tax liability relates to our regulated
utility business, but has not been reflected in the rates we charge our
customers. We refer to this portion of the liability as "Income taxes
recoverable through future rates (net)." We have recorded that portion of the
net liability as a regulatory asset in our Consolidated Balance Sheets. We
discuss this further in Note 5.

State and Local Taxes
---------------------
As discussed in Note 4, tax legislation has made comprehensive changes to the
state and local taxation of electric and gas utilities. State and local income
taxes are included in "Income taxes" in our Consolidated Statements of Income.

   Through December 31, 1999, we paid Maryland public service company franchise
tax on our utility revenue from sales in Maryland instead of state income tax.
We include the franchise tax in "Taxes other than income taxes" in our
Consolidated Statements of Income.

Cash and Cash Equivalents
-------------------------
For the purpose of reporting our cash flows, we define cash equivalents as
highly liquid investments that mature in three months or less.

   At December 31, 2000, $112.5 million of the cash balance included in our
Consolidated Balance Sheets was restricted under certain collateral arrangements
for our power marketing operation.

Inventory
---------
We report the majority of our fuel stocks and materials and supplies at average
cost.

Real Estate Projects and Investments
------------------------------------
In Note 3, we summarize the real estate projects and investments that are in our
Consolidated Balance Sheets. The projects and investments consist of:

   . land under development in the Baltimore-Washington corridor,
   . a mixed-use planned-unit development, and
   . an equity interest in Corporate Office Properties Trust, a real estate
     investment trust.

   The costs incurred to acquire and develop properties are included as part of
the cost of the properties.

Financial Investments and Trading Securities
--------------------------------------------
In Note 3, we summarize the financial investments that are in our Consolidated
Balance Sheets.

   SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, applies particular requirements to some of our investments in debt
and equity securities. We report those investments at fair value, and we use
specific identification to determine their cost for computing realized gains or
losses. We classify these investments as either trading securities or available-
for-sale securities, which we describe separately on the next page. We report
investments that are not covered by SFAS No. 115 at their cost.


                                      60
<PAGE>

Trading Securities
------------------
Our other nonregulated businesses classify some of their investments in
marketable equity securities and financial limited partnerships as trading
securities. We include any unrealized gains or losses on these securities in
"Nonregulated revenues" in our Consolidated Statements of Income.

Available-for-Sale Securities
-----------------------------
We classify our investments in the nuclear decommissioning trust fund as
available-for-sale securities. We include any unrealized gains or losses on the
trust assets as a change in the decommissioning reserve. We describe the nuclear
decommissioning trust and the reserve under the heading "Decommissioning Costs"
later in this note.

   In addition, our other nonregulated businesses classify some of their
investments in marketable equity securities as available-for-sale securities. We
include any unrealized gains or losses on these securities in "Accumulated other
comprehensive income" in our Consolidated Statements of Common Shareholders'
Equity and in the Consolidated Statements of Capitalization.

Evaluation of Assets for Impairment and Other Than Temporary Decline in Value
-----------------------------------------------------------------------------
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, applies particular requirements to some of our
assets that have long lives (some examples are generating property and equipment
and real estate). We determine if those assets are impaired by comparing their
undiscounted expected future cash flows to their carrying amount in our
accounting records. We recognize an impairment loss if the undiscounted expected
future cash flows are less than the carrying amount of the asset. Additionally,
we evaluate our equity-method investments to determine whether our investments
have a loss in value that is considered other than a temporary decline in value.
We use our best estimates to determine if there has been an impairment or
decline in value other than temporary and consider various factors including
forward price curves for energy, fuel costs, and operating costs. However, it is
possible that future market prices and project costs could vary from those used
in evaluating our long-lived assets and investments, and the impact of such
variations could be material.

Property, Plant and Equipment, Depreciation, Amortization, and Decommissioning
------------------------------------------------------------------------------
We report our property, plant and equipment at its original cost, unless
impaired under the provisions of SFAS No. 121. Our original costs include:

   . material and labor,
   . contractor costs, and
   . construction overhead costs and financing costs (where applicable).

   We charge retired or otherwise disposed of property, plant and equipment that
was depreciated under the composite, straight-line method to accumulated
depreciation. This includes regulated utility property, plant and equipment and
nonregulated generating assets previously owned by the regulated utility. When
any other property, plant and equipment is retired, or otherwise disposed of, we
reduce the property, plant and equipment balances and related accumulated
depreciation and amortization amounts, and recognize any gain or loss in our
Consolidated Statements of Income.

   The costs of maintenance and certain replacements are charged to "Operating
expenses" in our Consolidated Statements of Income as incurred.

   We own an undivided interest in the Keystone and Conemaugh electric
generating plants in Western Pennsylvania, as well as in the transmission line
that transports the plants' output to the joint owners' service territories. Our
ownership interests in these plants are 20.99% in Keystone and 10.56% in
Conemaugh. These ownership interests represented a net investment of $143
million at December 31, 2000 and $156 million at December 31, 1999.

   The "Nonregulated generation property, plant and equipment" in our
Consolidated Balance Sheets includes nonregulated generation construction work
in progress of $901.8 million at December 31, 2000 and $97.7 million at December
31, 1999.

Depreciation Expense
--------------------
We compute depreciation over the estimated useful lives of depreciable property
using the:

   . composite, straight-line rates (approved by the Maryland PSC for our
     regulated utility business) applied to the average investment in classes of
     depreciable property based on an average rate of approximately three
     percent per year,
   . units of production method for certain nonregulated generation facilities,
     or
   . straight-line method.

Amortization Expense
--------------------
Amortization is an accounting process of reducing an amount in our Consolidated
Balance Sheets evenly over a period of time. When we reduce amounts in our
Consolidated Balance Sheets, we increase amortization expense in our
Consolidated Statements of Income. An amount is considered fully amortized when
it has been reduced to zero.

   We are required, along with other domestic utilities, by the Energy Policy
Act of 1992 to make contributions to a fund for decommissioning and
decontaminating the Department of Energy's uranium enrichment facilities. The
contributions are generally payable over 15 years with escalation for inflation
and are based upon the proportionate amount of uranium enriched by the
Department of Energy for each utility. We amortize the deferred costs of
decommissioning and decontaminating the Department of Energy's uranium
enrichment facilities.

   We also amortize nuclear fuel based on the energy produced over the life of
the fuel including the quarterly fees we pay to the Department of Energy for the
future disposal of spent nuclear fuel. These fees are based on the kilowatt-
hours of electricity sold. We report the amortization expense for nuclear fuel
in "Operating expenses" in our Consolidated Statements of Income.


                                      61
<PAGE>

Decommissioning Costs
---------------------
We must accumulate a reserve for the costs that we expect to incur in the future
to decommission the radioactive portion of Calvert Cliffs. We do this based on a
sinking fund methodology. The Maryland PSC authorized us to include in the rates
that we charge our customers decommissioning expense based on a facility-
specific cost estimate so we can accumulate a decommissioning reserve of $521
million in 1993 dollars by the end of Calvert Cliffs' service life, adjusted to
reflect expected inflation. We have reported the decommissioning reserve in
"Accumulated depreciation" in our Consolidated Balance Sheets. The total reserve
was $310.1 million at December 31, 2000 and $287.5 million at December 31, 1999.
Our contributions to the nuclear decommissioning trust funds were $13.2 million
for 2000 and $17.6 million for 1999 and 1998.

   To fund the costs we expect to incur to decommission the plant, we
established an external decommissioning trust in accordance with Nuclear
Regulatory Commission (NRC) regulations. We report the assets in the trust in
"Nuclear decommissioning trust fund" in our Consolidated Balance Sheets. The NRC
requires utilities to provide financial assurance that they will accumulate
sufficient funds to pay for the cost of nuclear decommissioning based upon
either a generic NRC formula or a facility-specific decommissioning cost
estimate. We use the facility-specific cost estimate for funding these costs and
providing the required financial assurance.

Capitalized Interest and Allowance for Funds Used During Construction
---------------------------------------------------------------------
Capitalized Interest
--------------------
With the issuance of the Restructuring Order, we ceased accruing AFC (discussed
below) for electric generation-related construction projects.

   Our nonregulated businesses capitalize interest costs under SFAS No. 34,
Capitalizing Interest Costs, for costs incurred to finance our power projects
and real estate developed for internal use.

Allowance for Funds Used During Construction (AFC)
--------------------------------------------------
We finance regulated utility construction projects with borrowed funds and
equity funds. We are allowed by the Maryland PSC to record the costs of these
funds as part of the cost of construction projects in our Consolidated Balance
Sheets. We do this through the AFC, which we calculate using a rate authorized
by the Maryland PSC. We bill our customers for the AFC plus a return after the
utility property is placed in service.

   The AFC rates are 9.40% for electric plant, 8.61% for gas plant, and 9.19%
for common plant. We compound AFC annually.

Long-Term Debt
--------------
We defer (include as an asset or liability in our Consolidated Balance Sheets
and exclude from our Consolidated Statements of Income) all costs related to the
issuance of long-term debt. These costs include underwriters' commissions,
discounts or premiums, and other costs such as legal, accounting, and regulatory
fees, and printing costs. We amortize these costs over the life of the debt.

   When we incur gains or losses on debt that we retire prior to maturity in our
regulated utility business, we amortize those gains or losses over the remaining
original life of the debt.

   When we incur gains or losses on debt that we retire prior to maturity in our
nonregulated businesses, we record these gains or losses as an extraordinary
item, if material.

Use of Accounting Estimates
---------------------------
Management makes estimates and assumptions when preparing financial statements
under accounting principles generally accepted in the United States of America.
These estimates and assumptions affect various matters, including:

   . our reported amounts of assets and liabilities in our Consolidated Balance
     Sheets at the dates of the financial statements,
   . our disclosure of contingent assets and liabilities at the dates of the
     financial statements, and
   . our reported amounts of revenues and expenses in our Consolidated
     Statements of Income during the reporting periods.

   These estimates involve judgments with respect to, among other things, future
economic factors that are difficult to predict and are beyond management's
control. As a result, actual amounts could differ from these estimates.


                                      62
<PAGE>

Reclassifications
-----------------
We have reclassified certain prior-year amounts for comparative purposes. These
reclassifications did not affect consolidated net income for the years
presented.

Accounting Standards Issued
---------------------------
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes the accounting and
disclosure standards for derivative financial instruments and hedging
activities. In July 1999, the FASB issued SFAS No. 137 that delayed the
effective date for SFAS No. 133 by one year. Therefore, we must adopt the
provisions of SFAS No. 133 in our financial statements for the quarter ended
March 31, 2001. In June 2000, the FASB issued SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities, that amended
certain provisions of SFAS No. 133 and addressed a limited number of
implementation issues related to SFAS No. 133.

   These statements require that we recognize all derivatives on the balance
sheet at fair value. Changes in the value of derivatives that are not hedges
must be recorded in earnings. We expect to use derivatives to hedge the risk of
variations in future cash flows from forecasted purchases and sales of
electricity. Changes in the value of these derivatives will be recognized in
other comprehensive income until the forecasted transaction occurs. The
ineffective portion of the change in fair value of a derivative being used as a
hedge will be immediately recognized in earnings.

   The cumulative effect on earnings of adopting these statements is not
material for Constellation Energy. As of December 31, 2000, we entered into
certain forward sales of electricity that were designated as cash flow hedges of
forecasted transactions. We will record a reduction in other comprehensive
income of approximately $35 million after-tax to reflect these cash flow hedges
in accordance with these statements.

   The cumulative effect of adopting these statements is not material for BGE.

   2 INFORMATION BY OPERATING SEGMENT

In 1999, we reported three operating business segments--Electric, Gas, and
Energy Services. In response to the deregulation of electric generation, we
realigned our organization and combined our wholesale power marketing operation
with our domestic plant development and operation activities to form a domestic
merchant energy business.

   In 2000, we revised our operating segments to reflect the realignments of our
organization. Our new reportable operating segments are--Domestic Merchant
Energy, Regulated Electric, and Regulated Gas:

   . Our nonregulated domestic merchant energy business:
     . provides power marketing and risk management services,
     . develops, owns, and operates domestic power projects, and
     . provides nuclear consulting services.
   . Our regulated electric business purchases, distributes and sells
     electricity, and
   . Our regulated gas business purchases, transports, and sells natural gas.

   We have restated certain prior period information for comparative purposes
based on our new reportable operating segments.

   Effective July 1, 2000, the financial results of the electric generation
portion of our business are included in the domestic merchant energy business
segment. Prior to that date, the financial results of electric generation are
included in our regulated electric business.

   Our remaining nonregulated businesses:
   . develop, own, and operate international power projects in Latin America,
   . provide energy products and services,
   . sell and service electric and gas appliances, and heating and air
     conditioning systems, engage in home improvements, and sell natural gas
     through mass marketing efforts,
   . provide cooling services,
   . engage in financial investments, and
   . develop, own and manage real estate and senior-living facilities.

These 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 segments based on net
income. We account for intersegment revenues using market prices. A summary of
information by operating segment is shown on the next page.


                                      63
<PAGE>

<TABLE>
<CAPTION>
                                   Domestic                                                 Unallocated
                                   Merchant    Regulated       Regulated       Other          Corporate
                                    Energy     Electric          Gas        Nonregulated     Items and
                                   Business    Business        Business      Businesses     Eliminations    Consolidated
------------------------------------------------------------------------------------------------------------------------
                                                                   (In millions)
<S>                                 <C>          <C>             <C>            <C>              <C>             <C>
2000
Unaffiliated revenues            $  415.4      $2,134.7       $  603.8       $  724.6         $    --        $ 3,878.5
Intersegment revenues               576.6           0.5            7.8           15.7          (600.6)              --
------------------------------------------------------------------------------------------------------------------------
Total revenues                      992.0       2,135.2          611.6          740.3          (600.6)         3,878.5
Depreciation and amortization        80.9         319.9           46.2           23.0              --            470.0
Equity in income of equity-
 method investees (a)                  --           2.4             --             --              --              2.4
Net interest expense                 31.0         157.0           25.5           53.1            (8.4)           258.2
Income tax expense                  122.5          72.2           21.9           13.5              --            230.1
Net income (b)                      206.8         102.3           30.6            5.6              --            345.3
Segment assets                    6,753.3       3,453.4        1,028.8        1,299.5          (150.4)        12,384.6
Capital expenditures                811.2         290.3           59.7           19.3              --          1,180.5

1999
Unaffiliated revenues            $  212.9      $2,258.8       $  476.5       $  838.0         $    --        $ 3,786.2
Intersegment revenues                  --           1.2           11.6           20.1           (32.9)              --
------------------------------------------------------------------------------------------------------------------------
Total revenues                      212.9       2,260.0          488.1          858.1           (32.9)         3,786.2
Depreciation and amortization         5.0         376.4           44.9           23.5              --            449.8
Equity in income of equity-
 method investees (a)                  --           5.1             --             --              --              5.1
Net interest expense                   --         162.4           24.4           56.1            (1.4)           241.5
Income tax expense (benefit)         29.4         149.2           18.1          (10.3)             --            186.4
Extraordinary loss                     --          66.3             --             --              --             66.3
Net income (loss) (c)                52.4         198.8           33.0          (24.1)             --            260.1
Segment assets                    1,206.1       6,312.6          915.3        1,231.3            18.5          9,683.8
Capital expenditures                260.9         366.8           69.2           17.3              --            714.2

1998
Unaffiliated revenues            $  147.3      $2,219.2       $  449.4       $  570.5         $    --        $ 3,386.4
Intersegment revenues                  --           1.6            1.7           12.5           (15.8)              --
------------------------------------------------------------------------------------------------------------------------
Total revenues                      147.3       2,220.8          451.1          583.0           (15.8)         3,386.4
Depreciation and amortization         3.0         313.0           45.4           13.9             0.2            375.5
Equity in income of equity-
 method investees (a)                  --           5.0             --             --              --              5.0
Net interest expense                   --         164.9           23.6           50.7            (0.4)           238.8
Income tax expense (benefit)         28.6         146.6           13.4          (10.9)             --            177.7
Net income (loss) (d)                53.1         259.6           26.1          (32.9)             --            305.9
Segment assets                      885.3       6,342.8          934.6        1,275.2            (3.8)         9,434.1
Capital expenditures                317.5         339.5           65.5            7.7              --            730.2
</TABLE>

   (a) Our domestic merchant energy business records its equity in the income of
equity method investees in unaffiliated revenues.

   (b) Our regulated electric business recorded expense of $4.2 million related
to employees that elected to participate in a Targeted Voluntary Special Early
Retirement Program. In addition, our domestic merchant energy business recorded
a $15.0 million deregulation transition cost incurred by our power marketing
operation.

   (c) Our regulated electric business recorded expense of $4.9 million related
to Hurricane Floyd. Our domestic merchant energy business recorded $14.2 million
for the write-off of two geothermal power plants. Our Latin American operation
recorded $4.5 million for the write-down to reflect the fair value of our
investment in a power project in Bolivia. Our financial investments operation
recorded $16.0 million for the write-down of its investment in Capital Re stock
to reflect the market value of this investment. Our real estate and senior-
living facilities operation recorded $5.8 million for the write-down of certain
senior-living facilities.

   (d) Our domestic merchant energy business recorded $10.4 million for its
share of earnings in a partnership. Our energy products and services operation
recorded $5.5 million for the write-off of an energy services investment. Our
real estate and senior-living facilities operation recorded $15.4 million for
the write-down of a real estate project.


                                      64
<PAGE>

   3 INVESTMENTS

Real Estate Projects and Investments
------------------------------------
Real estate projects and investments held by Constellation Real Estate Group
(CREG), consist of the following:

<TABLE>
<CAPTION>

At December 31,                       2000     1999
----------------------------------------------------
                                      (In millions)
<S>                                  <C>      <C>
Properties under development         $165.1   $197.8
Rental and operating properties
 (net of accumulated
 depreciation)                         12.7      9.2
Equity interest in real estate
 investments                          112.5    103.1
----------------------------------------------------
Total real estate projects and
 investments                         $290.3   $310.1
====================================================
</TABLE>

   In 1999, CREG sold Church Street Station--an entertainment, dining, and
retail complex in Orlando, Florida--for $11.5 million, the approximate book
value of the complex.

   In 1998, CREG entered into an agreement with Corporate Office Properties
Trust (COPT), a real estate investment trust based in Philadelphia, under which
COPT assumed approximately $62 million of CREG's outstanding debt, paid CREG
approximately $22.8 million in cash, and issued to CREG approximately 7.0
million common shares representing a 41.9% equity interest in COPT and 985,000
convertible preferred shares. Each convertible preferred share yields 5.5% per
year, and is convertible after two years into 1.8748 common shares.

   In exchange, COPT received 14 operating properties and two properties under
development from CREG as well as certain other assets, options, and first
refusal rights. These options and first refusal rights are related to
approximately 91 acres of identified properties which are adjacent to operating
properties acquired by COPT. At December 31, 2000, 30 acres remain under these
options and first refusal rights with terms that range from one to three years.

   In September 2000, CREG converted 984,307 preferred shares of COPT into
approximately 1.8 million common shares of COPT.

Power Projects
--------------
Investments in power projects held by our domestic merchant energy business
consist of the following:
<TABLE>
<CAPTION>

At December 31,                      2000     1999
--------------------------------------------------
                                     (In millions)
<S>                                <C>      <C>
East                               $ 86.3   $ 85.1
West                                419.8    416.5
--------------------------------------------------
Total domestic power projects      $506.1   $501.6
==================================================

</TABLE>

   Our Domestic-West power projects include investments of $297.9 million in
2000 and $301.8 million in 1999 that sell electricity in California under power
purchase agreements called "Interim Standard Offer No. 4" agreements. We discuss
these projects further in Note 10.

   In 1999, our domestic generation operation recorded a $14.2 million after-tax
write-off of two geothermal power projects. These write-offs occurred because
the expected future cash flows from the projects are less than the investment in
the projects. For the first project, this resulted from the inability to
restructure certain project agreements. For the second project, the water
temperature of the geothermal resource used by one of the plants for production
declined.

   In 1998, our domestic generation operation recorded $10.4 million after-tax
gain for its share of earnings in a partnership. The partnership recognized a
gain on the sale of its ownership interest in a power sales contract.

   Our Latin American operation held power projects of $11.4 million at December
31, 2000 and $12.3 million at December 31, 1999.

   In 1999, our Latin American operation recorded a $4.5 million after-tax
write-down to reflect the fair value of our investment in a generating company
in Bolivia as a result of our international exit strategy.

Financial Investments
---------------------
Financial investments held by Constellation Investments, Inc. consist of the
following:

<TABLE>
<CAPTION>

At December 31,                       2000     1999
---------------------------------------------------
                                     (In millions)
<S>                                 <C>      <C>
Marketable equity securities        $105.9   $ 84.2
Financial limited partnerships        32.7     35.8
Leveraged leases                      22.4     25.4
---------------------------------------------------
Total financial investments         $161.0   $145.4
===================================================

</TABLE>

   In 1999, our financial investments operation announced that it would exchange
its shares of common stock in Capital Re, an insurance company, for common stock
of ACE Limited (ACE), another insurance company, as part of a business
combination whereby ACE would acquire all of the outstanding capital stock of
Capital Re. As a result, our financial investments operation wrote-down its
$94.2 million investment in Capital Re stock by $16.0 million after-tax to
reflect the closing price of the business combination.

Investments Classified as Available-for-Sale
--------------------------------------------
We classify our investments in the nuclear decommissioning trust fund as
available-for-sale. In addition, we classify some of our other nonregulated
businesses' marketable equity securities (shown above) as available-for-sale.
This means we do not expect to hold them to maturity and we do not consider them
trading securities.

   We show the fair values, gross unrealized gains and losses, and amortized
cost bases for all of our available-for-sale securities, in the following
tables.


                                      65
<PAGE>

<TABLE>
<CAPTION>
                            Amortized   Unrealized   Unrealized    Fair
At December 31, 2000       Cost Basis     Gains        Losses      Value
-------------------------------------------------------------------------
                                          (In millions)
<S>                            <C>           <C>          <C>     <C>
Marketable equity
 securities                    $171.8        $68.9        $(2.2)   $238.5
Corporate debt and
 U.S. Government
 agency                          26.1          0.1         (0.1)     26.1
State municipal bonds            61.3          2.3         (0.4)     63.2
-------------------------------------------------------------------------
Totals                         $259.2        $71.3        $(2.7)   $327.8
=========================================================================

</TABLE>


<TABLE>
<CAPTION>
                           Amortized    Unrealized   Unrealized    Fair
At December 31, 1999       Cost Basis     Gains        Losses      Value
-------------------------------------------------------------------------
                                             (In millions)
<S>                            <C>           <C>          <C>      <C>
Marketable equity
 securities                    $167.1        $42.8        $(2.1)   $207.8
Corporate debt and
 U.S. Government
 agency                          14.4           --           --      14.4
State municipal bonds            74.2           --         (0.8)     73.4
-------------------------------------------------------------------------
Totals                         $255.7        $42.8        $(2.9)   $295.6
=========================================================================

</TABLE>

   The preceding tables include $34.7 million in 2000 and $40.5 million in 1999
of unrealized net gains associated with the nuclear decommissioning trust fund
which are reflected as a change in the nuclear decommissioning trust fund on the
Consolidated Balance Sheets.

   Gross and net realized gains and losses on available-for-sale securities were
as follows:

<TABLE>
<CAPTION>

                                  2000            1999              1998
-------------------------------------------------------------------------
                                              (In millions)
<S>                              <C>            <C>                <C>
Gross realized gains             $54.5          $ 11.7             $ 4.2
Gross realized losses             (8.0)          (38.8)             (0.7)
-------------------------------------------------------------------------
Net realized gains (losses)      $46.5          $(27.1)            $ 3.5
=========================================================================
</TABLE>

   The Corporate debt securities, U.S. Government agency obligations, and state
municipal bonds mature on the following schedule:

<TABLE>
<CAPTION>

At December 31, 2000                            Amount
---------------------------------------------------------
                                            (In millions)

<S>                                             <C>
Less than 1 year                                $ 0.9
1-5 years                                        41.9
5-10 years                                       23.7
More than 10 years                               22.8
---------------------------------------------------------
Total maturities of debt securities             $89.3
=========================================================
</TABLE>

   4 RATE MATTERS AND ACCOUNTING IMPACTS OF DEREGULATION

On April 8, 1999, Maryland enacted the Electric Customer Choice and Competition
Act of 1999 (the "Act") and accompanying tax legislation that significantly
restructured Maryland's electric utility industry and modified the industry's
tax structure. In the Restructuring Order discussed below, the Maryland PSC
addressed the major provisions of the Act.

   The tax legislation made comprehensive changes to the state and local
taxation of electric and gas utilities. Effective January 1, 2000, the Maryland
public service franchise tax was altered to generally include a tax equal to
 .062 cents on each kilowatt-hour of electricity and .402 cents on each therm of
natural gas delivered for final consumption in Maryland. The Maryland 2%
franchise tax on electric and natural gas utilities continues to apply to
transmission and distribution revenue. Additionally, all electric and natural
gas utility results are subject to the Maryland corporate income tax.

   Beginning July 1, 2000, the tax legislation also provides for a two-year
phase-in of a 50% reduction in the local personal property taxes on machinery
and equipment used to generate electricity for resale and a 60% corporate income
tax credit for real property taxes paid on those facilities.

   On November 10, 1999, the Maryland PSC issued a Restructuring Order that
resolved the major issues surrounding electric restructuring, accelerated the
timetable for customer choice, and addressed the major provisions of the Act.
The Restructuring Order also resolved the electric restructuring proceeding
(transition costs, customer price protections, and unbundled rates for electric
services) and a petition filed in September 1998 by the Office of People's
Counsel (OPC) to lower our electric base rates. The major provisions of the
Restructuring Order are:

   . All customers, except a few commercial and industrial companies that have
     signed contracts with BGE, can choose their electric energy supplier
     beginning July 1, 2000. BGE will provide a standard offer service for
     customers that do not select an alternative supplier. In either case, BGE
     will continue to deliver electricity to all customers in areas
     traditionally served by BGE.
   . BGE's electric base rates were frozen through June 30, 2000.
   . BGE reduced residential base rates by approximately 6.5%, on average about
     $54 million a year, beginning July 1, 2000. These rates will not change
     before July 2006.
   . Commercial and industrial customers have up to four service options that
     will fix electric energy rates and transition charges for a period that
     generally ranges from four to six years.
   . BGE's electric fuel rate clause was discontinued effective July 1, 2000.
   . Electric delivery service rates are frozen for a four-year period for
     commercial and industrial customers. The generation and transmission
     components of rates are frozen for different time periods depending on the
     service options selected by those customers.


                                      66
<PAGE>

   . BGE will recover $528 million after-tax of its potentially stranded
     investments and utility restructuring costs through a competitive
     transition charge on customers' bills. Residential customers will pay this
     charge for six years. Commercial and industrial customers will pay in a
     lump sum or over the four to six-year period, depending on the service
     option selected by each customer.
   . Generation-related regulatory assets and nuclear decommissioning costs are
     included in delivery service rates effective July 1, 2000 and will be
     recovered on a basis approximating their amortization schedules prior to
     July 1, 2000.
   . Effective July 1, 2000, BGE unbundled rates to show separate components for
     delivery service, competitive transition charges, standard offer services
     (generation), transmission, universal service, and taxes.
   . Effective July 1, 2000, BGE transferred, at book value, its ten Maryland-
     based fossil and nuclear power plants and its partial ownership interest in
     two coal plants and a hydroelectric plant in Pennsylvania to nonregulated
     subsidiaries of Constellation Energy.
   . BGE reduced its generation assets by $150 million pre-tax during the period
     July 1, 1999-June 30, 2000 to mitigate a portion of BGE's potentially
     stranded investments.
   . Universal service is being provided for low-income customers without
     increasing their bills. BGE will provide its share of a statewide fund
     totaling $34 million annually.

   As discussed in Note 1, EITF 97-4 requires that a company should cease
applying SFAS No. 71 when either legislation is passed or a regulatory body
issues an order that contains sufficient detail to determine how the transition
plan will affect the deregulated portion of the business. Additionally, a
company would continue to recognize regulatory assets and liabilities in the
Consolidated Balance Sheets to the extent that the transition plan provides for
their recovery.

   We believe that the Restructuring Order provided sufficient details of the
transition plan to competition for BGE's electric generation business to require
BGE to discontinue the application of SFAS No. 71 for that portion of its
business. Accordingly, in the fourth quarter of 1999, we adopted the provisions
of SFAS No. 101 and EITF 97-4 for BGE's electric generation business.

   SFAS No. 101 requires the elimination of the effects of rate regulation that
have been recognized as regulatory assets and liabilities pursuant to SFAS No.
71. However, EITF 97-4 requires that regulatory assets and liabilities that will
be recovered in the regulated portion of the business continue to be classified
as regulatory assets and liabilities. The Restructuring Order provided for the
creation of a single, new generation-related regulatory asset to be recovered
through BGE's regulated transmission and distribution business. We discuss this
further in Note 5.

   Pursuant to SFAS No. 101, the book value of property, plant, and equipment
may not be adjusted unless those assets are impaired under the provisions of
SFAS No. 121. The process we used in evaluating and measuring impairment under
the provisions of SFAS No. 121 involved two steps. First, we compared the net
book value of each generating plant to the estimated undiscounted future net
operating cash flows from that plant. An electric generating plant was
considered impaired when its undiscounted future net operating cash flows were
less than its net book value. Second, we computed the fair value of each plant
that is determined to be impaired based on the present value of that plant's
estimated future net operating cash flows discounted using an interest rate that
considers the risk of operating that facility in a competitive environment. To
the extent that the net book value of each impaired electric generation plant
exceeded its fair value, we recorded a write-down.

   Under the Restructuring Order, BGE will recover $528 million after-tax of its
potentially stranded investments and utility restructuring costs through the
competitive transition charge component of its customer rates beginning July 1,
2000. This recovery mostly relates to the stranded costs associated with BGE's
Calvert Cliffs Nuclear Power Plant, whose book value was substantially higher
than its estimated fair value. However, Calvert Cliffs was not considered
impaired under the provisions of SFAS No. 121 since its estimated future
undiscounted cash flows exceeded its book value. Accordingly, BGE did not record
any impairment write-down related to Calvert Cliffs. However, we recognized
after-tax impairment losses totaling $115.8 million associated with certain of
our fossil plants under the provisions of SFAS No. 121.

   BGE had contracts to purchase electric capacity and energy that became
uneconomic upon the deregulation of electric generation. Therefore, we recorded
a $34.2 million after-tax charge based on the net present value of the excess of
estimated contract costs over the market-based revenues to recover these costs
over the remaining terms of the contracts. In addition, BGE had deferred certain
energy conservation expenditures that would not be recovered through its
transmission and distribution business under the Restructuring Order.
Accordingly, we recorded a $10.3 million after-tax charge to eliminate the
regulatory asset previously established for these deferred expenditures.

   At December 31, 1999, the total charge for BGE's electric generating plants
that were impaired, losses on uneconomic purchased capacity and energy
contracts, and deferred energy conservation expenditures was approximately
$160.3 million after-tax.

   BGE recorded approximately $94.0 million of the $160.3 million on its balance
sheet. This consisted of a $150.0 million regulatory asset of its regulated
transmission and distribution business, net of approximately $56.0 million of
associated deferred income taxes. The regulatory asset was amortized as it was
recovered from ratepayers through June 30, 2000. This accomplished the $150
million reduction of its generation plants required by the Restructuring Order.

   We recorded an after-tax, extraordinary charge against earnings for
approximately $66.3 million related to the remaining portion of the $160.3
million described above that was not recovered under the Restructuring Order.


                                      67
<PAGE>

   5 REGULATORY ASSETS (NET)

As discussed in Note 1, the Maryland PSC provides the final determination of the
rates we charge our customers for our regulated businesses. Generally, we use
the same accounting policies and practices used by nonregulated companies for
financial reporting under accounting principles generally accepted in the United
States of America. However, sometimes the Maryland PSC orders an accounting
treatment different from that used by nonregulated companies to determine the
rates we charge our customers. When this happens, we must defer certain utility
expenses and income in our Consolidated Balance Sheets as regulatory assets and
liabilities. We then record them in our Consolidated Statements of Income (using
amortization) when we include them in the rates we charge our customers.

   We summarize regulatory assets and liabilities in the following table, and we
discuss each of them separately below.

<TABLE>
<CAPTION>

At December 31,                          2000     1999
-------------------------------------------------------
                                         (In millions)
<S>                                     <C>      <C>
Generation plant reduction
 recoverable in current rates           $   --   $ 75.0
Electric generation-related
 regulatory asset                        267.8    286.6
Income taxes recoverable through
 future rates (net)                      101.2    110.4
Deferred postretirement and
 postemployment benefit costs             38.7     41.9
Deferred conservation expenditures         5.8     12.9
Deferred environmental costs              28.8     31.3
Deferred fuel costs (net)                 71.1     73.8
Other (net)                                1.5      5.5
-------------------------------------------------------
Total regulatory assets (net)           $514.9   $637.4
=======================================================

</TABLE>

Generation Plant Reduction Recoverable in Current Rates
-------------------------------------------------------
Under the Restructuring Order, BGE recorded a reduction to its generation plant
of $150 million which it recovered through its rates between July 1, 1999 and
June 30, 2000. In 1999, BGE recorded a $150 million regulatory asset for the
required generation plant reduction that was amortized as it was recovered from
ratepayers through June 30, 2000.

Electric Generation-Related Regulatory Asset
--------------------------------------------
With the issuance of the Restructuring Order, BGE no longer met the requirements
for the application of SFAS No. 71 for the electric generation portion of its
business. In accordance with SFAS No. 101 and EITF 97-4, all individual
generation-related regulatory assets and liabilities must be eliminated from our
balance sheet unless these regulatory assets and liabilities will be recovered
in the regulated portion of the business. Pursuant to the Restructuring Order,
BGE wrote-off all of its individual, generation-related regulatory assets and
liabilities. BGE established a single, new generation-related regulatory asset
for amounts to be collected through its regulated transmission and distribution
business. The new regulatory asset is being amortized on a basis that
approximates the pre-existing individual regulatory asset amortization
schedules.

Income Taxes Recoverable Through Future Rates (net)
---------------------------------------------------
As described in Note 1, income taxes recoverable through future rates are the
portion of our net deferred income tax liability that is applicable to our
regulated utility business, but has not been reflected in the rates we charge
our customers. These income taxes represent the tax effect of temporary
differences in depreciation and the allowance for equity funds used during
construction, offset by differences in deferred tax rates and deferred taxes on
deferred investment tax credits. We amortize these amounts as the temporary
differences reverse.

   In 1999, we reclassified the electric generation-related portion of this net
regulatory asset to the electric generation-related regulatory asset discussed
earlier in this note.

Deferred Postretirement and Postemployment Benefit Costs
--------------------------------------------------------
Deferred postretirement and postemployment benefit costs are the costs we
recorded under SFAS No. 106 (for postretirement benefits) and No. 112 (for
postemployment benefits) in excess of the costs we included in the rates we
charge our customers. We began amortizing these costs over a 15-year period in
1998. We discuss these costs further in Note 6.

   In 1999, we reclassified the electric generation-related portion of this
regulatory asset to the electric generation-related regulatory asset discussed
earlier in this note.

Deferred Conservation Expenditures
----------------------------------
Deferred conservation expenditures include two components:

   . operations costs (labor, materials, and indirect costs) associated with
     conservation programs approved by the Maryland PSC, which we are amortizing
     over periods of four to five years in accordance with the Maryland PSC's
     orders, and

   . revenues we collected from customers in 1996 in excess of our profit limit
     under the conservation surcharge.

   In 1999, we wrote off a portion of the unamortized electric conservation
expenditures that will not be recovered under the Restructuring Order as
discussed in Note 4.

Deferred Environmental Costs
----------------------------
Deferred environmental costs are the estimated costs of investigating and
cleaning up contaminated sites we own. We discuss this further in Note 10. We
are amortizing $21.6 million of these costs (the amount we had incurred through
October 1995) and $6.4 million of these costs (the amount we incurred from
November 1995 through June 2000) over 10-year periods in accordance with
Maryland PSC's orders.


                                      68
<PAGE>

Deferred Fuel Costs
-------------------
As described in Note 1, deferred fuel costs are the difference between our
actual costs of electric fuel, net purchases and sales of electricity, and
natural gas, and our fuel rate revenues collected from customers. We reduce
deferred fuel costs as we collect them from or refund them to our customers.

   We show our deferred fuel costs in the following table.

<TABLE>
<CAPTION>

At December 31,                 2000    1999
--------------------------------------------
                               (In millions)
<S>                            <C>     <C>
Electric                       $42.3   $60.0
Gas                             28.8    13.8
--------------------------------------------
Deferred fuel costs (net)      $71.1   $73.8
============================================

</TABLE>

   Under the terms of the Restructuring Order, BGE's electric fuel rate clause
was discontinued effective July 1, 2000. In September 2000, the Maryland PSC
approved the collection of the $54.6 million accumulated difference between our
actual costs of fuel and energy and the amounts collected from customers that
were deferred under the electric fuel rate clause through June 30, 2000. We are
collecting this accumulated difference from customers over the twelve-month
period beginning October 2000.

   6 PENSION, POSTRETIREMENT, OTHER POSTEMPLOYMENT, AND EMPLOYEE SAVINGS PLAN
BENEFITS

   We offer pension, postretirement, other postemployment, and employee savings
plan benefits. We describe each of these separately below.

Pension Benefits
----------------
We sponsor several defined benefit pension plans for our employees. A defined
benefit plan specifies the amount of benefits a plan participant is to receive
using information about the participant. Our employees do not contribute to
these plans. Generally, we calculate the benefits under these plans based on
age, years of service, and pay.

   Sometimes we amend the plans retroactively. These retroactive plan amendments
require us to recalculate benefits related to participants' past service. We
amortize the change in the benefit costs from these plan amendments on a
straight-line basis over the average remaining service period of active
employees.

   We fund the plans by contributing at least the minimum amount required under
Internal Revenue Service regulations. We calculate the amount of funding using
an actuarial method called the projected unit credit cost method. The assets in
all of the plans at December 31, 2000 were mostly marketable equity and fixed
income securities, and group annuity contracts.

   In 1999, our Board of Directors approved the following amendments:

   . eligible participants were allowed to choose between an enhanced version of
     the current benefit formula and a new pension equity plan (PEP) formula.
     Pension benefits for eligible employees hired after December 31, 1999 are
     based on a PEP formula, and
   . pension and survivor benefits were increased for participants who retired
     prior to January 1, 1994 and for their surviving spouses.

   The financial impacts of the amendments are included in the tables beginning
on the next page.

   Also during 1999, our Board of Directors approved a Targeted Voluntary
Special Early Retirement Program (TVSERP) to provide enhanced early retirement
benefits to certain eligible participants in targeted jobs that elected to
retire on June 1, 2000. BGE recorded approximately $10.0 million ($7.6 million
for pension and $2.4 million for postretirement benefit costs) for employees
that elected to participate in the program. Of this amount, BGE recorded
approximately $3.0 million on its balance sheet as a regulatory asset of its gas
business. We will amortize this regulatory asset over a 5-year period as
provided by the June 2000 Maryland PSC gas base rate order. The remaining $7.0
million related to BGE's electric business was charged to expense. The TVSERP
charges are not included in the tables of net periodic pension and
postretirement benefit costs included in this section.

Postretirement Benefits
-----------------------
We sponsor defined benefit postretirement health care and life insurance plans
which cover nearly all BGE employees and certain employees of our subsidiaries.
Generally, we calculate the benefits under these plans based on age, years of
service, and pension benefit levels. We do not fund these plans.

   For nearly all of the health care plans, retirees make contributions to cover
a portion of the plan costs. Contributions for employees who retire after June
30, 1992 are calculated based on age and years of service. The amount of retiree
contributions increases based on expected increases in medical costs. For the
life insurance plan, retirees do not make contributions to cover a portion of
the plan costs.

   Effective January 1, 1993, we adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. The adoption of that statement
caused:

   . a transition obligation, which we are amortizing over 20 years, and
   . an increase in annual postretirement benefit costs.

   For our nonregulated businesses, we expense all postretirement benefit costs.
For our regulated utility business, we accounted for the increase in annual
postretirement benefit costs under two Maryland PSC rate orders:

   . in an April 1993 rate order, the Maryland PSC allowed us to expense one-
     half and defer, as a regulatory asset (see Note 5), the other half of the
     increase in annual postretirement benefit costs related to our regulated
     electric and gas businesses, and


                                      69
<PAGE>

   . in a November 1995 rate order, the Maryland PSC allowed us to expense all
     of the increase in annual postretirement benefit costs related to our
     regulated gas business.

   Beginning in 1998, the Maryland PSC authorized us to:

   . expense all of the increase in annual postretirement benefit costs related
     to our regulated electric business, and
   . amortize the regulatory asset for postretirement benefit costs related to
     our regulated electric and gas businesses over 15 years.

Obligations, Assets, and Funded Status
--------------------------------------
We show the change in the benefit obligations, plan assets, and funded status of
the pension and postretirement benefit plans in the following tables:

<TABLE>
<CAPTION>
                                          Pension            Postretirement
                                          Benefits              Benefits
                                      2000        1999        2000      1999
----------------------------------------------------------------------------
                                                 (In millions)
<S>                               <C>         <C>         <C>         <C>
Change in benefit obligation
Benefit obligation at
 January 1                        $1,016.7    $1,031.3      $358.7    $383.1
Service cost                          25.4        26.1         7.7       8.6
Interest cost                         73.1        65.3        26.6      24.4
Plan participants'
 contributions                          --          --         2.8       2.0
Actuarial (gain) loss                  0.8       (93.0)       40.9     (34.2)
Plan amendments                        6.7        44.6       (41.1)     (5.0)
TVSERP charge                          7.6          --         2.4        --
Benefits paid                        (85.2)      (57.6)      (22.1)    (20.2)
----------------------------------------------------------------------------
Benefit obligation at
 December 31                      $1,045.1    $1,016.7      $375.9    $358.7
============================================================================

</TABLE>

<TABLE>
<CAPTION>
                                        Pension             Postretirement
                                        Benefits               Benefits
                                      2000        1999        2000      1999
----------------------------------------------------------------------------
                                                 (In millions)
<S>                               <C>         <C>         <C>         <C>
Change in plan assets
Fair value of plan
 assets at
 January 1                        $1,084.9    $  985.5      $   --    $   --
Actual return on
 plan assets                           3.7       139.4          --        --
Employer contribution                 26.7        17.6        19.3      18.2
Plan participants'
 contributions                          --          --         2.8       2.0
Benefits paid                        (85.2)      (57.6)      (22.1)    (20.2)
----------------------------------------------------------------------------
Fair value of plan
 assets at
 December 31                      $1,030.1    $1,084.9      $   --    $   --
============================================================================
</TABLE>

<TABLE>
<CAPTION>
                                        Pension            Postretirement
                                        Benefits              Benefits
                                    2000      1999       2000       1999
-----------------------------------------------------------------------------
                                                 (In millions)
<S>                                 <C>       <C>       <C>        <C>
Funded Status
Funded Status at
 December 31                        $(15.0)   $ 68.2    $(375.9)   $(358.7)
Unrecognized net
 actuarial (gain) loss                49.2     (27.2)      61.4       23.6
Unrecognized prior
 service cost                         59.2      59.0       (0.4)      (0.1)
Unrecognized
 transition obligation                  --        --       94.8      143.4
Unamortized net asset
 from adoption of
 SFAS No. 87                          (0.2)     (0.5)        --         --
-----------------------------------------------------------------------------
Prepaid (accrued)
 benefit cost                       $ 93.2    $ 99.5    $(220.1)   $(191.8)
=============================================================================
</TABLE>

Net Periodic Benefit Cost
-------------------------
We show the components of net periodic pension benefit cost in the following
table:

<TABLE>
<CAPTION>

Year Ended December 31,                                          2000       1999       1998
---------------------------------------------------------------------------------------------
                                                                        (In millions)
<S>                                                            <C>       <C>         <C>
Components of net periodic
 pension benefit cost
Service cost                                                   $ 25.4    $  26.1    $  21.6
Interest cost                                                    73.1       65.3       63.0
Expected return on plan assets                                  (83.6)     (76.6)     (72.1)
Amortization of transition obligation                            (0.2)      (0.2)      (0.2)
Amortization of prior
 service cost                                                     6.5        2.5        2.5
Recognized net actuarial loss                                     2.6       10.1        5.6
Amount capitalized as
 construction cost                                               (3.4)      (4.2)      (3.8)
---------------------------------------------------------------------------------------------
Net periodic pension
 benefit cost                                                  $ 20.4    $  23.0    $  16.6
=============================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
Year Ended December 31,                                        2000       1999       1998
-------------------------------------------------------------------------------------------
                                                                      (In millions)
<S>                                                          <C>       <C>        <C>
Components of net periodic
 postretirement benefit cost
Service cost                                                 $  7.7    $   8.6    $   6.6
Interest cost                                                  26.6       24.4       23.4
Amortization of transition obligation                           7.9       11.0       11.4
Recognized net actuarial loss                                   3.1        1.9        0.2
Amount capitalized as
 construction cost                                            (10.8)      (9.4)      (8.1)
-------------------------------------------------------------------------------------------
Net periodic postretirement
 benefit cost                                                $ 34.5    $  36.5    $  33.5
===========================================================================================
</TABLE>

                                      70
<PAGE>

Assumptions
-----------
We made the assumptions below to calculate our pension and postretirement
benefit obligations.

<TABLE>
<CAPTION>

                             Pension       Postretirement
                            Benefits          Benefits
At December 31,           2000    1999      2000     1999
----------------------------------------------------------
<S>                       <C>     <C>       <C>      <C>
Discount rate             7.50%   7.25%     7.50%    7.25%
Expected return on
 plan assets              9.00    9.00       N/A      N/A
Rate of compensation
 increase                 4.00    4.00      4.00     4.00
</TABLE>

   We assumed the health care inflation rates to be:
   . in 2000, 10.7% for Medicare-eligible retirees and 12.3% for retirees not
     covered by Medicare, and
   . in 2001, 6.5% for Medicare-eligible retirees and 8.0% for retirees not
     covered by Medicare.

   After 2001, we assumed both inflation rates will decrease by 0.5% annually to
a rate of 5.5% in the years 2003 and 2006, respectively. After these dates, the
inflation rate will remain at 5.5%.

   A one-percent increase in the health care inflation rate from the assumed
rates would increase the accumulated postretirement benefit obligation by
approximately $51.7 million as of December 31, 2000 and would increase the
combined service and interest costs of the postretirement benefit cost by
approximately $5.5 million annually.

   A one-percent decrease in the health care inflation rate from the assumed
rates would decrease the accumulated postretirement benefit obligation by
approximately $41.5 million as of December 31, 2000 and would decrease the
combined service and interest costs of the postretirement benefit cost by
approximately $4.4 million annually.

Other Postemployment Benefits
-----------------------------
We provide the following postemployment benefits:
   . health and life insurance benefits to our employees and certain employees
     of our subsidiaries who are found to be disabled under our Disability
     Insurance Plan, and
   . income replacement payments for employees found to be disabled before
     November 1995 (payments for employees found to be disabled after that date
     are paid by an insurance company, and the cost is paid by employees).

   The liability for these benefits totaled $46.7 million as of December 31,
2000 and $46.5 million as of December 31, 1999.

   Effective December 31, 1993, we adopted SFAS No. 112, Employers' Accounting
for Postemployment Benefits. We deferred, as a regulatory asset (see Note 5),
the postemployment benefit liability attributable to our regulated utility
business as of December 31, 1993, consistent with the Maryland PSC's orders for
postretirement benefits (described earlier in this note).

   We began to amortize the regulatory asset over 15 years beginning in 1998.
The Maryland PSC authorized us to reflect this change in our regulated electric
and gas base rates to recover the higher costs in 1998.

   We assumed the discount rate for other postemployment benefits to be 5.5% in
2000 and 1999.

Employee Savings Plan Benefits
------------------------------
We also sponsor a defined contribution savings plan that is offered to all
eligible employees of Constellation Energy and certain employees of our
subsidiaries. In a defined contribution plan, the benefits a participant is to
receive result from regular contributions to a participant account. Under this
plan, we make matching contributions to participant accounts. We made matching
contributions to this plan of:

   . $10.8 million in 2000,
   . $10.4 million in 1999, and
   . $10.1 million in 1998.

   7 SHORT-TERM BORROWINGS

Our short-term borrowings may include bank loans, commercial paper, and bank
lines of credit. Short-term borrowings mature within one year from the date of
issuance. We pay commitment fees to banks for providing us lines of credit. When
we borrow under the lines of credit, we pay market interest rates.

Constellation Energy
--------------------
Constellation Energy had commercial paper outstanding of $198.7 million at
December 31, 2000 and $242.5 million at December 31, 1999.

  Constellation Energy had unused committed bank lines of credit of $565.0
million at December 31, 2000 and $295.0 million at December 31, 1999 for short-
term financial needs, including letters of credit. These agreements also support
Constellation Energy's commercial paper program. Letters of credit issued under
these facilities totaled $180.3 million at December 31, 2000 and $23.1 million
at December 31, 1999. In addition, Constellation Energy had $116.9 million in
letters of credit outstanding at December 31, 2000 that were issued under
separate credit facilities.

  The weighted-average effective interest rate for Constellation Energy's
commercial paper were 6.31% for the year ended December 31, 2000 and 5.68% for
1999.

BGE
---
BGE had commercial paper outstanding of $32.1 million at December 31, 2000 and
$129.0 million at December 31, 1999.

   At December 31, 2000, BGE had unused committed bank lines of credit totaling
$218.0 million supporting the commercial paper program compared to $183.0
million at December 31, 1999.

   The weighted-average effective interest rates for BGE's commercial paper were
6.36% for the year ended December 31, 2000 and 5.25% for 1999.

Other Nonregulated Businesses
-----------------------------
Our other nonregulated businesses had short-term borrowings outstanding of $12.8
million at December 31, 2000. The weighted-average effective interest rate for
our other nonregulated businesses' short-term borrowings was 8.59% for the year
ended December 31, 2000.


                                      71
<PAGE>

   8 LONG-TERM DEBT

Long-term debt matures in one year or more from the date of issuance. We
summarize our long-term debt in the Consolidated Statements of Capitalization.
As you read this section, it may be helpful to refer to those statements.

Constellation Energy
--------------------
In 2000, Constellation Energy issued $1.0 billion in long-term debt. On April 4,
2000, we issued $300.0 million of 7 7/8% Fixed Rate Notes, due April 1, 2005 and
$200.0 million of Floating Rate Notes, due April 4, 2003. Interest on the
floating rate notes is reset quarterly.

   On June 21, 2000, we issued $300.0 million of Extendible Notes, due June 21,
2010. The interest rate on these notes resets quarterly. On June 21, 2001, the
notes may be remarketed for an additional period or redeemed for a purchase
price equal to 100% of their principal amount, plus accrued interest.

   On October 19, 2000, we issued $200.0 million of Floating Rate Reset Notes,
due March 15, 2002. We redeemed these notes on January 17, 2001 at par.

   On January 17, 2001, we issued $400.0 million of Mandatorily Redeemable
Floating Rate Notes, due January 17, 2002. These notes are mandatorily
redeemable at a purchase price equal to 100% of their principal amount, plus
accrued interest, at least five days prior to the separation of our domestic
merchant energy business from our remaining businesses.

   In connection with the initiative to separate our businesses, Constellation
Energy expects to redeem all of its outstanding debt at or prior to the
separation. The redemption will occur through a combination of open market
purchases, tender offers, and redemption calls. We expect to fund this
redemption with short-term debt or other credit facilities, and to refinance
this debt longer term after the separation.

BGE
---
BGE's First Refunding Mortgage Bonds
------------------------------------
BGE's first refunding mortgage bonds are secured by a mortgage lien on all of
its assets, including all utility properties and franchises and its subsidiary
capital stock. Capital stock pledged under the mortgage is that of Safe Harbor
Water Power Corporation and Constellation Enterprises, Inc. The generating
assets BGE transferred to subsidiaries of Constellation Energy also remain
subject to the lien of BGE's mortgage.

   BGE is required to make an annual sinking fund payment each August 1 to the
mortgage trustee. The amount of the payment is equal to 1% of the highest
principal amount of bonds outstanding during the preceding 12 months. The
trustee uses these funds to retire bonds from any series through repurchases or
calls for early redemption. However, the trustee cannot call the following bonds
for early redemption:

   . 8 3/8% Series, due 2001      . 5 1/2% Series, due 2004
   . 7 1/4% Series, due 2002      . 7 1/2% Series, due 2007
   . 6 1/2% Series, due 2003      . 6 5/8% Series, due 2008
   . 6 1/8% Series, due 2003

   Holders of the Remarketed Floating Rate Series due September 1, 2006 have the
option to require BGE to repurchase their bonds at face value on September 1 of
each year. BGE is required to repurchase and retire at par any bonds that are
not remarketed or purchased by the remarketing agent. BGE also has the option to
redeem all or some of these bonds at face value each September 1.

BGE's Other Long-Term Debt
--------------------------
On July 1, 2000, BGE transferred $278.0 million of tax-exempt debt to our
domestic merchant energy business related to the transferred assets. At December
31, 2000, BGE remains contingently liable for this debt.

   On October 19, 2000, BGE issued $200.0 million of Floating Rate Reset Notes,
due October 19, 2001. BGE can redeem these notes at 100% of the principal
amount.

   On December 20, 2000, BGE issued $173.0 million of 6.75% Remarketable and
Redeemable Securities (ROARS) due December 15, 2012. The ROARS contain an option
for the underwriters to remarket the ROARS on December 15, 2002. If the
underwriters do not elect to remarket the ROARS on that date, then BGE must
redeem the ROARS at 100% of the principal amount on December 15, 2002.

   We show the weighted-average interest rates and maturity dates for BGE's
fixed-rate medium-term notes outstanding at December 31, 2000 in the following
table.

<TABLE>
<CAPTION>

            Weighted-Average    Maturity
 Series       Interest Rate       Date
-----------------------------------------
   <S>            <C>           <C>
   B              8.77%         2002-2006
   C              7.97          2003
   D              6.66          2001-2006
   E              6.66          2006-2012
   G              6.08          2002-2008
</TABLE>

   Some of the medium-term notes include a "put option." These put options allow
the holders to sell their notes back to BGE on the put option dates at a price
equal to 100% of the principal amount. The following is a summary of medium-term
notes with put options.

<TABLE>
<CAPTION>

Series E Notes     Principal    Put Option Dates
--------------------------------------------------
                 (In millions)
<S>                  <C>        <C>
6.75%, due 2012      $60.0      June 2002 and 2007
6.75%, due 2012      $25.0      June 2004 and 2007
6.73%, due 2012      $25.0      June 2004 and 2007
</TABLE>

   BGE has a $25 million revolving credit agreement that is available through
2003. At December 31, 2000 and 1999, BGE did not have any borrowings under
revolving credit agreements. The bank charges us commitment fees based on the
daily average of the unborrowed amount, and we pay market interest rates on any
borrowings. This agreement also supports BGE's commercial paper program, as
described in Note 7.


                                      72
<PAGE>

BGE Obligated Mandatorily Redeemable Trust Preferred Securities
---------------------------------------------------------------
On June 15, 1998, BGE Capital Trust I (Trust), a Delaware business trust
established by BGE, issued 10,000,000 Trust Originated Preferred Securities
(TOPrS) for $250 million ($25 liquidation amount per preferred security) with a
distribution rate of 7.16%.

  The Trust used the net proceeds from the issuance of the common securities and
the preferred securities to purchase a series of 7.16% Deferrable Interest
Subordinated Debentures due June 30, 2038 (debentures) from BGE in the aggregate
principal amount of $257.7 million with the same terms as the TOPrS. The Trust
must redeem the TOPrS at $25 per preferred security plus accrued but unpaid
distributions when the debentures are paid at maturity or upon any earlier
redemption. BGE has the option to redeem the debentures at any time on or after
June 15, 2003 or at any time when certain tax or other events occur.

  The interest paid on the debentures, which the Trust will use to make
distributions on the TOPrS, is included in "Interest expense (net)" in the
Consolidated Statements of Income and is deductible for income tax purposes.

  BGE fully and unconditionally guarantees the TOPrS based on its various
obligations relating to the trust agreement, indentures, debentures, and the
preferred security guarantee agreement.

  The debentures are the only assets of the Trust. The Trust is wholly owned by
BGE because it owns all the common securities of the Trust that have general
voting power.

  For the payment of dividends and in the event of liquidation of BGE, the
debentures are ranked prior to preference stock and common stock.

Other Nonregulated Businesses
-----------------------------
Revolving Credit Agreement
--------------------------
ComfortLink has a $50 million unsecured revolving credit agreement that matures
September 26, 2001. Under the terms of the agreement, ComfortLink has the option
to obtain loans at various rates for terms up to nine months. ComfortLink pays a
facility fee on the total amount of the commitment. Under this agreement,
ComfortLink had outstanding $34 million at December 31, 2000 and $33 million at
December 31, 1999.

Mortgage and Construction Loans
-------------------------------
Our nonregulated businesses' mortgage and construction loans have varying terms.
The following mortgage notes require monthly principal and interest payments:

  . 8.00%, due in 2001                 . 9.65%, due in 2028
  . 4.25%, due in 2009                 . 8.00%, due in 2033

  The variable rate mortgage notes and construction loans require periodic
payment of principal and interest.

Unsecured Notes
---------------
The unsecured notes mature on the following schedule:
                                                       Amount
----------------------------------------------------------------
                                                   (In millions)
7.66%, due May 5, 2001                                $135.0
5.67%, due May 5, 2001                                 152.0
----------------------------------------------------------------
Total unsecured notes at December 31, 2000            $287.0
================================================================


Maturities of Long-Term Debt
----------------------------
All of our long-term borrowings mature on the following schedule (includes
sinking fund requirements):

                                    Constellation   Nonregulated
Year                                   Energy        Businesses          BGE
--------------------------------------------------------------------------------
                                                    (In millions)
2001                                  $     --         $318.9         $  481.2
2002                                     200.0           15.3            319.8
2003                                     200.0            0.8            285.7
2004                                        --            8.3            155.3
2005                                     300.0            6.1             46.9
Thereafter                               300.0          320.6          1,112.4
--------------------------------------------------------------------------------
Total long-term debt at
 December 31, 2000                    $1,000.0         $670.0         $2,401.3
================================================================================

  At December 31, 2000, BGE had long-term loans totaling $221.5 million that
mature after 2002 (including $110.0 million of medium-term notes discussed in
this Note under "BGE's Other Long-Term Debt") that lenders could potentially
require us to repay early. Of this amount, $111.5 million could be repaid in
2001, $60.0 million in 2002, and $50.0 million thereafter. At December 31, 2000,
$86.5 million is classified as current portion of long-term debt as a result of
these provisions.

  At December 31, 2000, our nonregulated businesses had long-term loans totaling
$20.0 million that mature after 2002 that lenders could potentially require us
to repay early. This amount is classified as current portion of long-term debt
as a result of these repayment provisions.

Weighted-Average Interest Rates for Variable Rate Debt
------------------------------------------------------
Our weighted-average interest rates for variable rate debt were:

Year ended December 31,                      2000    1999
----------------------------------------------------------
Nonregulated Businesses
 (including Constellation Energy)
 Floating rate notes                         6.98%     --%
 Loans under credit agreement                6.64    5.68
 Mortgage and construction loans             7.78    6.65
 Tax-exempt debt transferred from BGE        4.26      --
BGE
 Remarketed floating rate series
  mortgage bonds                             6.59%   5.19%
 Floating rate series mortgage bonds           --    5.41
 Floating rate reset notes                   7.27      --
 Medium-term notes, Series G                 6.58    5.38
 Medium-term notes, Series H                 6.58    5.64
 Pollution control loan                        --    3.22
 Port facilities loan                          --    3.24
 Adjustable rate pollution control loan        --    3.59
 Economic development plan                     --    3.26
 Variable rate pollution control plan          --    3.30


                                      73
<PAGE>

  9 LEASES

There are two types of leases--operating and capital. Capital leases qualify as
sales or purchases of property and are reported in the Consolidated Balance
Sheets. Capital leases are not material in amount. All other leases are
operating leases and are reported in the Consolidated Statements of Income. We
present information about our operating leases below.

Outgoing Lease Payments
-----------------------
We, as lessee, lease some facilities and equipment used in our businesses. The
lease agreements expire on various dates and have various renewal options. We
expense all lease payments associated with our regulated utility operations.


  Lease expense was:

  . $11.3 million in 2000,
  . $12.2 million in 1999, and
  . $10.5 million in 1998.

  At December 31, 2000, we owed future minimum payments for long-term,
noncancelable, operating leases as follows:

Year
----------------------------------------------------------
                                             (In millions)
2001                                             $ 7.8
2002                                               6.4
2003                                               5.0
2004                                               3.5
2005                                               2.9
Thereafter                                         8.1
----------------------------------------------------------
Total future minimum lease payments              $33.7
==========================================================

  10 COMMITMENTS, GUARANTEES, AND CONTINGENCIES

Commitments
-----------
We have made substantial commitments in connection with our domestic merchant
energy business construction program for future years. In addition, we have two
long-term contracts for the purchase of electric generating capacity and energy.
The contracts expire in 2001 and 2013. We made payments under these contracts
of:

  . $77.3 million in 2000,
  . $67.8 million in 1999, and
  . $70.7 million in 1998.

  At December 31, 2000, we estimate our future payments for capacity and energy
that we are obligated to buy under these contracts to be:

Year
--------------------------------------------------------------
                                                 (In millions)
2001                                                 $ 40.2
2002                                                   16.4
2003                                                   16.0
2004                                                   15.5
2005                                                   15.1
Thereafter                                            113.6
--------------------------------------------------------------
Total estimated future payments for
  capacity and energy under long-term contracts      $216.8
==============================================================

  Portions of these contracts became uneconomic upon the deregulation of
electric generation. Therefore, we recorded a charge and accrued a corresponding
liability based on the net present value of the excess of estimated contract
costs over the market-based revenues to recover these costs over the remaining
terms of the contracts as discussed in Note 4. At December 31, 2000, the accrued
portion of these contracts was $21.2 million.

  Our domestic merchant energy business has committed to contribute additional
capital and to make additional loans to some affiliates, joint ventures, and
partnerships in which they have an interest. At December 31, 2000, the total
amount of investment requirements committed to by our domestic merchant energy
business was $181.0 million.

  BGE and BGE Home Products & Services have agreements to sell on an ongoing
basis an undivided interest in a designated pool of customer receivables. Under
the agreements, BGE can sell up to a total of $40 million, and BGE Home Products
& Services can sell up to a total of $50 million. Under the terms of the
agreements, the buyer of the receivables has limited recourse against BGE and
has no recourse against BGE Home Products & Services. BGE and BGE Home Products
& Services have recorded reserves for credit losses. At December 31, 2000, BGE
had sold $23.9 million and BGE Home Products & Services had sold $42.5 million
of receivables under these agreements.

Planned Acquisition
-------------------
On December 12, 2000, we announced that a subsidiary of Constellation Nuclear
will purchase 1,550 megawatts of the 1,757 megawatts total generating capacity
of the Nine Mile Point nuclear power plant, located in Scriba, New York. The
subsidiary of Constellation Nuclear will buy 100 percent of Unit 1 and 82
percent of Unit 2 for $815 million, including $78 million for fuel. The sale is
expected to close in mid-2001 after receipt of all necessary regulatory
approvals. Key regulatory approvals are required from the NRC, Federal Energy
Regulatory Commission (FERC), and the New York State Public Service Commission.


                                      74
<PAGE>

  One-half of the purchase price, or $407.5 million, is due at the closing of
the transaction. The sellers will finance the remaining half of the purchase
price at an 11.0% fixed rate for a period of five years with equal annual
principal repayments. Nine Mile Point includes two boiling-water reactors. Unit
1 is a 609-megawatt reactor that entered service in 1969. Unit 2 is a 1,148-
megawatt reactor that began operation in 1988.

  Niagara Mohawk Power Corporation is the sole owner of Nine Mile Point Unit 1.
The co-owners of Nine Mile Point Unit 2 that are selling their interests include
Niagara Mohawk (41 percent), New York State Electric and Gas (18 percent),
Rochester Gas & Electric Corporation (14 percent), and Central Hudson Gas &
Electric Corporation (9 percent). The Long Island Power Authority, which owns 18
percent of Nine Mile Point Unit 2, has chosen not to sell its portion at this
time.

  The terms of the transaction include power purchase agreements whereby we have
agreed to sell 90 percent of our share of the Nine Mile Point plant's output
back to the sellers for approximately 10 years at an average price of nearly $35
per megawatt-hour over the term of the power purchase agreements. The contracts
for the output of both plants are based on operation of the individual units.

  The sellers will transfer approximately $450 million in decommissioning funds
at the time of closing. We believe this transfer is sufficient to meet the
decommissioning requirements for our share of the Nine Mile Point site.

Separation Initiatives
----------------------
On October 23, 2000, we announced three initiatives to advance our growth
strategies. The first initiative is that we entered into an agreement (the
"Agreement") with an affiliate of The Goldman Sachs Group, Inc. ("Goldman
Sachs"). Under the terms of the Agreement, Goldman Sachs will acquire up to a
17.5% equity interest in our domestic merchant energy business, which will be
consolidated under a single holding company ("Holdco"). Goldman Sachs will also
acquire a ten-year warrant for up to 13% of Holdco's common stock (subject to
certain adjustments). The warrant is exercisable six months after Holdco's
common stock becomes publicly available. The amount of common stock which
Goldman Sachs may receive upon exercise will be equal to the excess of the
market price of Holdco's common stock at the time of exercise over the exercise
price of $60 per share for all the stock subject to the warrant, divided by the
market price. Holdco may at its option pay Goldman Sachs such excess in cash.
Goldman Sachs is acquiring its interest and the warrant in exchange for $250
million in cash (subject to adjustment in certain instances) and certain assets
related to our power marketing operation. At closing, Goldman Sachs' existing
services agreement with our power marketing operation will terminate.

  The second initiative is a plan to separate our domestic merchant energy
business from our remaining businesses. The separation will create two stand-
alone, publicly traded energy companies. One will be a merchant energy business
engaged in wholesale power marketing and generation under the name
"Constellation Energy Group" after the separation. The other will be a regional
retail energy delivery and energy services company, BGE Corp., which will
include BGE, our other nonregulated businesses, and our investment in Orion
Power Holdings, Inc. ("Orion").

  As a result of the separation, shareholders will continue to own all of
Constellation Energy's current businesses through their ownership of the new
Constellation Energy Group and BGE Corp.

  The third initiative is a change in our common stock dividend policy effective
April 2001. In a move closely aligned with our separation plan, effective April
2001, our annual dividend is expected to be set at $.48 per share. After the
business separation, BGE Corp. expects to pay initial annual dividends of $.48
per share. Constellation Energy Group, as a growing merchant energy company,
initially expects to reinvest its earnings in order to fund its growth plans and
not to pay a dividend.

  The closing of the transaction with Goldman Sachs and the separation are
subject to customary closing conditions and contingent upon obtaining regulatory
approvals and a Private Letter Ruling from the Internal Revenue Service
regarding certain tax matters. The transaction and separation are expected to be
completed by mid to late 2001.

Guarantees
----------
At December 31, 2000, Constellation Energy issued guarantees in an amount up to
$825.8 million related to credit facilities and contractual performance of
certain of its nonregulated subsidiaries. The actual subsidiary liabilities
related to these guarantees totaled $586.6 million at December 31, 2000.

  At December 31, 2000, our nonregulated businesses had guaranteed outstanding
loans and letters of credit of certain power projects and real estate projects
totaling $50.1 million. Our nonregulated businesses also guarantee certain other
borrowings of various power projects and real estate projects.

  BGE guarantees two-thirds of certain debt of Safe Harbor Water Power
Corporation. The maximum amount of our guarantee is $23 million. At December 31,
2000, Safe Harbor Water Power Corporation had outstanding debt of $20.0 million,
of which $13.3 million is guaranteed by BGE.

  We assess the risk of loss from these guarantees to be minimal.

Environmental Matters
---------------------
We are subject to regulation by various federal, state and local authorities
with regard to:

  . air quality,
  . water quality,
  . chemical and waste management and disposal, and
  . other environmental matters.

  We discuss the significant matters below.

Clean Air
---------
The Clean Air Act of 1990 contains two titles designed to reduce emissions of
sulfur dioxide and nitrogen oxide (NOx) from electric generating stations--Title
IV and Title I.

Title IV addresses emissions of sulfur dioxide. For our older plants, we meet
the requirements through a combination of switching fuels and allowance trading.
For newer plants, we meet the requirements primarily through facility design,
and operational and pollution controls.


                                      75
<PAGE>

  Title I addresses emissions of NOx. The Maryland Department of the Environment
(MDE) issued regulations, effective October 18, 1999, which required up to 65%
NOx emissions reductions by May 1, 2000. We entered into a settlement agreement
with the MDE since we could not meet this deadline. Under the terms of the
settlement agreement, we will install emissions reduction equipment at two sites
by May 2002. In the meantime, we are taking steps to control NOx emissions at
our generating plants.

  The Environmental Protection Agency (EPA) issued a final rule in September
1998 that required up to 85% NOx emissions reduction by 22 states including
Maryland and Pennsylvania. Maryland and Pennsylvania expect to meet the
requirements of the rule by 2003. The emissions reduction equipment
installations discussed above will allow us to meet these requirements in
Maryland. The generating plants in Pennsylvania also will install emissions
reduction equipment by 2003 to meet the 85% reduction requirement.

  We currently estimate that the controls needed at our generating plants to
meet the MDE's 65% NOx emission reduction requirements will cost approximately
$150 million. Through December 31, 2000, we have spent approximately $115
million to meet the 65% reduction requirements. We estimate the additional cost
for the EPA's 85% reduction requirements to be approximately $90 million by the
end of 2003.

  In July 1997, the EPA published new National Ambient Air Quality Standards for
very fine particulates and revised standards for ozone attainment. While these
standards may require increased controls at our fossil generating plants in the
future, implementation, if required, would be delayed for several years. We
cannot estimate the cost of these increased controls at this time because the
states, including Maryland, Pennsylvania, and California still need to determine
what reductions in pollutants will be necessary to meet the EPA standards.

  In December 2000, the EPA issued a determination that coal-fired power plant
mercury emissions will be controlled. Final regulations are expected to be
issued in 2004 with controls required by 2007. The costs of these controls
cannot be estimated at this time since the level of control or system to
implement them have not yet been established.

  We received letters from the EPA requesting us to provide certain information
under Section 114 of the federal Clean Air Act regarding some of our electric
generating plants. This information is to determine compliance with the Clean
Air Act and state implementation plan requirements, including potential
application of federal New Source Performance Standards. In general, such
standards can require the installation of additional air pollution control
equipment upon the major modification of an existing plant. We have provided the
EPA the requested information. We believe our generating plants have been
operated in accordance with the Clean Air Act and the rules implementing the
Clean Air Act. However, we cannot estimate the impact of this inquiry on our
generating plants, and our financial results, at this time.


Waste Disposal
--------------
The EPA and several state agencies have notified us that we are considered a
potentially responsible party with respect to the cleanup of certain
environmentally contaminated sites owned and operated by others. We cannot
estimate the cleanup costs for all of these sites.

  We can, however, estimate that our current 15.47% share of the reasonably
possible cleanup costs at one of these sites, Metal Bank of America, a metal
reclaimer in Philadelphia, could be as much as $2.3 million higher than amounts
we have recorded as a liability on our Consolidated Balance Sheets. This
estimate is based on a Record of Decision issued by the EPA.

  Also, we are coordinating investigation of several sites where gas was
manufactured in the past. The investigation of these sites includes reviewing
possible actions to remove coal tar. In late December 1996, we signed a consent
order with the MDE that required us to implement remedial action plans for
contamination at and around the Spring Gardens site, located in Baltimore,
Maryland. We submitted the required remedial action plans and they were approved
by the MDE. Based on the remedial action plans, the costs we consider to be
probable to remedy the contamination are estimated to total $47 million. We have
recorded these costs as a liability on our Consolidated Balance Sheets and have
deferred these costs, net of accumulated amortization and amounts we recovered
from insurance companies, as a regulatory asset. Because of the results of
studies at these sites, it is reasonably possible that these additional costs
could exceed the amount we recognized by approximately $14 million. We discuss
this further in Note 5. Through December 31, 2000, we have spent approximately
$35 million for remediation at this site.

  We do not expect the cleanup costs of the remaining sites to have a material
effect on our financial results.

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

Employment Discrimination
-------------------------
Miller v. Baltimore Gas and Electric Company, et al.--This action was filed on
September 20, 2000 in the U.S. District Court for the District of Maryland.
Besides BGE, Constellation Energy Group, Constellation Nuclear and Calvert
Cliffs Nuclear Power Plant are also named defendants. The action seeks class
certification for approximately 150 past and present employees and alleges
racial discrimination at Calvert Cliffs Nuclear Power Plant. The amount of
damages is unspecified, however the plaintiffs seek back and front pay, along
with compensatory and punitive damages. We believe this case is without merit.
However, we cannot predict the timing, or outcome, of it or its possible effect
on our, or BGE's, financial results.


                                      76
<PAGE>

  Moore v. Constellation Energy Group--This action was filed on October 23, 2000
in the U.S. District Court for the District of Maryland by an employee alleging
employment discrimination. Besides Constellation Energy, BGE and Constellation
Holdings, Inc. are also named defendants. The Equal Employment Opportunity
Commission has previously concluded that it was unable to establish a violation
of law. The plaintiff seeks, among other things, unspecific monetary damages and
back pay. We believe this case is without merit.

Asbestos
--------
Since 1993, we have been involved in several actions concerning asbestos. The
actions are based upon the theory of "premises liability," alleging that we knew
of and exposed individuals to an asbestos hazard. The actions relate to two
types of claims.

  The first type is direct claims by individuals exposed to asbestos. We
described these claims in a Report on Form 8-K filed August 20, 1993. We are
involved in these claims with approximately 70 other defendants. Approximately
530 individuals that were never employees of BGE each claim $6 million in
damages ($2 million compensatory and $4 million punitive). These claims were
filed in the Circuit Court for Baltimore City, Maryland in the summer of 1993.
We do not know the specific facts necessary to estimate our potential liability
for these claims. The specific facts we do not know include:

  . the identity of our facilities at which the plaintiffs allegedly worked as
    contractors,
  . the names of the plaintiff's employers, and
  . the date on which the exposure allegedly occurred.

  To date, 29 of these cases were settled for amounts that were not significant.

  The second type is claims by one manufacturer--Pittsburgh Corning Corp.
(PCC)--against us and approximately eight others, as third-party defendants. On
April 17, 2000, PCC declared bankruptcy and we do not expect PCC to prosecute
this claim.

  These claims relate to approximately 1,500 individual plaintiffs and were
filed in the Circuit Court for Baltimore City, Maryland in the fall of 1993. To
date, about 350 cases have been resolved, all without any payment by BGE. We do
not know the specific facts necessary to estimate our potential liability for
these claims. The specific facts we do not know include:

  . the identity of our facilities containing asbestos manufactured by the
    manufacturer,
  . the relationship (if any) of each of the individual plaintiffs to us,
  . the settlement amounts for any individual plaintiffs who are shown to have
    had a relationship to us, and
  . the dates on which/places at which the exposure allegedly occurred.

  Until the relevant facts for both types of claims are determined, we are
unable to estimate what our liability, if any, might be. Although insurance and
hold harmless agreements from contractors who employed the plaintiffs may cover
a portion of any awards in the actions, our potential liability could be
material.

Restructuring Order
-------------------
In early December 1999, the Mid-Atlantic Power Supply Association (MAPSA),
Trigen-Baltimore Energy Corporation and Sweetheart Cup Company, Inc. filed
appeals of the Restructuring Order, which were consolidated in the Baltimore
City Circuit Court. MAPSA also filed a motion to delay implementation of the
Restructuring Order, pending a decision on the merits of the appeals by the
court.

  On April 21, 2000, the Circuit Court dismissed MAPSA's appeal based on a lack
of standing (the right of a party to bring a lawsuit to court) and denied its
motion for a delay of the Restructuring Order. However, MAPSA filed an appeal of
this decision. On May 24, 2000, the Circuit Court dismissed both the Trigen and
Sweetheart Cup appeals.

  MAPSA subsequently filed several appeals with the Maryland Court of Special
Appeals, the Maryland Court of Appeals, and the Baltimore City Circuit Court.
The effect of the appeals was to delay the implementation of customer choice in
BGE's service territory.

  However, on August 4, 2000, the delay was rescinded and BGE retroactively
adjusted its rates as if customer choice had been implemented July 1, 2000.

  On September 29, 2000, the Baltimore City Circuit Court issued an order
upholding the Restructuring Order.

  On October 27, 2000, MAPSA filed an appeal with the Maryland Court of Special
Appeals challenging the September 29, 2000 order issued by the Circuit Court. We
believe that this appeal is without merit. However, we cannot predict the timing
or outcome of this case, which, if adverse, could have a material effect on our,
and BGE's, financial results.

Asset Transfer Order
--------------------
On July 6, 2000, MAPSA and Shell Energy LLC filed, in the Circuit Court for
Baltimore City, a petition for review and a delay of the Maryland PSC's order
approving the transfer of BGE's generation assets issued on June 19, 2000. The
Court denied MAPSA's request for a delay on August 4, 2000, and after a hearing
on the petition on August 23, 2000 issued an order on September 29, 2000
upholding the Maryland PSC's order on the asset transfer. On October 27, 2000,
MAPSA filed an appeal with the Maryland Court of Special Appeals challenging the
September 29, 2000 order issued by the Circuit Court. We also believe that this
appeal is without merit. However, we cannot predict the timing or outcome of
this case, which, if adverse, could have a material effect on our, and BGE's,
financial results.

Calvert Cliffs' License Renewal
-------------------------------
On April 11, 2000 the United States Court of Appeals for the District of
Columbia Circuit, in National Whistleblowers Center v. Nuclear Regulatory
Commission and Baltimore Gas and Electric Company, upheld the NRC's denial of
the Center's motion to intervene in BGE's license renewal proceeding. The NRC
had denied the Center's motion to intervene for failing to file timely
contentions. The Center filed a petition for certiorari, a request to hear an
appeal, with the U.S. Supreme Court, which was denied.


                                      77
<PAGE>

Nuclear Insurance
-----------------
If there were an accident or an extended outage at either unit of the Calvert
Cliffs Nuclear Power Plant (Calvert Cliffs), it could have a substantial adverse
financial effect on us. The primary contingencies that would result from an
incident at Calvert Cliffs could include:

  . physical damage to the plant,
  . recoverability of replacement power costs, and
  . our liability to third parties for property damage and bodily injury.

  We have insurance policies that cover these contingencies, but the policies
have certain industry standard exclusions. Furthermore, the costs that could
result from a covered major accident or a covered extended outage at either of
the Calvert Cliffs units could exceed our insurance coverage limits.

Insurance for Calvert Cliffs and Third Party Claims
---------------------------------------------------
For physical damage to Calvert Cliffs, we have $2.75 billion of property
insurance from an industry mutual insurance company. If an outage at either of
the two units at Calvert Cliffs is caused by an insured physical damage loss and
lasts more than 12 weeks, we have insurance coverage for replacement power costs
up to $490.0 million per unit, provided by an industry mutual insurance company.
This amount can be reduced by up to $98.0 million per unit if an outage at both
units of the plant is caused by a single insured physical damage loss. If
accidents at any insured plants cause a shortfall of funds at the industry
mutual insurance company, all policyholders could be assessed, with our share
being up to $15.4 million.

  In addition we, as well as others, could be charged for a portion of any third
party claims associated with a nuclear incident at any commercial nuclear power
plant in the country. At December 31, 2000, the limit for third party claims
from a nuclear incident is $9.54 billion under the provisions of the Price
Anderson Act. If third party claims exceed $200 million (the amount of primary
insurance), our share of the total liability for third party claims could be up
to $176.2 million per incident. That amount would be payable at a rate of $20
million per year.

Insurance for Worker Radiation Claims
-------------------------------------
As an operator of a commercial nuclear power plant in the United States, we are
required to purchase insurance to cover radiation injury claims of certain
nuclear workers. On January 1, 1998, a new insurance policy became effective for
all operators requiring coverage for current operations. Waiving the right to
make additional claims under the old policy was a condition for acceptance under
the new policy. We describe both the old and new policies below.

  Nuclear worker claims reported on or after January 1, 1998 are covered by a
new insurance policy with an annual industry aggregate limit of $200 million for
radiation injury claims against all those insured by this policy.

  All nuclear worker claims reported prior to January 1, 1998 are still covered
by the old insurance policies. Insureds under the old policies, with no current
operations, are not required to purchase the new policy described above, and may
still make claims against the old policies for the next seven years. If
radiation injury claims under these old policies exceed the policy reserves, all
policyholders could be assessed, with our share being up to $6.3 million.

  If claims under these polices exceed the coverage limits, the provisions of
the Price Anderson Act (discussed in this section) would apply.

California Power Purchase Agreements
------------------------------------
Constellation Power, Inc. and subsidiaries and Constellation Investments, Inc.
(whose power projects are managed by Constellation Power) have $297.9 million
invested in 14 projects that sell electricity in California under power purchase
agreements called "Interim Standard Offer No. 4" agreements. Under these
agreements, the projects supply electricity to utility companies at:

  . a fixed rate for capacity and energy for the first 10 years of the
    agreements, and
  . a fixed rate for capacity plus a variable rate for energy based on the
    utilities' avoided cost for the remaining term of the agreements.

  Generally, a "capacity rate" is paid to a power plant for its availability to
supply electricity, and an "energy rate" is paid for the electricity actually
generated. "Avoided cost" generally is the cost of a utility's cheapest next-
available source of generation to service the demands on its system.

  We use the term "transitioned" to describe when the 10-year periods for fixed
energy rates have expired for these power generation projects and they began
supplying electricity at variable rates. In 2000, the last four projects
transitioned to variable rates.

  Prior to 2000, the projects that have transitioned to variable rates have had
lower revenues under variable rates than they did under fixed rates. In 2000,
the prices received under these agreements were higher due to the increases in
the variable-rate pricing terms.


                                      78
<PAGE>

  11 FAIR VALUE OF ASSETS AND LIABILITIES FROM ENERGY TRADING ACTIVITIES AND
     FINANCIAL INSTRUMENTS

Assets and Liabilities from Energy Trading Activities
-----------------------------------------------------
As described in Note 1, we report assets and liabilities from energy trading
activities at fair value.

  At December 31, 2000, the notional amounts and terms of trading instruments at
Constellation Power Source were as follows:

<TABLE>
<CAPTION>
                                                      Maximum
                                                      Terms in
                                Purchased     Sold     Years
----------------------------------------------------------------
                                 (Notional amounts in millions)
<S>                             <C>           <C>     <C>
Electric energy
 (megawatt-hours)                 391.3       144.2      21
Electric capacity
 (megawatt-hours)                  66.8        84.9      21
Oil (barrels)                       8.5        11.9       5
Natural gas (millions
 of British thermal units)        373.5       316.3       9
</TABLE>

  Notional amounts express the contractual volume of transactions but do not
necessarily represent the amounts to be exchanged by the parties to the
instruments. Accordingly, notional amounts do not accurately measure our
exposure to market or credit risk.

Financial Instruments
---------------------
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can occur
between the fair value and carrying amount of financial instruments that are
recorded at historical amounts. We used the following methods and assumptions in
estimating fair value disclosures for financial instruments.

  . Cash and cash equivalents, net accounts receivable, other current assets,
    certain current liabilities, short-term borrowings, current portion of long-
    term debt, and certain deferred credits and other liabilities: The amounts
    reported in the Consolidated Balance Sheets approximate fair value.
  . Investments and other assets where it was practicable to estimate fair
    value: The fair value is based on quoted market prices where available.
  . Long-term debt: The fair value is based on quoted market prices where
    available or by discounting remaining cash flows at current market rates.

  We show the carrying amounts and fair values of financial instruments included
in our Consolidated Balance Sheets in the following table, and we describe some
of the items separately later in this section.

<TABLE>
<CAPTION>

At December 31,                       2000                  1999
----------------------------------------------------------------------
                              Carrying     Fair     Carrying     Fair
                               Amount     Value      Amount     Value
----------------------------------------------------------------------
                                           (In millions)
<S>                           <C>        <C>        <C>        <C>
Investments and other
 assets for which it is:
 Practicable to
   estimate fair value          $349.8   $  349.8   $  313.3   $  313.3
 Not practicable to
   estimate fair value            43.5        N/A       46.7        N/A
Fixed-rate long-term
 debt                          2,734.1    2,819.9    2,728.9    2,637.3
Variable-rate long-
 term debt                     1,331.8    1,243.3      654.8      654.8
</TABLE>

  It was not practicable to estimate the fair value of investments held by our
nonregulated businesses in:

  . several financial partnerships that invest in nonpublic debt and equity
    securities, and
  . several partnerships that own solar powered energy production facilities.

  This is because the timing and amount of cash flows from these investments are
difficult to predict. We report these investments at their original cost in our
Consolidated Balance Sheets.

  The investments in financial partnerships totaled $32.7 million at December
31, 2000 and $35.8 million at December 31, 1999, representing ownership
interests up to 11%. The total assets of all of these partnerships totaled $6.1
billion at December 31, 1999 (which is the latest information available).

  The investments in solar powered energy production facility partnerships
totaled $10.8 million at December 31, 2000 and $10.9 million at December 31,
1999, representing ownership interests up to 13%. The total assets of all of
these partnerships totaled $26.7 million at December 31, 1999 (which is the
latest information available).

Guarantees
----------
It was not practicable to determine the fair value of certain loan guarantees of
Constellation Energy and its subsidiaries. Constellation Energy guaranteed
outstanding debt of $341.0 million at December 31, 2000 and $16.5 million at
December 31, 1999. Our nonregulated businesses guaranteed outstanding debt
totaling $50.1 million at December 31, 2000 and $48.8 million at December 31,
1999. BGE guaranteed outstanding debt of $13.3 million at December 31, 2000 and
$13.6 million at December 31, 1999. We do not anticipate that we will need to
fund these guarantees.


                                      79
<PAGE>

  12 STOCK-BASED COMPENSATION

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, we
measure our stock-based compensation in accordance with Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and
related interpretations.

  Under our existing long-term incentive plans, we can issue awards that include
stock options and performance-based restricted stock to officers and key
employees. Under the plans, we can issue up to a total of 6,000,000 shares for
these awards.

Stock Options
-------------
In May 2000, our Board of Directors approved the issuance of non-qualified stock
options. The options were granted at prices not less than the market value of
the stock at the date of grant, generally become exercisable ratably over a
three-year period beginning one-year from the date of grant, and expire ten
years from the date of grant. The grants provide for the exercise of the options
on a pro-rata basis for service to date upon the separation of our businesses.
The tables below do not reflect the impact of the business separation. In
accordance with APB No. 25, no compensation expense is recognized for the stock
option awards. Summarized information for our stock option awards is as follows:

<TABLE>
<CAPTION>
                                                           Weighted-
                                                            Average
                                              Shares    Exercise Price
----------------------------------------------------------------------
                              (In thousands, except per share amounts)
<S>                                           <C>       <C>
Outstanding at
 January 1, 2000                                  --           $    --
Granted                                        2,462             34.64
Exercised                                         --                --
Cancelled/Expired                                (42)           (34.25)
----------------------------------------------------------------------
Outstanding at
 December 31, 2000                             2,420           $ 34.65
======================================================================
Exercisable at
 December 31, 2000                                --                --
======================================================================
Weighted-average fair value per share
 of options granted during year                                $  5.60
======================================================================
</TABLE>

  A summary of the weighted-average remaining contractual life and the weighted-
average exercise price of options outstanding as of December 31, 2000 is
presented below:

<TABLE>
<CAPTION>
                                                              Weighted-
                           Options                              Average
   Range of            Outstanding at        Weighted-         Remaining
   Exercise           December 31, 2000       Average         Contractual
    Prices             (In thousands)      Exercise Price   Life (In years)
------------------------------------------------------------------------------
<S>                   <C>                  <C>              <C>
$34.25-$40.72              2,420               $34.65              9.4
</TABLE>



Performance-Based Restricted Stock Awards
-----------------------------------------
In addition, we issue common stock based on meeting certain performance and
service goals that vests to participants at various times ranging from three to
five years. In accordance with APB No. 25, we recognize compensation expense for
our restricted stock awards. Compensation expense recorded was $16.3 million for
2000 and $10.5 million for 1999. Prior to 1999, compensation expense was not
material. Summarized share information for our restricted stock awards is as
follows:

<TABLE>
<CAPTION>

                                                2000      1999
---------------------------------------------------------------
                       (In thousands, except per share amounts)
<S>                                             <C>       <C>
Outstanding, beginning of year                   323       350
Granted                                          353       358
Released to participants                        (277)     (362)
Cancelled                                        (22)      (23)
---------------------------------------------------------------
Outstanding, end of year                         377       323
===============================================================
Weighted-average fair value
 per share of restricted stock
 granted during the year                      $32.89    $28.61
===============================================================
</TABLE>

Pro-forma Information
---------------------
Disclosure of pro-forma information regarding net income and earnings per share
is required under SFAS No. 123, which uses the fair value method. The fair
values of our stock-based awards were estimated as of the date of grant using
the Black-Scholes option pricing model based on the following weighted-average
assumptions:
                                                   2000
---------------------------------------------------------
Risk-free interest rate                            6.37%
Expected life (in years)                           10.0
Expected market price
 volatility factors                                21.0%
Expected dividend yields                            5.7%

  The effect of applying SFAS No. 123 to our stock-based awards results in net
income and earnings per share that are not materially different from amounts
reported.


                                      80
<PAGE>

13 QUARTERLY FINANCIAL DATA (UNAUDITED)

Our quarterly financial information has not been audited but, in management's
opinion, includes all adjustments necessary for a fair presentation. Our utility
business is seasonal in nature with the peak sales periods generally occurring
during the summer and winter months. Accordingly, comparisons among quarters of
a year may not represent overall trends and changes in operations.

2000 Quarterly Data--Constellation Energy
-----------------------------------------
<TABLE>
<CAPTION>
                                                              Earnings       Earnings
                                               Income        Applicable      Per Share
                                                from         to Common       of Common
                                 Revenue     Operations        Stock           Stock
--------------------------------------------------------------------------------------
                                         (In millions, except per-share amounts)
<S>                             <C>          <C>             <C>             <C>
Quarter Ended
  March 31                      $  992.2         $182.8          $ 72.1          $0.48
  June 30                          868.4          133.9            39.6           0.26
  September 30                     981.6          315.4           147.5           0.98
  December 31                    1,036.3          208.1            86.1           0.57
--------------------------------------------------------------------------------------
Year Ended
  December 31                   $3,878.5         $840.2          $345.3          $2.30
======================================================================================
</TABLE>

2000 Quarterly Data--BGE
------------------------
<TABLE>
<CAPTION>
                                                              Earnings
                                               Income        Applicable
                                                from         to Common
                                 Revenue     Operations        Stock
-----------------------------------------------------------------------
                                (In millions, except per-share amounts)
<S>                             <C>          <C>             <C>
Quarter Ended
  March 31                      $  720.7         $133.9          $ 50.9
  June 30                          659.4          126.7            49.1
  September 30                     690.0           65.0            10.0
  December 31                      676.7           84.5            20.3
-----------------------------------------------------------------------
Year Ended
  December 31                   $2,746.8         $410.1          $130.3
=======================================================================
</TABLE>


First quarter results include:
-----------------------------
Constellation Energy and BGE
----------------------------
  . a $2.5 million after-tax expense for BGE Employees that elected to
    participate in a Targeted Voluntary Special Early Retirement Program
    (TVSERP)(see Note 2),
  . $37.5 million in amortization expense for the reduction of our generation
    plants associated with the Restructuring Order (see the "Electric
    Depreciation and Amortization Expense" section of Management's Discussion
    and Analysis),

Second quarter results include:
------------------------------
Constellation Energy and BGE
----------------------------
  . a $1.7 million after-tax expense for the TVSERP (see Note 2),
  . $37.5 million in amortization expense for the reduction of our generation
    plants associated with the Restructuring Order, and

Constellation Energy
--------------------
  . a $15.0 million after-tax deregulation transition cost to a third party
    incurred by our power marketing operation to provide BGE's standard offer
    service requirements (see Note 2).

1999 Quarterly Data--Constellation Energy
-----------------------------------------
<TABLE>
<CAPTION>
                                                              Earnings       Earnings
                                               Income        Applicable      Per Share
                                                from         to Common       of Common
                                 Revenue     Operations        Stock           Stock
--------------------------------------------------------------------------------------
                                         (In millions, except per-share amounts)
<S>                             <C>          <C>             <C>             <C>
Quarter Ended
  March 31                      $  983.4         $198.1          $ 82.8         $ 0.55
  June 30                          858.5          163.9            68.0           0.45
  September 30                   1,010.2          277.7           136.1           0.91
  December 31                      934.1          120.2           (26.8)         (0.18)
--------------------------------------------------------------------------------------
Year Ended
  December 31                   $3,786.2         $759.9          $260.1          $1.74
======================================================================================
</TABLE>

1999 Quarterly Data--BGE
------------------------
<TABLE>
<CAPTION>
                                                              Earnings
                                               Income        Applicable
                                                from         to Common
                                 Revenue     Operations        Stock
-----------------------------------------------------------------------
                                (In millions, except per-share amounts)
<S>                             <C>          <C>             <C>
Quarter Ended
  March 31                      $  983.4         $198.1          $ 82.8
  June 30                          682.0          140.9            57.8
  September 30                     756.0          283.3           151.5
  December 31                      670.8           82.0           (43.5)
-----------------------------------------------------------------------
Year Ended
  December 31                   $3,092.2         $704.3          $248.6
=======================================================================
</TABLE>

Constellation Energy's second quarter results include a $3.6 million after-tax
write-down of a financial investment (see Note 3).

Third quarter results include:
-----------------------------
Constellation Energy and BGE
----------------------------
  . $7.5 million associated with Hurricane Floyd (see the "Electric Operations
    and Maintenance Expenses" section of Management's Discussion and Analysis),
  . a $37.5 million deferral of revenues collected associated with the
    deregulation of our electric generation business (see Note 5),

Constellation Energy
--------------------
  . a $17.3 million after-tax write-down of a financial investment (see Note 3),
  . a $6.7 million after-tax write-off of a power project (see Note 3), and
  . a $3.4 million after-tax write-down of certain senior-living facilities (see
    Note 2).

Fourth quarter results include:
------------------------------
Constellation Energy and BGE
----------------------------
  . a $66.3 million extraordinary charge associated with the Restructuring Order
    (see Note 4),
  . the recognition of the $37.5 million of revenues that were deferred in the
    third quarter (see above),
  . $75 million in amortization expense for the reduction of our generation
    plants associated with the Restructuring Order,

Constellation Energy
--------------------
  . a $4.9 million after-tax gain on a financial investment (see Note 3),
  . $12.0 million after-tax write-downs of certain power projects (see Note 3),
    and
  . a $2.4 million after-tax write-down of certain senior-living facilities (see
    Note 2).

The sum of the quarterly earnings per share amounts may not equal the total for
the year due to the effects of rounding.


                                      81
<PAGE>

14 RELATED PARTY TRANSACTIONS--BGE

Income Statement
----------------
Under the Restructuring Order, BGE is providing standard offer service to
customers at fixed rates over various time periods during the transition period,
July 1, 2000 to June 30, 2006, for those customers that do not choose an
alternate supplier. Constellation Power Source is under contract to provide BGE
with the energy and capacity required to meet its standard offer service
obligations for the first three years of the transition period. The cost of
BGE's purchased energy from nonregulated affiliates of Constellation Energy to
meet its standard offer service obligation was $581.0 million for the year ended
December 31, 2000.

   In addition, BGE receives charges from Constellation Energy for 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. Management believes this method of allocation is reasonable and
approximates the cost BGE would have incurred as an unaffiliated entity. These
costs were $21.6 million for the year ended December 31, 2000. These costs were
not material in 1999 due to the creation of Constellation Energy effective April
30, 1999 and the subsequent transfer of certain BGE employees to the holding
company later that year.

Balance Sheet
-------------
As a result of the deregulation of electric generation, BGE transferred its
generation assets to nonregulated affiliates of Constellation Energy effective
July 1, 2000. In conjunction with this transfer, Constellation Power Source
Generation, Inc. issued approximately $366 million in unsecured promissory notes
to BGE.  Repayments of the notes by Constellation Power Source Generation, Inc.
will be used exclusively to service current maturities of certain BGE long-term
debt.  As of December 31, 2000, $87 million of these notes are still outstanding
and will mature on March 14, 2001.

   Amounts related to corporate functions performed at the Constellation Energy
holding company, BGE's purchases to meet its standard offer service obligation,
and BGE's charges to Constellation Energy and its nonregulated affiliates for
certain services it provides them result in intercompany balances on BGE's
Consolidated Balance Sheets.  Management believes its allocation methods are
reasonable and approximate the costs that would be charged to unaffiliated
entities.


                                      82
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.

--------------------------------------------------------------------------------

PART III
BGE meets the conditions set forth in General Instruction I(1)(a) and (b) of
Form 10-K for a reduced disclosure format. Accordingly, all items in this
section related to BGE are not presented.

Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to directors is set forth on
pages 4 through 6 under Election of Constellation Energy Directors in the Proxy
Statement and is incorporated herein by reference.
   The information required by this item with respect to executive officers of
Constellation Energy Group, pursuant to instruction 3 of paragraph (b) of Item
401 of Regulation S-K, is set forth in Item 4 of Part I of this Form 10-K under
Executive Officers of the Registrant.

Item 11. Executive Compensation
The information required by this item is set forth on pages 7 and 8 under
Directors' Compensation, on page 8 under Compensation Committee Interlocks and
Insider Participation, on pages 11 through 14 under Executive Compensation, on
page 15 under Common Stock Performance Graph and on pages 15 through 18 under
Report of Committee on Management on Executive Compensation in the Proxy
Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item regarding security ownership of certain
beneficial owners and management is set forth on pages 9 and 10 under Security
Ownership in the Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions
The information required by this item is set forth on page 8 under Certain
Relationships and Transactions and Compensation Committee Interlocks and
Insider Participation in the Proxy Statement and is incorporated herein by
reference.

                                       83
<PAGE>

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a) The following documents are filed as a part of this Report:

   1. Financial Statements:

   Report of Independent Accountants dated January 17, 2001 of
     PricewaterhouseCoopers LLP
   Consolidated Statements of Income--Constellation Energy Group for three
     years ended December 31, 2000
   Consolidated Statements of Comprehensive Income--Constellation Energy
     Group for three years ended December 31, 2000
   Consolidated Balance Sheets--Constellation Energy Group at December 31,
     2000 and December 31, 1999
   Consolidated Statements of Cash Flows--Constellation Energy Group for
     three years ended December 31, 2000
   Consolidated Statements of Common Shareholders' Equity--Constellation
     Energy Group for three years ended December 31, 2000
   Consolidated Statements of Capitalization--Constellation Energy Group at
     December 31, 2000 and December 31, 1999
   Consolidated Statements of Income Taxes--Constellation Energy Group for
     three years ended December 31, 2000
   Consolidated Statements of Income--Baltimore Gas and Electric Company for
     three years ended December 31, 2000
   Consolidated Statements of Comprehensive Income--Baltimore Gas and
     Electric Company for three years ended December 31, 2000
   Consolidated Balance Sheets--Baltimore Gas and Electric Company at
     December 31, 2000 and December 31, 1999
   Consolidated Statements of Cash Flows--Baltimore Gas and Electric Company
     for three years ended December 31, 2000
   Notes to Consolidated Financial Statements

   2. Financial Statement Schedules:
   Schedule II--Valuation and Qualifying Accounts
   Schedules other than Schedule II are omitted as not applicable or not
     required.

   3. Exhibits Required by Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
 Exhibit
 Number
 -------
 <C>     <S>
  *2     -- Agreement and Plan of Share Exchange between Baltimore Gas and
           Electric Company and Constellation Energy Group, Inc. dated as of
           February 19, 1999. (Designated as Exhibit No. 2 in Form S-4 dated
           March 3, 1999, File No. 33-64799.)

  *2(a)  -- Agreement and Plan of Reorganization and Corporate Separation
           (Nuclear). (Designated as Exhibit No. 2(a) in Form 8-K dated July 7,
           2000, File Nos. 1-12869 and 1-1910.)

  *2(b)  -- Agreement and Plan of Reorganization and Corporate Separation
           (Fossil). (Designated as Exhibit No. 2(b) in Form 8-K dated July 7,
           2000, File Nos. 1-12869 and 1-1910.)

  *3(a)  -- Articles of Amendment and Restatement of the Charter of
           Constellation Energy Group, Inc. as of April 30, 1999. (Designated
           as Exhibit No. 99.2 in Form 8-K dated April 30, 1999, File No. 1-
           1910.)

  *3(b)  -- Articles Supplementary to the Charter of Constellation Energy
           Group, Inc., as of July 19, 1999. (Designated as Exhibit No. 3(a) in
           Form 10-Q dated August 13, 1999, File Nos. 1-12869 and 1-1910.)

  *3(c)  -- Certificate of Correction to the Charter of Constellation Energy
           Group, Inc. as of September 13, 1999. (Designated as Exhibit No.
           3(c) to the Annual Report on Form 10-K for the year ended December
           31, 1999, File Nos. 1-12869 and 1-1910.)

  *3(d)  -- Charter of BGE, restated as of August 16, 1996. (Designated as
           Exhibit No. 3 in Form 10-Q dated November 14, 1996, File No. 1-
           1910.)

  *3(e)  -- Bylaws of Constellation Energy Group, Inc., as amended to February
           16, 2001. (Designated as Exhibit No. 3(d) in Form S-3 dated March 5,
           2001, File No. 333-56572.)
</TABLE>

                                       84
<PAGE>

<TABLE>
 <C>    <S>
  *3(f) -- Bylaws of BGE, as amended to October 16, 1998. (Designated as
          Exhibit No. 3 in Form 10-Q dated November 13, 1998, File No. 1-1910.)

  *4(a) -- Indenture between Constellation Energy Group, Inc. and the Bank of
          New York, Trustee dated as of March 24, 1999. (Designated as Exhibit
          No. 4(a) in Form S-3 dated March 29,1999, File No. 333-75217.)

  *4(b) -- Supplemental Indenture between BGE and Bankers Trust Company, as
          Trustee, dated as of June 20, 1995, supplementing, amending and
          restating Deed of Trust dated February 1, 1919. (Designated as
          Exhibit No. 4 in Form 10-Q dated August 11, 1995, File No. 1-1910.);
          and the following Supplemental Indentures between BGE and Bankers
          Trust Company, Trustee:
</TABLE>

<TABLE>
<CAPTION>
                                              Designated In
                          -------------------------------------------------------
                                                                          Exhibit
         Dated            File No.                                        Number
         -----            --------                                        -------
<S>                       <C>      <C>                                    <C>
       *July 15, 1977      2-59772                                          2-3
       (3 Indentures)
       *August 15, 1991   33-45259 (Form S-3 Registration)                  4(a)(i)
       *January 15, 1992  33-45259 (Form S-3 Registration)                  4(a)(ii)
       *July 1, 1992        1-1910 (Form 8-K Report for January 29, 1993)   4(a)
       *February 15, 1993   1-1910 (Form 10-K Annual Report for 1992)       4(a)(i)
       *March 1, 1993       1-1910 (Form 10-K Annual Report for 1992)       4(a)(ii)
       *March 15, 1993      1-1910 (Form 10-K Annual Report for 1992)       4(a)(iii)
       *April 15, 1993      1-1910 (Form 10-Q dated May 13, 1993)           4
       *July 1, 1993        1-1910 (Form 10-Q dated August 13, 1993)        4(a)
       *October 15, 1993    1-1910 (Form 10-Q dated November 12, 1993)      4
       *June 15, 1996       1-1910 (Form 10-Q dated August 13, 1996)        4
</TABLE>

<TABLE>
 <C>     <S>
  *4(c)  -- Indenture dated July 1, 1985, between BGE and The Bank of New York
           (Successor to Mercantile-Safe Deposit and Trust Company), Trustee.
           (Designated in Registration File No. 2-98443 as Exhibit 4(a)); as
           supplemented by Supplemental Indentures dated as of October 1, 1987
           (Designated in Form 8-K, dated November 13, 1987, File No. 1-1910 as
           Exhibit 4(a)) and as of January 26, 1993 (Designated in Form 8-K,
           dated January 29, 1993, File No. 1-1910 as Exhibit 4(b).)

  *4(d)  -- Form of Subordinated Indenture between the Company and The Bank of
           New York, as Trustee in connection with the issuance of the Junior
           Subordinated Debentures. (Designated as Exhibit 4(d) in Form S-3
           dated May 28, 1998, File No. 333-53767).

  *4(e)  -- Form of Supplemental Indenture between the Company and The Bank of
           New York, as Trustee in connection with the issuances of the Junior
           Subordinated Debentures. (Designated as Exhibit 4(e) in Form S-3
           dated May 28, 1998, File No. 333-53767).

  *4(f)  -- Form of Preferred Securities Guarantee (Designated as Exhibit 4(f)
           in Form S-3 dated May 28, 1998, File No. 333-53767).

  *4(g)  -- Form of Junior Subordinated Debenture (Designated as Exhibit 4(h)
           in Form S-3 dated May 28, 1998, File No. 333-53767).

  *4(h)  -- Form of Amended and Restated Declaration of Trust (including Form
           of Preferred Security) (Designated as Exhibit 4(c) in Form S-3 dated
           May 28, 1998, File No. 333-53767).

  *4(i)  -- Specimen Note for $173,000,000 6.75% Remarketable or Redeemable
           Securities (ROARSSM) due 2012 (Designated as Exhibit 4(f) in Form 8-
           K dated December 20, 2000, File No. 1-1910.)

  *10(a) -- Executive Annual Incentive Plan of Constellation Energy Group,
           Inc., as amended and restated. (Designated as Exhibit No. 10(b) to
           the Annual Report on Form 10-K for the year ended December 31, 1999,
           File Nos. 1-12869 and 1-19101.)

  10(b)  -- Constellation Energy Group, Inc. 1995 Long-Term Incentive Plan, as
           amended and restated.

  *10(c) -- Constellation Energy Group, Inc. Nonqualified Deferred Compensation
           Plan, as amended and restated. (Designated as Exhibit No. 10(b) in
           Form 10-Q dated November 12, 1999, File Nos. 1-12869 and 1-19101.)
</TABLE>

                                       85
<PAGE>

<TABLE>
 <C>     <S>
  *10(d) -- Constellation Energy Group, Inc. Deferred Compensation Plan for
           Non-Employee Directors. (Designated as Exhibit No. 10(a) in Form 10-
           Q dated May 14, 1999, File Nos. 1-12869 and 1-19101.)

  *10(e) -- Baltimore Gas and Electric Company Retirement Plan for Non-Employee
           Directors, as amended and restated. (Designated as Exhibit No. 10(m)
           in Form 10-Q dated May 14, 1999, File Nos. 1-12869 and 1-19101.)

  *10(f) -- Summary of severance arrangement for a named executive officer.
           (Designated as Exhibit No. 10(g) to the Annual Report on Form 10-K
           for the year ended December 31, 1999, File Nos. 1-12869 and 1-1910.)

  10(g)  -- Grantor Trust Agreement Dated as of January 1, 2001 between
           Constellation Energy Group, Inc. and Citibank, N.A.

  *10(h) -- Form of Severance Agreements between Baltimore Gas and Electric
           Company and seven key employees. (Designated as Exhibit No. 10(j) in
           Form 10-Q dated May 14, 1999, File Nos. 1-12869 and 1-19101.)

  *10(i) -- Summary of enhanced retirement benefits for a named executive
           officer. (Designated as Exhibit No. 10(l) in Form 10-Q dated May 14,
           1999, File Nos. 1-12869 and 1-19101.)

  *10(j) -- Grantor Trust Agreement dated as of April 30, 1999 between
           Constellation Energy Group, Inc. and T. Rowe Price Trust Company.
           (Designated as Exhibit No. 10(e) in Form 10-Q dated May 14, 1999,
           File Nos. 1-12869 and 1-19101.)

  *10(k) -- Constellation Energy Group, Inc. Long-Term Incentive Plan.
           (Designated as Exhibit No. 10(b) in Form 10-Q dated May 14, 1999,
           File Nos. 1-12869 and 1-19101.)

  *10(l) -- Full Requirements Service Agreement Between Constellation Power
           Source, Inc. and Baltimore Gas and Electric Company. (Designated as
           Exhibit No. 10(a) in Form 10-Q dated August 14, 2000, File Nos. 1-
           12869 and 1-1910.)

  *10(m) -- Constellation Energy Group, Inc. Benefits Restoration Plan.
           (Designated as Exhibit No. 10(b) in Form 10-Q dated August 14, 2000,
           File Nos. 1-12869 and 1-1910.)

  10(n)  -- Constellation Energy Group, Inc. Supplemental Pension Plan.

  10(o)  -- Constellation Energy Group, Inc. Senior Executive Supplemental
           Plan.

  *10(p) -- Constellation Energy Group, Inc. Supplemental Benefits Plan.
           (Designated as Exhibit No. 10(e) in Form 10-Q dated August 14, 2000,
           File Nos. 1-12869 and 1-1910.)

  12(a)  -- Constellation Energy Group, Inc. and Subsidiaries Computation of
           Ratio of Earnings to Fixed Charges.

  12(b)  -- Baltimore Gas and Electric Company and Subsidiaries Computation of
           Ratio of Earnings to Fixed Charges and Computation of Ratio of
           Earnings to Combined Fixed Charges and Preferred and Preference
           Dividend Requirements.

  21     -- Subsidiaries of the Registrant.

  23     -- Consent of PricewaterhouseCoopers LLP, Independent Accountants.
</TABLE>
  * Incorporated by Reference.

     (b) Reports on Form 8-K:

<TABLE>
<CAPTION>
      Date Filed                               Item Reported
      ----------                               -------------
   <S>                           <C>
   Constellation Energy and BGE
    October 23, 2000             Item 5. Other Events
                                 Item 7. Financial Statements and Exhibits

    December 12, 2000            Item 5. Other Events
                                 Item 7. Financial Statements and Exhibits


   BGE
    December 20, 2000            Item 5. Other Events
</TABLE>

                                       86
<PAGE>

               CONSTELLATION ENERGY GROUP, INC. AND SUBSIDIARIES
                                      AND
              BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARIES

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
        Column A          Column B       Column C            Column D    Column E
        --------          --------- -------------------   -------------- ---------
                                         Additions
                                    -------------------
                           Balance  Charged   Charged
                             at     to costs  to other                    Balance
                          beginning   and    accounts--   (Deductions)-- at end of
Description               of period expenses  describe       describe     period
-----------               --------- -------- ----------   -------------- ---------
                                              (in millions)
<S>                       <C>       <C>      <C>          <C>            <C>
Reserves deducted in the
 Balance Sheet from the
 assets to which they
 apply:
Constellation Energy
 Accumulated Provision
  for Uncollectibles
  2000..................   $ 34.8    $21.1     $   --         $(34.6)(A)  $ 21.3
  1999..................     35.4     21.5         --          (22.1)(A)    34.8
  1998..................     24.1     28.0         --          (16.7)(A)    35.4
 Valuation Allowance --
  Net unrealized (gain)
   loss on available for
   sale securities
  2000..................      0.2       --      (33.9)(B)         --       (33.7)
  1999..................     (9.4)      --        9.6 (B)         --         0.2
  1998..................     (7.6)      --       (1.8)(B)         --        (9.4)
  Net unrealized (gain)
   loss on nuclear
   decommissioning trust
   fund
  2000..................    (40.5)      --        5.8 (C)         --       (34.7)
  1999..................    (23.9)      --      (16.6)(C)         --       (40.5)
  1998..................    (10.0)      --      (13.9)(C)         --       (23.9)
  Assets from trading
   activities reserves
  2000..................    (27.5)      --      (26.9)(D)         --       (54.4)
  1999..................     (0.6)      --      (26.9)(D)         --       (27.5)
  1998..................       --       --       (0.6)(D)         --        (0.6)
BGE
 Accumulated Provision
  for Uncollectibles
  2000..................     13.0     16.4         --          (16.0)(A)    13.4
  1999..................     35.4     17.6         --          (40.0)(E)    13.0
  1998..................     24.1     28.0         --          (16.7)(A)    35.4
 Valuation Allowance --
  Net unrealized (gain)
   loss on available for
   sale securities
  2000..................       --       --         --             --          --
  1999..................     (9.4)      --       (5.3)(B)       14.7 (F)      --
  1998..................     (7.6)      --       (1.8)(B)         --        (9.4)
  Net unrealized (gain)
   loss on nuclear
   decommissioning trust
   fund
  2000..................    (40.5)      --       (1.8)(C)       42.3 (G)      --
  1999..................    (23.9)      --      (16.6)(C)         --       (40.5)
  1998..................    (10.0)      --      (13.9)(C)         --       (23.9)
</TABLE>
(A) Represents principally net amounts charged off as uncollectible.
(B) Represents net unrealized (gains)/losses (credited)/charged to accumulated
    other comprehensive income.
(C) Represents net unrealized (gains)/losses (credited)/charged to accumulated
    depreciation.
(D) Represents a reserve from assets for energy trading activities charged to
    revenues.
(E) Represents approximately $17 million charged off as uncollectible and
    approximately $23 million transferred from BGE to Constellation Energy as a
    result of the formation of the holding company.
(F) Represents amount transferred from BGE to Constellation Energy as a result
    of the formation of the holding company.
(G) Represents balance transferred to a subsidiary of Constellation Nuclear,
    LLC on July 1, 2000.

                                       87
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Constellation Energy Group, Inc., the Registrant, has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                            CONSTELLATION ENERGY GROUP, INC.
                                                      (Registrant)

   Date: March 30, 2001                 By      /s/ C. H. Poindexter
                                              _____________________________
                                                    C. H. Poindexter
                                           Chairman of the Board, President,
                                                          and
                                                Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of
Constellation Energy Group, Inc., the Registrant, and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
              Signature                       Title                     Date
              ---------                       -----                     ----

Principal executive officer and director:

<S>                                    <C>                        <C>
By /s/ C. H. Poindexter                 Chairman of the Board,        March 30, 2001
   _____________________                President, Chief
       C. H. Poindexter                 Executive Officer, and
                                        Director

Principal financial and accounting officer:

By /s/ D. A. Brune                       Vice President, Chief        March 30, 2001
   _______________________               Financial Officer and
       D. A. Brune                       Secretary

Directors:

    /s/  H. F. Baldwin                   Director                     March 30, 2001
   _______________________
         H. F. Baldwin


    /s/   D. L. Becker                   Director                     March 30, 2001
   _______________________
          D. L. Becker


   /s/  J. T. Brady                      Director                     March 30, 2001
   _______________________
        J. T. Brady


    /s/  B. B. Byron                     Director                     March 30, 2001
   _______________________
         B. B. Byron


    /s/  J. O. Cole                      Director                     March 30, 2001
   _______________________
         J. O. Cole


    /s/  D. A. Colussy
   _______________________               Director                     March 30, 2001
         D. A. Colussy


    /s/  E. A. Crooke                    Director                     March 30, 2001
   _______________________
         E. A. Crooke


    /s/  J. R. Curtis                    Director                     March 30, 2001
   _______________________
         J. R. Curtiss


    /s/  R. W. Gale                      Director                     March 30, 2001
   _______________________
         R. W. Gale



    /s/  J. W. Geckle                    Director                     March 30, 2001
   _______________________
         J. W. Geckle
</TABLE>

                                      88
<PAGE>

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                       <C>                        <C>
         /s/   F. A. Hrabowski III               Director            March 30, 2001
         __________________________
               F. A. Hrabowski III


         /s/  R. J. Hurst                        Director            March 30, 2001
         __________________________
              R. J. Hurst


         /s/  N. Lampton                         Director            March 30, 2001
         __________________________
              N. Lampton


         /s/  C. R. Larson                       Director            March 30, 2001
         __________________________
              C. R. Larson


         /s/  G. L. Russell, Jr.                 Director            March 30, 2001
         __________________________
              G. L. Russell, Jr.


         /s/  M. A. Shattuck, III                Director            March 30, 2001
         __________________________
              M. A. Shattuck, III


         /s/  M. D. Sullivan                     Director            March 30, 2001
         __________________________
              M. D. Sullivan
</TABLE>

                                      89

<PAGE>

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Baltimore Gas and Electric Company, the Registrant, has duly
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                           BALTIMORE GAS AND ELECTRIC COMPANY
                                                       (Registrant)

   Date: March 30, 2001                 By /s/        F. O. Heintz
                                           __________________________________
                                                      F. O. Heintz
                                                      President, and
                                                  Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Baltimore
Gas and Electric Company, the Registrant, and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>

              Signature                       Title                             Date
              ---------                       -----                             ----
<S>                                    <C>                                  <C>

Principal executive officer and director:

By  /s/  F. O. Heintz                   President Chief Executive            March 30, 2001
_________________________                Officer, and Director
         F. O. Heintz


Principal financial and accounting officer and director:

By  /s/  D. A. Brune
_______________________                 Vice President, Chief                March 30, 2001
         D. A. Brune                     Financial Officer,
                                         Secretary, and Director

Directors:

/s/  C. H. Poindexter                   Director                             March 30, 2001
_______________________
     C. H. Poindexter


/s/  R. E. Denton                       Director                             March 30, 2001
_______________________
     R. E. Denton


/s/  T. F. Brady                        Director                             March 30, 2001
_______________________
     T. F. Brady


/s/  E. A. Crooke                       Director                             March 30, 2001
_______________________
     E. A. Crooke
</TABLE>

                                      90

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number
 -------
 <C>     <S>
  *2     -- Agreement and Plan of Share Exchange between Baltimore Gas and
           Electric Company and Constellation Energy Group, Inc. dated as of
           February 19, 1999. (Designated as Exhibit No. 2 in Form S-4 dated
           March 3, 1999, File No. 33-64799.)

  *2(a)  -- Agreement and Plan of Reorganization and Corporate Separation
           (Nuclear). (Designated as Exhibit No. 2(a) in Form 8-K dated July 7,
           2000, File Nos. 1-12869 and 1-1910.)

  *2(b)  -- Agreement and Plan of Reorganization and Corporate Separation
           (Fossil). (Designated as Exhibit No. 2(b) in Form 8-K dated July 7,
           2000, File Nos. 1-12869 and 1-1910.)

  *3(a)  -- Articles of Amendment and Restatement of the Charter of
           Constellation Energy Group, Inc. as of April 30, 1999. (Designated
           as Exhibit No. 99.2 in Form 8-K dated April 30, 1999, File No. 1-
           1910.)

  *3(b)  -- Articles Supplementary to the Charter of Constellation Energy
           Group, Inc., as of July 19, 1999. (Designated as Exhibit No. 3(a) in
           Form 10-Q dated August 13, 1999, File Nos. 1-12869 and 1-1910.)

  *3(c)  -- Certificate of Correction to the Charter of Constellation Energy
           Group, Inc. as of September 13, 1999. (Designated as Exhibit No.
           3(c) to the Annual Report on Form 10-K for the year ended December
           31, 1999, File Nos. 1-12869 and 1-1910.)

  *3(d)  -- Charter of BGE, restated as of August 16, 1996. (Designated as
           Exhibit No. 3 in Form 10-Q dated November 14, 1996, File No. 1-
           1910.)

  *3(e)  -- Bylaws of Constellation Energy Group, Inc., as amended to February
           16, 2001. (Designated as Exhibit No. 3(d) in Form S-3 dated March 5,
           2001, File No. 333-56572.)
  *3(f)  -- Bylaws of BGE, as amended to October 16, 1998. (Designated as
           Exhibit No. 3 in Form 10-Q dated November 13, 1998, File No. 1-
           1910.)

  *4(a)  -- Indenture between Constellation Energy Group, Inc. and the Bank of
           New York, Trustee dated as of March 24, 1999. (Designated as Exhibit
           No. 4(a) in Form S-3 dated March 29,1999, File No. 333-75217.)

  *4(b)  -- Supplemental Indenture between BGE and Bankers Trust Company, as
           Trustee, dated as of June 20, 1995, supplementing, amending and
           restating Deed of Trust dated February 1, 1919. (Designated as
           Exhibit No. 4 in Form 10-Q dated August 11, 1995, File No. 1-1910.);
           and the following Supplemental Indentures between BGE and Bankers
           Trust Company, Trustee:
</TABLE>

<TABLE>
<CAPTION>
                                              Designated In
                          -------------------------------------------------------
                                                                          Exhibit
         Dated            File No.                                        Number
         -----            --------                                        -------
<S>                       <C>      <C>                                    <C>
       *July 15, 1977      2-59772                                          2-3
       (3 Indentures)
       *August 15, 1991   33-45259 (Form S-3 Registration)                  4(a)(i)
       *January 15, 1992  33-45259 (Form S-3 Registration)                  4(a)(ii)
       *July 1, 1992        1-1910 (Form 8-K Report for January 29, 1993)   4(a)

       *February 15, 1993   1-1910 (Form 10-K Annual Report for 1992)       4(a)(i)
       *March 1, 1993       1-1910 (Form 10-K Annual Report for 1992)       4(a)(ii)
       *March 15, 1993      1-1910 (Form 10-K Annual Report for 1992)       4(a)(iii)
       *April 15, 1993      1-1910 (Form 10-Q dated May 13, 1993)           4
       *July 1, 1993        1-1910 (Form 10-Q dated August 13, 1993)        4(a)
       *October 15, 1993    1-1910 (Form 10-Q dated November 12, 1993)      4
       *June 15, 1996       1-1910 (Form 10-Q dated August 13, 1996)        4
</TABLE>

<TABLE>
 <C>    <S>
  *4(c) -- Indenture dated July 1, 1985, between BGE and The Bank of New York
          (Successor to Mercantile-Safe Deposit and Trust Company), Trustee.
          (Designated in Registration File No. 2-98443 as Exhibit 4(a)); as
          supplemented by Supplemental Indentures dated as of October 1, 1987
          (Designated in Form 8-K, dated November 13, 1987, File No. 1-1910
          as Exhibit 4(a)) and as of January 26, 1993 (Designated in Form 8-
          K, dated January 29, 1993, File No. 1-1910 as Exhibit 4(b).)
</TABLE>


                                       91
<PAGE>

<TABLE>
 <C>     <S>
  *4(d)  -- Form of Subordinated Indenture between the Company and The Bank of
           New York, as Trustee in connection with the issuance of the Junior
           Subordinated Debentures. (Designated as Exhibit 4(d) in Form S-3
           dated May 28, 1998, File No. 333-53767).

  *4(e)  -- Form of Supplemental Indenture between the Company and The Bank of
           New York, as Trustee in connection with the issuances of the Junior
           Subordinated Debentures. (Designated as Exhibit 4(e) in Form S-3
           dated May 28, 1998, File No. 333-53767).

  *4(f)  -- Form of Preferred Securities Guarantee (Designated as Exhibit 4(f)
           in Form S-3 dated May 28, 1998, File No. 333-53767).

  *4(g)  -- Form of Junior Subordinated Debenture (Designated as Exhibit 4(h)
           in Form S-3 dated May 28, 1998, File No. 333-53767).

  *4(h)  -- Form of Amended and Restated Declaration of Trust (including Form
           of Preferred Security) (Designated as Exhibit 4(c) in Form S-3 dated
           May 28, 1998, File No. 333-53767).

  *4(i)  -- Specimen Note for $173,000,000 6.75% Remarketable or Redeemable
           Securities (ROARSSM) due 2012 (Designated as Exhibit 4(f) in Form 8-
           K dated December 20, 2000, File No. 1-1910.)

  *10(a) -- Executive Annual Incentive Plan of Constellation Energy Group,
           Inc., as amended and restated. (Designated as Exhibit No. 10(b) to
           the Annual Report on Form 10-K for the year ended December 31, 1999,
           File Nos. 1-12869 and 1-19101.)

  10(b)  -- Constellation Energy Group, Inc. 1995 Long-Term Incentive Plan, as
           amended and restated.

  *10(c) -- Constellation Energy Group, Inc. Nonqualified Deferred Compensation
           Plan, as amended and restated. (Designated as Exhibit No. 10(b) in
           Form 10-Q dated November 12, 1999, File Nos. 1-12869 and 1-19101.)

  *10(d) -- Constellation Energy Group, Inc. Deferred Compensation Plan for
           Non-Employee Directors. (Designated as Exhibit No. 10(a) in Form 10-
           Q dated May 14, 1999, File Nos. 1-12869 and 1-19101.)

  *10(e) -- Baltimore Gas and Electric Company Retirement Plan for Non-Employee
           Directors, as amended and restated. (Designated as Exhibit No. 10(m)
           in Form 10-Q dated May 14, 1999, File Nos. 1-12869 and 1-19101.)

  *10(f) -- Summary of severance arrangement for a named executive officer.
           (Designated as Exhibit No. 10(g) to the Annual Report on Form 10-K
           for the year ended December 31, 1999, File Nos. 1-12869 and 1-1910.)

  10(g)  -- Grantor Trust Agreement Dated as of January 1, 2001 between
           Constellation Energy Group, Inc. and Citibank, N.A.

  *10(h) -- Form of Severance Agreements between Baltimore Gas and Electric
           Company and seven key employees. (Designated as Exhibit No. 10(j) in
           Form 10-Q dated May 14, 1999, File Nos. 1-12869 and 1-19101.)

  *10(i) -- Summary of enhanced retirement benefits for a named executive
           officer. (Designated as Exhibit No. 10(l) in Form 10-Q dated May 14,
           1999, File Nos. 1-12869 and 1-19101.)

  *10(j) -- Grantor Trust Agreement dated as of April 30, 1999 between
           Constellation Energy Group, Inc. and T. Rowe Price Trust Company.
           (Designated as Exhibit No. 10(e) in Form 10-Q dated May 14, 1999,
           File Nos. 1-12869 and 1-19101.)

  *10(k) -- Constellation Energy Group, Inc. Long-Term Incentive Plan.
           (Designated as Exhibit No. 10(b) in Form 10-Q dated May 14, 1999,
           File Nos. 1-12869 and 1-19101.)

  *10(l) -- Full Requirements Service Agreement Between Constellation Power
           Source, Inc. and Baltimore Gas and Electric Company. (Designated as
           Exhibit No. 10(a) in Form 10-Q dated August 14, 2000, File Nos. 1-
           12869 and 1-1910.)

  *10(m) -- Constellation Energy Group, Inc. Benefits Restoration Plan.
           (Designated as Exhibit No. 10(b) in Form 10-Q dated August 14, 2000,
           File Nos. 1-12869 and 1-1910.)

  10(n)  -- Constellation Energy Group, Inc. Supplemental Pension Plan.

  10(o)  -- Constellation Energy Group, Inc. Senior Executive Supplemental
           Plan.
</TABLE>


                                       92
<PAGE>

<TABLE>
 <C>     <S>
  *10(p) -- Constellation Energy Group, Inc. Supplemental Benefits Plan.
           (Designated as Exhibit No. 10(e) in Form 10-Q dated August 14, 2000,
           File Nos. 1-12869 and 1-1910.)

  12(a)  -- Constellation Energy Group, Inc. and Subsidiaries Computation of
           Ratio of Earnings to Fixed Charges.

  12(b)  -- Baltimore Gas and Electric Company and Subsidiaries Computation of
           Ratio of Earnings to Fixed Charges and Computation of Ratio of
           Earnings to Combined Fixed Charges and Preferred and Preference
           Dividend Requirements.

  21     -- Subsidiaries of the Registrant.

  23     -- Consent of PricewaterhouseCoopers LLP, Independent Accountants.
</TABLE>
  * Incorporated by Reference.


                                       93