Fitch: Maryland Rate Stabilization's Effect on BGE & Constellation.

NEW YORK -- Fitch does not expect yesterday's announcement that a new rate stabilization plan had been filed with the Maryland Public Service Commission (MPSC) to have an immediate impact on the ratings of Baltimore Gas & Electric Co. (BGE, issuer default rating (IDR) 'BBB+') or its parent company Constellation Energy Group's (CEG, IDR 'BBB+'). However, Fitch has reviewed the proposal and finds that the terms of the plan, if implemented, would remove near-term uncertainties and stabilize the credit profiles of BGE and CEG. Fitch believes that, given the manageable level of anticipated deferrals and the reasonable recovery period, the prospective adoption of the plan could result in a change in BGE's rating outlook to Stable from Negative.

The rate stabilization plan has the support of Maryland Governor Ehrlich; however, some uncertainties remain. First, implementation of the proposed settlement in a highly politicized environment is not yet assured. Second, Fitch has some concerns that BGE may not have flexibility to recover future cost increases. Consequently, pending resolution of the PSC proceedings, BGE's rating outlook remains Negative while CEG's rating outlook remains Evolving. BGE has asked the MPSC to rule on the proposal by May 1, 2006.

Under the plan, tariff increases will be phased in over 18 months and will move fully to market rates on Jan. 1, 2008. The 'opt-in' nature of the plan will likely result in significantly lower deferral levels than an 'opt-out' agreement would. BGE estimates that a 50% participation level would generate peak funding requirements of $189 million, although a higher level of customer participation would generate proportionately larger deferrals and borrowing needs. BGE has stated that it intends to fund its deferrals with short-term borrowings, which together with reduced cash flow created by the energy cost under-recoveries, would weaken the company's credit ratios through year-end 2007. However, beyond this date, under the rate mitigation proposal credit metrics are anticipated to be supportive of the 'A-' rating category. Positively, under the plan, BGE would be able to recover its interest costs.

As part of its rate stabilization filing, CEG has offered economic incentives of $60 million per year that are contingent upon its pending merger with FPL Group closing. Included in this $60 million would be the return of nuclear decommissioning revenues, the elimination of BGE's provider of last resort margin and the sharing of merger synergies.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.