Good morning and welcome to the Constellation Energy's Third Quarter 2008 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the meeting over to the Vice President of Investor Relations and Financial Planning and Analysis for Constellation Energy, Mr. Kevin Hadlock. Sir, you may begin.

Thank you. Welcome to our third quarter earnings call. We appreciate you being with us this morning. On slide 2, before we begin our presentation, let me remind you that our comments today will include forward-looking statements which are subject to certain risks and uncertainties. For a complete discussion of these risks, we encourage you to read our documents on file with the SEC. Our presentation today is being webcast and the slides are available on our website, which you can access at constellation.com under Investor Relations. On slide 3, you'll notice we will use non-GAAP financial measures in this presentation to help you understand our operating performance. We've attached an appendix to the charts on the website, reconciling non-GAAP measures to GAAP measures. On slide 3, Constellation Energy has filed with the Securities and Exchange Commission a preliminary proxy statement and other relevant documents regarding a proposed transaction with MidAmerican Energy Holdings Company. A definitive proxy statement will be sent to security holders of Constellation Energy seeking an approval for the proposed transaction. We urge investors to read the definitive proxy statement, and other relevant documents when they became available, because they will contain important information about Constellation Energy and the proposed transaction. With that I would like to turn the time over to Mayo Shattuck, Chairman, President and CEO of Constellation Energy.

Thank you, Kevin and good morning everyone. I'd like to begin today with an overview of the last few months. So, you're looking only at the first slide with my name on it at this point. The shock to the financial system in the past several months is still being digested and analyzed and although we have our differing micro series about its causes, I can at least provide some perspective on its effects. Companies like our's are depended on access to capital in two fundamental ways. First for fulfilling its capital expenditure programs and second for the liquidity capital required to operate and support its commercial businesses. In 2008, we have planned CapEx program of $2.4 billion, a substantial increase over prior years primarily because of the environmental upgrades required on our coal plant. Since this program was larger than our planned cash generation for the year, we had anticipated going to the market to raise capital during the year, and during the first and second quarter of 2008, we raised $1.1 billion in new debt in hybrid securities as part of this program. Our liquidity capital requirements are funded by lines of credit and cash. The main drivers of the use of liquidity capital in our case, has been hedging the generation fleet, hedging the customer supply business in both power and gas, and hedging our international coal business. We will describe this in much detail today. But it is important to note that our approach is been to lock in economic value by hedging our exposures to the extent possible. In this way, we've been able to reasonably forecast the economic exposure and long-term cash flows from our fleet based on our hedge ratios, and also reasonably lock in a spread in our commercial businesses over the…

Thank you, Mayo and good morning. Before we begin the risk management update, we would like to revisit the impact that the market environment has had on Constellation. Commodity prices climbed steadily through the first half of 2008 and were near annual highs at the end of June. On August 27th we discussed the consequences of higher commodity prices, as higher collateral requirements, higher gross derivative asset value, and increased credit exposures. This trend can reverse during the third quarter as power, natural gas and coal prices dropped sharply by over 30%. Given our generation fleet, we are generally long powered. Thus this reduction in power prices affected our portfolio value. Further, the falling commodity prices has also impacted our collateral requirements and decreased the size of our gross derivative positions and credit exposures. In addition, our challenges in the credit market in August and September, forced us to increase collateral postings by almost $750 million. As Mayo discussed, credit markets are perhaps the most challenged in decades, from access to short-term commercial paper markets to the availability of longer-term debt facilities, credit products are available to some but at high prices. This has impacted Constellation's access to short-term financing forces and our cost of capital, most importantly affecting the capital needed to fund collateral requirements on our economic hedges of generation and customer supply. In addition, power market liquidity has challenged our flexibility in hedging as we've been impacted by the withdrawal of investor funds from commodity markets and the loss of some market participants. Today we'll show that Constellation has substantially reduced its economic exposure to directional commodity price risk in reaction to these market challenges. We accomplished this by reducing position sizes and overall length in our portfolio. Furthermore, we are actively managing the liquidity needs of…

Thank you. [Operator Instructions]. Our first question comes from Dan Eggers with Credit Suisse. Your line is open.

Hey, good morning. Thanks for all of the detail today. Just to make sure I have this right, the shareholder vote is expected in late December or sometime in January. You have all expectations of having 2009 guidance provided before shareholder vote?

Yes. that is our... that's our expectation and the... really the gating item associated with the shareholder vote is the, both SEC timing of their response and our ability to turn around whatever questions they have. So we will turn that around as quickly as possible and if it's feasible to set the date in late December, we would do that and otherwise probably early January, but we would expect be providing investors with more visibility on the 2009 breakdown.

And the expectation now you have is also from a timetable perspective would be that the asset sales would or divestments would all be done by the time the shareholder vote comes, sounds like also?

Probably not Dan. But we would have a visibility hopefully on the makeup and terms associated with what we have done. But the closing of those transactions could easily slip into January. But our intention is to try to those done as quickly as possible both in terms of announced transactions as well as closing. So, we will be working on those expeditiously.

Okay. And then when I look at the liquidity changes for December '08, the $300 million is that expected proceeds in the sale of the EMPS or so as your point $0.3 billion? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: I think Dan that's a... I think range we'd expect, the slide you see the proceeds that would net against our liquidity.

Okay. Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: So given the nature of the credit lines that we're negotiating with the banks, we would expect to retain for ourselves a percentage of those proceeds and certain of those proceeds would net against the existing lines.

So, the $ 1.2 billion has netting provisions in it as well? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: From assets proceeds, from sales proceed, yes.

Okay. Alright thank you guys.

Thanks Dan.

Our next question comes from Leslie Rich with Columbia Management. Your line is open.

I wondered if I could go back to slide 25, global commodities. New business realized during the third quarter with a negative $247 million, I'm sorry I just couldn't follow exactly what was going on there. You said they were trading off as a $210 million, but what all else is in that bucket? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: Leslie I think... this is Jack. The... during the second quarter call I think we went to some lengths to articulate that we expected $200 million to $250 million of shift in effect the earnings between our expected earnings between Q3 and Q4. As we... in our projection this was a $200 million to $250 million negative. As we realized through the year, we originate... through the quarter, sorry, we originated a $100 million of new business that offset this. And our portfolio management group also had $100 million positive results which in effect would have satisfied a good portion of that $200 million to $250 million negative that we expected going into the quarter. Importantly, on top of this, there were trading losses of $210 million and the preponderance of this was related to power positions that we had on, approximately one third of that loss was related to our activities to reduce risk.

Okay. So you said $472 million which from lower portfolio management in trading with that year-to-date? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: That is a year-over-year result.

Oh year-over-year. Okay. And then... Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: If I can just clarify one thing that the 2 to 2.50 is not all a shift between Q3 and Q4. A portion of the 2 to 250 was due to a hedging strategy in the way prices have moved which created a down take, reduced earnings in Q3 and increased earning as we started beginning the Q3 looking forward. The rest was related to the coal sales in the first quarter and to market dynamics in Texas which just... increased our cost to sub load in that market.

Okay. And then going to slide 20 on the balance sheet your equity position reduced by $1.6 billion. Could you just walk through what that was again? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: Sure.

You said, you said, AOCI reduced because of the after-market?

Right so, so we had... during the quarter, we issued an additional $354 million in commercial paper. We drew $750 million on our lines. Special items reduced retained earnings by approximately $296 million and as hedged, sorry, unrealized value changes in hedges that were recorded in AOCI and the balance sheet resulted in approximate decrease to our equity balance of approximately $1.3 billion.

Okay. And you said those will be realized over 2009, 2010?

It's for all of... the majority yes. But it reflects all of our hedge positions.

Okay, great. Thank you.

Our next question comes from Michael Goldenberg with Luminous Management. Your line is open.

Good morning.

Good morning, Michael.

I wanted to get a better understanding about the credit facility that you are trying to close? And how from the commitment there is I guess first it has been down from $2 billion to $1.25 billion. What assurances do you have that banks will not come back next week and can say, sorry we can't do one to five it's going be much, much less. How firm is it?

Well. Let me comment on that. We have an extension from the banks. We believe that where we will size that facility about 1.2, given that what we know today we're supplementing that with a liquidity resource facility from MidAmerican. We are trying to balance the size of this facility against both its costs and also the projected effects of the strategic transformations we're making. So, as we look back recall that in August we thought what we needed was $2 billion. We've raised $1 billion in preferred at that time in our discussion with the rating agencies and given tremendous uncertainty in the marketplace and not really being able to define exactly what the impact of the strategic moves would be on collateral and credit requirements at that time, we agreed with Moody's that we would go back to two. Since that time, we've had more information to us. We obviously have more sense of the market, more sense of the cost of credit. We think the right balance here is the program that we're putting in place. And we think this gets us to a reasonably good place, particularly with respect to dealing with the maturities in December. So, we've just had sometime to fine tune this a little bit more in a very difficult credit environment, and we think that during the course of the next seven to ten days we're going to get this thing closed up.

Okay. But my question is still not what it is that you are trying to do. My question is what it is that banks are trying to do. If the banks that have committed that facility to you, if they decide to reduce the commitment, do they have ability to do that and I want to get a better understanding where that flexibility is on that?

Well I can speak from... I can only really speak for myself. We talked to them everyday and we believe in the outcome that we just... that I just described to you.

But should the banks change their mind, what legal ramifications do they have? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: Michael, this is Jack. The firm underwritten commitment from UBS and RBS remains in place and it remains in place through the 27. I'm sorry that's 26.

Okay, so. Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: Hold on.

Go ahead. Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: The nature of that commitment enables them to use a number of areas to satisfy that commitment. Certain of that can be funded through combination of incremental flex, some of it be... can be satisfied by funded debt or the issuance of incremental debt instruments. I think as Mayo discussed, we obviously have much more information now. We've taken significant steps to de-risk our business and I think what you see in the decision and the anticipation of closing on $1.2 billion to next week, is more of a reflection of our perspective when added to the $350 million additional liquidity we're receiving or we anticipate receiving from MidAmerican that we have a sufficient amount of liquidity to execute our business plans at an appropriate cost. Could we go out and secure the full $2 billion? I think the answer is yes. The composition of that however and remember this meant to be insurance, its not anticipated that we would withdraw these lines, would have a level of permanency and costs, that would not be reflective of the insurance that its meant to be.

Okay. So if I understand you correctly the reduction commitment was fully Constellation's idea? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: I think it's fair to say that it's the result of our trying to navigate the appropriate level of liquidity, permanency of liquidity, funded nature of that liquidity and cost of that liquidity.

Okay, got it. Thank you.

Our next question from Ashar Khan with SAC Capital. Your line is open.

Good morning. Mayo, could you just if you look the way you have described the business today it seems like that MidAmerican, the things that they have put up in the deal that if the business conditions deteriorate by X amount they can walk off. Seeing this presentation today it clearly implies that the conditions have deteriorated since the start. So could you tell us what's happening on that level that they had indicated? What was that level when they redid affirmed the negotiations, what is that level in your mind right now? I just want to get a better sense as to what's happening on that condition that the business conditions deteriorate by if I remember it was $200 million, I could be wrong, where to do we stand on that number as you regard between the two parties?

Ashar, I think the way to describe that first technically, in the merger agreement there is a $400 million threshold that exists now. It did start out a $200 million during their due diligence period in that they released that covenant. We're now underneath the $400 million and that essentially is a number as in most merger agreements it helped characterize what a material adverse condition might be. As you know, those thresholds are often put in these agreements but also somewhat subjective in its interpretation. So, we have very much made a day in active part of our deliberations about managing the business to have MidAmerican in concurrence with what we're doing. And so, some of these action steps that we've taken, virtually from day one, have been with MidAmerican at our side. We obviously want to deliver a company that looks like the company they wanted to be during the time when we closed this transaction. And obviously, they've been showing tremendous amount of support with respect to backing up the company and participating in particular, in a back up facility of $350 million. So, I think that these things ultimately are a little bit subjective but I think that we're satisfied that with the active involvement with MidAmerican and the way things are progressing that they have their intent close and we have every intent to close.

Okay. And then if I could go back to the slide 18 the way I understand it, is that after... is this is preformed by December 08, is this pro forma for all transactions that is the coal the upstream and the downstream? Is that what the liquidity would stand that we would have about $2.2 billion available and the downgrade would be like $1.1 billion is that a fair representation for all transactions it's a pro forma for all transactions as contemplated right now? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: That's correct Ashar. So we have called out the incremental approximately $1.6 billion in liquidity facilities that we'd expect to enter into in November, as well as the potential impact of the proceeds related to the sale of our upstream gas operations, as well as the potential divestiture of our London operations, as well as our Houston gas trading operations.

Okay. And if I can just end up, Mayo reading the proxy statement, If I understand the fairness opinion provided by Morgan Stanley, I mean they didn't do any comps or anything, they just said, hey the condition was either we are going bankrupt or to accept this 26-50. Could you just elaborate a little bit why the bankruptcy according to you think, why were we getting bankrupt, because if we had gone bankrupt according to you the value would have been substantially less than the 26-50. Could you just highlight a little bit more on that valuation as to how we were reaching bankruptcy and the valuation would have been substantially lower?

Sorry I'm going to largely let the proxy speak for itself on that front. Obviously, we got a fairness opinion from Morgan Stanley and that was an element of their evaluation. But, I think that any one can take a look at the components of value in that determination. There had to be an evaluation of obviously the cost of bankruptcy in direct cost of bankruptcy and the outright as well as estimations about the realizations of value. And Morgan Stanley made their conclusion and provided their opinion on that analysis.

Will that analysis will be ever made public to us or no?

I do not believe that beyond what you see in the proxy that there'll be any further disclosure on that.

Okay. Thank you, sir.

Thank you.

[Operator Instructions]. Our next question comes from Paul Fremont with Jeffrey. Your line is open. Paul Fremont - Jefferies & Company: Thank you very much. If you look at slide 18, there is discussion there is that the $350 million facility allows for Constellation to sell certain assets to MidAmerican subject to approval. Can you give us an idea of what types of assets are involved in that?

Paul it's a put arrangement. It has two assets in it. One of which is hydro facility and one of which is the gas plant. And again, much like the credit lines, we expect that this facility is an insurance policy. And so, we would hope not be in a position to exercise that put. But like the other facilities it's there to provide the back staff relative to downgrade collateral table and the circularity associated with those requires that we want to have sufficient liquidity to provide comfort to the marketplace. Time... I guess we have time for one more question. Paul Fremont - Jefferies & Company: Well, does that work like collateral on a loan or is that an actual, is that actual sales... an agreement to sell those assets?

Yeah. It would end, if exercised it would end up being in fact cash back to the company. It would be a sale. Paul Fremont - Jefferies & Company: Thank you.

We have one question please operator.

Our last question comes from David Frank with [ph] Caterpillar Capital Management. Your line is open.

Hi, good morning guys.

Hi, David.

Just going back to the slide 18 Ashar pointed to briefly. It looks like if you don't execute any of the transactions, the sales transactions you talked about, you stand at liquidity, but should you close on the $1.2 billion. You stand at a liquidity of about $1.8 billion. Is that right? Available net liquidity? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: Yes. If you add the anticipated $1.6 billion of incremental liquidity and take existing anticipated liquidity at the end of the year, we would stand just out of $2 billion there.

And... but your downgrade collateral requirements, if you were to be jumped would be at $2.2 billion, is that it? Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: David I think it's important to note that's as of calculations conducted on October 17th.

Right. Jonathan (Jack) W. Thayer - Senior Vice President and Chief Financial Officer: We're actively taking steps to reduce the size and scale of our portfolio as well as reduced as Brenda discussed the margined positions that we have in our portfolio. As you see we've had a pretty steady trend of that downgrade collateral targets declining. And I think we would anticipate that trend continuing through the remainder of the year.

So, but it would be a safe bet that if you are able to complete some portion if not all of these transactions, you would have your... coverage to collateral requirement in a downgrade would be maybe two or three times. So, I guess my question to Mayo would be... I mean this sounds great, wouldn't this be then obviate the purpose and the need for the merger with MidAmerican?

Well David, I think you get to the fundamental point, obviously where we intended to merge with MidAmerican. We are proceeding down on that path. We also have the obligation as an independent company right now to operate ourselves prudently. So yes, we're going down both paths, so to speak. But we also think there is alignment between the two and it's important that we manage the company that way. So, in this kind of environment the type of moves that we would be taking and are taking to reduce risk and divest ourselves of the businesses that we would hope to close by the end of the year, are really consistent with what we would be doing independently anyway.

Right and I understand your comments with regard to the merger. You basically have to say, but I also know you wouldn't willingly want to sell this company at less two times trough EBITDA, so I guess as a shareholder in the company, if you are successful on executing on all of these plans, I would hope, I would certainly vote against this deal and hope that we get a resounding no, because your company is certainly worth far more standalone than it is under this price.

Well David, its perfect leave the concluding comment there. But I would say that there are a lot of moving parts of this. The markets are very volatile. We have a good merger partner. We're taking going down that course and my expectations is that when people get to see the information that we hope to provide in the context to people making votes where we look at 2009 earnings, people will make their own judgment on that and we completely expect that people will see the advantages of merging with MidAmerican. So with that as a concluding remark, we'll look forward to seeing you as we talk about the merger more specifically in December. Thanks very much.

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