Good morning and welcome to the Constellation Energy's Fourth Quarter and Full-Year 2008 Earnings Conference. 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 Executive Director of Investor Relations for Constellation Energy, Mr. Carim Khouzami. Sir, you may begin.

Thank you. Welcome to our fourth 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 www.constellation.com under Investor Relations. On slide 3, you will notice that we will use non-GAAP financial measures in this presentation to help you understand our operating performance. We have attached an appendix to the charts on the website, reconciling non-GAAP measures to GAAP measures. With that I would like to turn the time over to Mayo Shattuck, Chairman, President and CEO of Constellation Energy.

Thank you, Carim. Good morning, everybody. Let me quickly review our agenda for the morning. First, I am going to provide a strategic overview that will discuss the events of 2008 and where we plan to take the company in 2009 and beyond. Mike Wallace will then give an update on Constellation's nuclear program and the status of our joint venture arrangement with our partner EDF. And finally, Jack Thayer, our Chief Financial Officer will review 2008 in our perspective financials. After Jack I have some closing remarks and then we will some time for questions. I will start off on page 5. This morning we reported a GAAP loss of $7.34 per share for 2008. despite the fact that we have previously discuss the accounting impacts of our merger activities it is still jarring to see how these items flow through our P&L. I think it is important for me to take a moment and discuss the main drivers and differentiate the actual operational aspects of this loss from those that were accounting in nature. As you can see in the chart, during 2008 we had a number of special items. The most notable is the $6.72 per share charge related to our merger activities. This charge largely consists of the conversion of the MidAmerican preferred stock and termination costs. During the year we also reported impairment charges of $3.04 per share. These charges included the write-off of goodwill that occurred with the MidAmerican transaction and the depressed values of some holdings costs by weaken financial markets. Jack will spend some time later in the presentation walking you through the details of these charges. On the right, you can see that by excluding the special charges, our 2008 adjusted earnings would have been $3.50 per share. Turning to slide…

Thanks Mayo. In this next segment, I will focus on the new joint venture with EDF as well as our existing joint venture with UniStar Nuclear Energy. The new joint venture provides strategic entry for EDF into the key US nuclear market and develops an industrial partnership and investment in Constellation. As EDF Chairman and Chief Executive Officer, Pierre Gadonneix said in December "EDF Group has long believed that there are significant benefits to be realized between the development of new nuclear assets and the operation and ownership of existing nuclear facilities, such as those owned and operated by Constellation Energy. This agreement will contribute significantly to non-CO2 emitting energy generation in the US inflow." We too at Constellation are excited by the prospect of what this joint-venture can bring together. The largest nuclear operator in the world, and a top-tier US nuclear fleet that is continuing to improve year-after-year. In fact, let me point out to you that as of today, Calvert Cliffs Unit 2 is within two days of time to world record for continues generation of a pressurized water reactor at 687 days. And based on the planned to Breaker Day for it's upcoming refilling outage Calvert Cliffs Unit 2 will set a new world record at 691 days of continues generation. We are proud of this kind of operational performance, and we look forward to continued excellent operational reliability and safety performance in our new joint-venture. Turning to slide 13, I will focus on our efforts to close the new joint-venture. Our transaction closing efforts have been initially focused on getting the required regulatory filing submitted. And indeed this effort was completed late January. You see the list of filings on this slide along with the anticipated timeframe for approval. The Nuclear Regulatory Commission indirect license…

Thank you Mike, and good morning everyone. I'm turning to slide 20, and I will review our financials for 2008. On slide 20, you see that fourth quarter GAAP earnings were a loss of $7.75 per share. Excluding special items, adjusted earnings per share for the quarter were a positive $0.03 per share. For the full year, GAAP earnings were a loss of $7.34 per share, excluding special items adjusted earnings per share for the full year were $3.57. Let me take a moment and walk you through some of the special items that negatively impacted earnings through 2008. For the full year, merger related cost totaled $6.72 per share. These charges reflect the cash cost of $663 million, and non-cash accounting charges of $541 million, largely consisting of the conversion of the MidAmerican preferred stock and termination cost. We also recognized approximately $3.04 of impairment charges during 2008. These charges capture the economic impact on our assets, investments and company stock of significant decreases in commodity and market prices. In the third and fourth quarters, we wrote down the value of our upstream gas assets, Constellation's goodwill, our interest in Constellation Energy Partners and our nuclear decommissioning trust fund. In 2008 as a result of the Maryland settlement, we achieved with the Maryland PSC, BGE provided residential customers with pretax credits totaling approximately $189 million. This resulted in a full year after tax loss of $0.62 per share. Other one-time items in 2008 resulted in a loss of $0.16. Turning to slide 21. Adjusted earnings for 2008 were $3.57 per share as compared to $4.60 in 2007. During 2008, our Merchant segment was down $1.08 year-over-year and utility was up $0.11. At the Merchant segment, the significant increase in energy commodity prices during the second quarter was a record…

Great. Thank you, Jack. Before turning it over for questions, let me take a moment to summarize the investment pieces in Constellation. First although 2009 will be a transitional year for us, beginning in 2010 and beyond we have a very attractive fleet of low cost environmentally advantaged generating assets, located primarily in PJM in New York. As we moved forward, the profitability of this fleet is expected to increase as we see many of the As we move forward the profitability of this fleet is expected to increase as we see many of the below marker hedges roll off, potentially accelerated in the near-term by hedges that maybe allocated to the joint-venture with EDF. Second, is our regulated utility, the Maryland PSC is committed to the implementation of efficiency in conservation projects as well as improving system reliability. We will work with the commission to move these initiatives forward and will deploy incremental capital provided that the returns support the investment. Third is our retail and wholesale businesses. We will be moving towards smaller, higher return business sides relative to own and contracted physical generation. Although this new strategy will decrease our overall volumes, we will continue to include our cost of capital and the price we offer to customers. What you will see is an overall reduction in the capital needed to support this business and much higher returns. Finally, we have made the management changes, we feel were needed to help drive our new strategy and strengthen our company going forward. We will be adjusting our reporting framework, so that our reporting is more closely aligned to our activity. This will lead to greater transparency and will make us more accountable to you as you will now have a better and clear understanding of we manage each…

Thank you. We are now ready to begin the question-and-answer session. (Operator Instructions). Our first question comes from Greg Gordon with Citi.

Thanks, good morning.

Good morning, Greg.

Looking at the disclosure on slide 35, which is the generation earnings outlook EDF JV, you have broken out to hedges between PPA/RSAs and other hedges. So when I think about the $700 million of present value of hedges that are going into the JV, those are the some total of both of those lines, correct? Some portion of both of those is going into the JV, a 100% of the PPA/RSAs and some percentage of the other hedges, is that the right interpretation?

No, Greg, This is Jack. The PPAs and the RSAs associated with our Nine Mile in Gannett plants convey to the convey to JV in an effort to address hedges against Calvert Cliffs in the transaction given the timeframe in which we were negotiating with EDF rather than identify specific hedges what we agreed to was a contractual value. The $700 million of underwater hedges that will convey is incremental to those PPAs and RSAs, and we're working with our partner EDF to negotiate, which other hedges we will put out of our portfolio and allocate to the joint-venture prior to confirmation of the transaction.

Okay, so the $700 million is incremental to the PPAs and RSA line item that goes on a pro rata basis with the JV right?

It's correct.

And so some portion of that under hedge line will essentially be also transferred to the JV, is that the right interpretation. I would say the $700 million could take many forms.

Right

One form it could be conveyed is to convey these underwater positions to the joint-venture, but we will be working through that over the balance of the next six months or so to identify the form and fashion that $700 million will take.

Is it possible that that take the form of some kind of payment in lieu? In other words.

I think it’s fair to say that they could take many forms, but what is contractually committed is the $700 million present value at a 10% discount rate.

Okay, thanks. My second question is indirectly concerning with, I'm sure there will be plenty of people who don't want to dig into on the Q&A, but my question is what's going on Baltimore, in the legislature in Maryland vis-à-vis, the potential for new regulations that would allow the Maryland PSC to have further regulatory over side this merger, how do you handicap those prospects and how much of a delay would that generate. And my main concern there being how it impacts your liquidity to close?

Greg, this is Mayo. There is some proposed legislation. Obviously the session is sort of in midstream. We are working with all the constituencies in Maryland at this point including the legislation, the administration and the commission to sort of ascertain, what is best process for closing the transaction? And I think as you probably read our position has been that we are going to be completely cooperative with the PSC. We have anticipated their review; we are cooperating with their review. The litmus test associated with a transaction of this type, we believe has to do with whether pay another party such as EDF has any influence over the activities and policies of BGE. We believe that the commission has all the authority to order any protections that are required in that respect. Those might go along the lines of ring-fencing as an example. So what we are attempting to do in our discussions and hopefully working in collaboration with all the parties that are interested in this transaction and its outcome is to make sure that PSE does conduct the appropriate review and does in fact issue orders of which we have complete intention of complying with providing their reasonable. And so I do expect in next several weeks, we will call less around solutions in that respect, so hopefully that will mean that we don't require any sort of legislative action, but expect that the next several weeks and during this session we will reach the resolution to how that’s going to proceed.

Thank you, Mayo.

Thank you our next question comes from John Kiani with Deutsche Bank.

Good morning.

Good morning, John.

I was comparing slide 60 in your presentation to your third quarter 10-Q, can you explain why the size of the trading book increased from what looks like about $35 billion aside in the third quarter 10-Q to about $50 billion aside in today's presentation, and what the fall in commodity price environment, and I guess also it looks like the net fair value of the disclosure of the book decreased by about $270 million from the third quarter 10-Q to today.

Sure, John. This is Jack. I think it's important to note that we did see a number of significant changes throughout the year related to commodity prices, and perhaps a bit of historical context as you might recall during the second quarter when commodity prices were at their height, we saw a gross derivative assets scale that was approximating $80 billion. During the third quarter as prices came down, the overall relationship of both our, and I think it's important to note, we have a highly hedged portfolio. The relationship relative to those price declines caused our overall derivative assets and liabilities to shrink. During the fourth quarter as you have seen prices declined further this has had the impact of relative to our increased hedge level of increasing both the derivative assets and liabilities to $50 billion on a net basis, obviously we believe this to be prudent economic and manageable risk and we have the appropriate liquidity. And we are tracking the collateral requirements of the respective assets and liability hedges in such a fashion that we are appropriately addressing it.

So, sorry Jack, I am little confused. Are you saying that because you layered on additional hedges for the book the overall size of the book actually grew by this $15 billion even net of commodity prices falling, is that everything?

I don’t think you should say net of, I think commodity prices falling dramatically as what. If you think about the dramatic high and low between Q2 and Q4.

Yeah, I am looking Q3 to Q4.

No, I understand but I think you need to understand the relationship between the nature of our hedged book. So in Q2 as prices were dramatically higher the fact that we were hedged because our gross derivative positions to take on significant scale. As those prices return to more historic levels. In Q3 we saw the size of that gross derivative position decline. As prices have declined significantly during the fourth quarter since then you in fact had inversion of assets and liabilities and that decline in prices has caused our gross derivative position to go up relative to Q3. This has been further influenced by incremental hedges that we put on during the third quarter in order to insolate us from what we perceive to be a rapidly declining price environment.

Okay. And then on slide 31, where you projected your net available liquidity, is there, are you assuming any tax payments or tax leakage on the $700 million of below market hedges, that you are transferring in the pro-forma cash or liquidity forecast?

I would say that the $700 million can separate really from this result. We are not assuming any tax leakage associated with that, but importantly we are not assuming any tax benefit from tax optimization structures that we might that we are working with EDF to put in place, we are assuming that the lease tax efficient structure for consideration here.

Okay. Thanks for that. Then finally on slide 71, I was trying to understand just kind of going forward the composition of earnings in the merchant business and I know you had discussed some of the ratcheting back obviously in the substantial decrease in the activities of commodities, origination, marketing and trading efforts and what not. On slide 71 at least for '09 it looks like roughly $900 million of gross margin is coming from global commodities and customer supply and then if I adjust the generation for on a pro-forma basis to 49% JV, to me it looks like roughly 50% of gross margin comes from commodities customer supply global commodities origination and those activities. Is that the correct way to think about it going forward?

I would say that one you need to consider the $700 million of underwater hedges that will be conveyed. I think it's important to note that with the PPAs associated with our nuclear assets. We are currently selling power from Nine Mile and unit one and two at roughly $34 per megawatt hour. We are selling power from [Ganet] at $44 per megawatt hour. Now Nine Mile 1 rolls off in '09 and Nine Mile 2 rolls off in 2011 but then there is a revenue sharing agreement where above $44 the former owners of that get 80% of the upside. So the earnings power associated with and [Ganet] PPA is in place through 2014. I would say the earnings power associated with those assets is modest I think the exposure to power prices is largely related to Nine Mile 1 and Covert. We have seen power prices come off dramatically. And so I think that the relative earnings mix between customer and supply should orient the business mix far more towards generation than towards customer supply. And as we have discussed commodities, this 272 in 2009 is primarily driven by backlog realization. So I think in the end generation will be about 60% of merchant earnings and customer supply will be roughly 40%.

Okay, thank you.

Thank you. Our next question comes from David Frank with Caterpillar Capital.

Yeah. Hi, good morning.

Good morning, David.

I guess, if you go back to the transaction with EDF and as point regarding the transfer of the $700 million of value, I mean, if I was to dump this down. You are basically taking underwater contracts, you are putting them to a JV and you are pushing half of the underwater uneconomic value to EDF and is this what helps increase or provide growth for 2010?

In calculating 2010's growth, we have allocated a portion of that $700 million of underwater hedges to 2010.

So, this is, I guess, I'm just wondering because your stock is clearly sending the signals that investors either do not believe or do not trust some of this data or maybe the data is not flushed out enough so. I'm really just trying to get some of the drivers to that '10 if, why is your stock trading at less than seven times 2010 earnings right now? And what other aspects is, what other drivers are there for 2010 for your company that's going to provide for growth versus '09 besides this $700 million of contracts? Or is that the big driver?

I would say David, I certainly can't comment on why our or where our stock is trading. What I will say is we can, in terms of growth drivers as you will recall, we have had the impact of significantly underwater hedges muting our earnings throughout the 2010 '11 period. Historically, in previous business plans, commodities group was ineffective bridge to the roll off of those underwater hedges in this transaction in negotiating the $700 million of underwater value which could take the form of hedges going to the joint venture of which $350 million will be worn by EDF. We have allocated a portion of, a deadly portion of those underwater hedges to 2010 in part because that's when a significant amount of the underwater mess is in our hedge book. So I would say that our earnings growth is driven primarily by in affect the same story that we have been discussing before the roll off of underwater hedges. And prospectively in 2010 and beyond we like many power companies will be recently exposed to dark spreads, feed rates and power prices as you move further out. And I think that’s an active choice by this management team to insulate ourselves in '09 and '10 where we see increasing declines in power prices. But preserve the potential for future upside in '11 and beyond.

This is Mayo, I am not gone talk specifically by value but obviously we have tried to stir everyone since the announcement of transaction towards this call recognizing that there is awful lot of information in this presentation with respect to how the transaction worked and how the $700 million worked and I think probably more importantly, that the positive status of our liquidity and our own general confidence with respect to how we are managing the optimization portfolio in the commodities area. So I think with greater clarity on how those things are going. Probably the most important point as Jack alluded to is, what is our sensitivity to price on the upside from the fleet overtime. And I think that there is some positive implications to that so I completely recognize that the relative out of us since the EDF transaction really was required on our part after two very complicated transactions we wanted to get the information right. We also wanted to convey sort of some more important elements of our liquidity status and our trading activities that you would all have to be comfortable through this disclosure today as to where things stand.

Right so I understand that these contracts that were dragging down your earnings and as they go to market you get growth in earnings. So you are putting this amount as the JV now I guess common sense would indicate when those underwater contracts or whatever it is that $700 million of uneconomic value you are putting there. When those expire and go to market there should be another list at some point in future. So I guess my question to you is, at what point on an average do those uneconomic contracts that you are putting to these JV expire. So that we could then look out for some point in the future and say yes they are getting helped by a lift in '10 but then they roll-off in '11 we should get another benefit or '12 or whatever the year is?

David and I do think it’s important to note this $700 million of conveyed value could take many forms but if we are to discuss it in terms of hedges the bulk of our underwater positions or hedges put on during the lower power price periods roll-off in 2011.

Okay

It’s fundamentally a smoothing effect and I think it’s also important to note we do believe that the same reserve margin consideration that drove power prices higher in 2008. They are going to be as relevant as we moved through this economic cycle and the opportunity as you layer our carbon and other environmental aspects we believe we are well positioned.

Okay. All right. I know it's very complicated. Thank you for your time.

Thank you. Our final question comes from Paul Patterson with Glenrock Associates.

Good morning, guys.

Good morning, Paul.

The as realized and as priced things that you are going to do enhance transparency, could you just tells us what as price means? I mean just the little more clarity what's you are planning to doing there?

So, Paul, as you may recall in 2008 we transitioned to--

With a new reporting structure.

Reporting our customer supply business on an as priced margin basis and then the risk embedded with the positive or negative side of that equation was then in effect transferred and owned by our portfolio management and trading organization within commodities group. Historically, we have been able to create value through optimizing portfolios and that organization due to very effective job of doing so and managing through difficult risk such as what we saw in Texas this summer. Prospectively, what we will be doing is roughly providing that same level of portfolio management expertise and managing to in effect a range of distribution to the business that we sell on as priced basis to try and drive to an as realized margin that is at that level of as priced business or better. But recognizing that as you, we will reduce the level of distribution that we might see because as you try and expand that distribution it obviously have base with it increased risk. So I think prospectively the as realized should allow you to, should allow us to demonstrate and for you to see how well we are managing the physical and credit risk embedded within the business.

Okay on slide 72 the amortization of contract, is that…

I didn't 72?

Yes on slide 72 the energy contract amortization I think it's off the depreciation does that flow through the income statement as well and as that in guidance.

Yes.

Okay and then just finally in terms of the, in terms of the just David Frank's question on the $700 million is this, you guys are not, how much of that I guess is in 2010. I wasn’t clear on that, is there a specific number or is that sort of their, some sort of legal room around that in terms of how that's driving 2010.

That status to be determined, but you can expect that the majority would be in 2010 and 11.

Okay thanks a lot.

Thank you all very much. And we will look forward to talking to you in the next quarter. Thank you.

This does conclude today's conference. You may disconnect at this time. Thank you.