Good morning and welcome to the Constellation Energy's first quarter 2009 earnings conference. (Operator Instructions). 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 first 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 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.

Thank you, Carim. Good morning, everyone. Thank you for joining us today. Let me begin by saying we are pleased with our company's performance thus far in 2009. First quarter adjusted earnings were strong across our core generation, customer supply, and regulated businesses. At the end of March, we successfully completed the sale of our international commodities business, and we ceased to have commodity price exposure toward to our Houston-based trading operations. During the quarter we also made substantial progress in de-risking and reducing the scale of our legacy commodities portfolio. In addition, we strengthened our liquidity position despite the headwinds from a declining commodities market. Our first quarter adjusted earnings were $0.74 per share, importantly every one of our core businesses outperformed on a year-over-year quarterly basis. Jack, will speak later in the presentation about the specific performance of each business. During the quarter, in a challenging market environment, we announced the divestiture of the majority of our non-core operations, most significant being our international commodities and Houston-based trading operations. Last year, we had announced our intent to divest these businesses with the purpose of increasing our cash position and reducing our collateral obligations. These actions had positive cash implications, but also resulted in non-cash GAAP EPS charges. On a cash basis, we expect to receive approximately $35 million of net proceeds from these collective strategic actions. More importantly, as we complete these transactions between the first and second quarters of this year, they will return approximately $1 billion of collateral. Applying this liquidity to support new business activity at our customer supply business should facilitate lower risk future profitability. On a GAAP basis, our divestitures resulted in a first-quarter accounting loss of $0.93 per share. The bulk of which was related to the sale of our international commodities…

Thank you, Mayo, and good morning, everyone. I'll start on slide 10 with the review of our financials for the first quarter of 2009. As Mayo mentioned earlier in the presentation, our first-quarter adjusted earnings were $0.74 per share. Strong performances by each of our core businesses contributed to these positive results. BGE recorded earnings of $0.41 per share for the first quarter of 2009, as compared to $0.37 for the first quarter of 2008. While BGE traditionally records approximately half of its annual earnings in the first quarter of the year on account of the seasonal demand for natural gas and electricity, the improvement was primarily due to the timing of expenses within the year. Offsetting these favorable items was an increase in bad debt expense. Our merchant segment recorded earnings $0.25 lower this quarter, as compared to the first quarter of 2008. Despite this decline, our ongoing core merchant businesses delivered strong results. Within the segment, our generation operations recorded $0.08 improvement due primarily to higher capacity revenue and fewer forced outages. Additionally, our customer supply earnings improved by $0.18 due primarily to improved margins in our wholesale customer supply business. Offsetting the positive results in our core businesses was our global commodities group, which recorded earnings approximately $0.22 lower than in the first quarter of 2008. This reduction in contributed earnings reflects our efforts to de-risk and substantially reduce the scope of our commodity activities. It is largely in line with our beginning of quarter expectations. Other negative year-on-year quarterly impacts primarily consist of higher interest expense and dilution from incremental shares issued to MidAmerican at the end of 2008. Now let me take a moment to describe the special items that reduce adjusted operating earnings of $0.74 per share to a GAAP loss of $0.62 per…

(Operator Instructions). Our first question comes from Paul Fremont with Jefferies.

The first is on the customer supply side. I think the annual guidance showed a decrement of $74 million, but in the first quarter it looks like the gross margin increase was $81 million. So I just want to understand, number one, what happened in the customer supply business, and how should we look at expectations for the year. The second question is really on the gross derivative asset side. I looked through your presentation on derivatives, but can you explain why the level of your gross derivative activity which I guess ended the first quarter around $50 billion is so much higher than any of your peers?

Paul this, is Jack. Why don't I start off with a discussion of the customer supply business and then we can dive into gross derivative assets. With respect to the customer supply business, I think it's fair to say that we have seen the relative competitive position of that business be quite strong. That the margins that we've earned in that business relative to plan have come in stronger than anticipated, and that we continue to see prospectively the opportunity to use our liquidity to earn good risk adjusted in that business.

That compares to the $614 million of annual guidance. You come in lower in the future quarters and therefore still maintain that gross margin guidance, or does that move up based on the stronger margins you're getting in the first quarter?

What I would say is with this is given our move to reduce the $0.50 of projected, one-time gains or sorry, losses, that we would see in exiting the legacy trading positions, that improved margins in this business helps facilitate our absorbing the cost that we see in exiting that trading book and holding our guidance firm.

Okay, and on gross derivative assets?

With gross derivative assets, as you mentioned we put out a companion piece this morning that articulated what this is a measure of and in effect what is not a measure of. What I would say is this, our gross derivative assets are higher than our peers largely because of the size and scope of our customer supply activities. We lock in economic hedges to support that business, and earn good risk-adjusted margins in that business, and we've experienced a significantly volatile pricing environment where we've seen prices decline markedly relative to the time in which those contracts were entered into, and that's reflected in the gross derivative assets. As those contracts roll off, we would expect our relative gross derivative position to decline, and that plus the divestitures of our certain businesses should lead to a smaller gross derivative position on a go-forward basis. That said, I think this is not really a measure of risk for our business, it's merely a quantitative measure of the price moves from the time we've entered into contracts until the delivery point.

So is there a normalized level when all of the noise from the roll off of the contracts is sort of out of the way. Is there a normalized level that we should expect out of the gross derivative asset position?

I guess what I'd say to that is, it's our view that this is not a measure of risk so it's not a measure that we're actively focused on managing. I think, it's fair to say that we would not expect to see prospectively the dramatic rise and decline in power and gas prices that we've seen in the last 12 months. So as business contracts roll off, we would expect the number to come down, but again I think this is not as Mayo mentioned in I his piece a metric that we view as a measure of risk. We view economic value at risk as a far better measure of the size and direction of the risks in our business.

Yes, Paul. I might just add to that. It's really junction a function of price volatility. So the aggregate amount of these positions will come down relative to where we've been in the past. We understand what the roll off is, but if you really thought about it as only a deviation from the point at which an origination transaction has been priced, that's what's going to cause up or down the increase in the gross derivative position. So if prices were in fact stable for the next two years, that gross derivative position would come way down. But you have to expect some volatility relative to the origination point, and that's what's really driving it up and down. It's not really that much more complicated than that.

Our next question comes from David Frank with Catapult.

Question for you on your hedge slide. You show the prices and percentages of output, it looks like hedged. I was wondering, could you tell us what percent of the capacity in the PJM fossil fleet and nuclear plants are hedged in those years. Do they correspond to the output hedge?

David, this is Jack. I think with respect to the hedge statistics we provide, those are comprehensive. That includes not just the power output but all of the various ancillary and other values associated with those generation assets.

Our next question comes from Gregg Orrill with Barclays Capital.

Just wanted to come back to kind of clarify the $3 number you were talking about as a base for 11 and going forward. Is that earnings guidance for 11 and how could you maybe break that down into the categories on page 14, the segment contributions?

I think with respect to 2011, as you know it was a big step for us to provide two years of guidance, we're certainly not at a point where we're looking to provide three. 2011 is a long way from here. I think that this was an attempt for us to provide is that looking in our internal plans and giving current forward prices. Some contexts for what our earnings would be given, the current forwards on the output of our generation fleet and provide a base off which you can build your projections in 11 and beyond, so that you can use that for conducting MPV or CCF or other analysis.

That would be on an open basis or and how would that include or exclude the hedge allocation for from EDF?

That $3 figure reflects our current hedge profile on those assets that we own. With respect to the EDF hedge allocation, that $3 figure would be consistent with the adjusted EPS pre-allocation line that you see on slide 14.

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

Good morning guys. On slide 20, just going to the cash flow statement, I just want to make sure I sort of understand this. It looks to me like working capital is about $600 million of a benefit. And it looks to me that there is a derivative power sale contract classified as financing, which also comes out of the financing activity. I guess they balance each other off. If I exclude those two numbers, I'm coming up with about $89 million. How should we think about the cash flow for the quarter and the adjustments I just talked about? Would there be something else you would add to here, the defined benefit obligation, is that be something that would be seen as unusual, or how do we think about that?

Paul, what we've found with our divestitures is the accounting around this is highly technical, and reasonably Arcane. We entered into both with our sale of our international businesses with Goldman Sachs and our Houston trading operations to Macquarie. We entered effectively with Goldman a total return swap and with Macquarie what we refer to as a mirror trade book. So effectively conveying the economic exposure to the commodities positions to Macquarie in the first quarter. That resulted in some interesting outcomes that you see here on the Q1 cash flow. And you'll see in our 10-Q when we file it on Friday. The net result of these is really accounting treatment that nets to roughly offset one another. It shows up in the investing and financing activities as well as you see it here in the operating activities. We can certainly walk through that with you offline. But, I don't think we want to encumber everyone on the call with the technical accounting aspects.

Fair enough. I don't want to put everybody through that either. I guess what I'm sort of wondering is what should we think about as an operating cash flow number before working capital changes? I mean, I know that there are a lot of moving pieces here, because you've got the divestiture and stuff like that. Maybe we can do that offline if you would like, but is there a another number that you'd sort of like to give us, or should we just wait?

I think what I'd say here is in the first quarter, you see the benefits of certain actions that we took to reduce the working capital embedded in our business, whether it be through transaction restructuring or, for example, the credit sleeve agreement with Macquarie. Through that credit sleeve, we reduced working capital in our new energy gas business from roughly $700 million to $150 million. So that is perhaps skewing the working capital and operating cash flow results you see here. But I think reflective of the dramatic steps we're taking to improve the working capital and collateral efficiency underpinning our business and with respect to diving further into the cash flow statement, happy to do that with you offline.

Our next question comes from Angie Storozynski with Macquarie Capital.

The first is one about the improvement in margins in your competitive real business. I'm struggling a little bit to understand that because I understand that, you know, with fewer competitors you might have increased your margins for new business, but how about existing contracts? You know, we were seeing a lot of demand distraction. You procured power to serve these contracts in the past. So margins actually should be coming down. How can you explain this discrepancy?

Yeah, why don't I have Kathy Hyle take a moment and explain that?

Hi, Angie. So certainly for new business that we have been booking in the quarter, as we've articulated to you, have seen significant increases in our margins. We've been judicious in the type of products that we're offering, the customers that we are pursuing, and we have in fact been, you know, correctly capturing the cost of credit in our margins. So, you know, on a go-forward basis you would expect to see as I think we've kind of positioned for you a little bit smaller business from a size standpoint, but much higher margins and, you know, absolute numbers that are improving. And maybe what you're asking is, or let me ask you, are you questioning what we've actually realized in the customer supply business for the quarter where you see…?

That’s correct. Yes, the realized earnings, yes.

So, you've seen a year-over-year improvement. And obviously as you correctly point out, that's not necessarily from the new business that we've booked in the quarter. Really it's more of a timing issue year-over-year. Most of that improvement was in the wholesale part of our business. We did have a loss in the wholesale part of the business in '08. And so we don't -- we're not seeing that in '09, and that's driving some of the improvements. We've actually, interestingly on the wholesale part of the business, we are seeing lower attrition rates in the wholesale part of the business, which you know, is a positive to us. But that positive is offset by some of the demand destruction that you've mentioned that we are seeing in fact in the retail business. And order of magnitude of demand destruction is about 3%, little bit higher in some market, a little bit lower in others, but on average about 3%. Does that help?

Yeah. Thank you so much. And the second question is, you know, I understand that the derivative assets and liabilities are not really a measure of risk associated with your trading book, but having divested from those large gas trading operations, how is it possible that your book hasn't shrank? I mean, I'm sure that there were a number of assets and liabilities that were transferred to the new buyers along with the sale or with the sales of both businesses. Why aren't we seeing any impact on the derivative assets and liabilities?

Angie its Jack. While we closed on the sales of the businesses at the end of the first quarter for London and beginning of the second quarter for Houston, the actual novations of contracts have largely occurred throughout the balance of April. Therefore the impact of those novations are not included in our Q1 gross derivatives numbers. Perspectively, we would absolutely expect the divestitures of those businesses to reduce the overall gross derivative asset position just as the roll off of -- of contracts that we've seen in the first and second quarter, we would perspectively given a largely sustained current pricing environment, expect that gross derivative number to come down materially when we report in Q2.

Could you give us any percentage of the book that is being divested?

Again, I think we're spending a lot of time, and we provided a very detailed explanation of what gross derivatives are and are not. And I think to belabor this with targets or guidance on roll-off would be to convey to you that we actually use this as a measure of risk, and we do not.

Okay. That economic value at risk is the metric that you're using as a reflection of the risk of your portfolio. And, you know, it did come down since September, but it didn't come down since you last reported in February. And why is that?

I think it largely reflects that we are at a level of economic value at risk that's consistent with our core operations. Importantly, it did come down 43% in the areas that we're exiting. While it's not a significant nominal figure, it is a large percentage, and I think more importantly the $14 million actually reflected the substantial actions that we took during the fourth quarter of 2008 to dramatically reduce risk On a going forward basis, I would say this is largely where we would expect to be. Depending on what power prices do and the input cost as well as the volatility in the market. We absolutely believe that this is durable and sustainable level of economic value at risk. If you looked at other businesses such as ours would look very much akin to the risk levels that they would have in their businesses assuming they're in the customer supply business, as well. While we would expect it to come down as we divest our upstream gas properties and we also divest other legacy positions, I think, this is a figure that our balance sheet and our liquidity more than amply can support.

Our next question comes from Michael Goldenberg with Luminous Management.

I have two questions that deal further with the derivative book. First of all, I'm trying to reconcile and I'm sure you've done this in the past. I apologize if I've forgotten how to do it. But looking at slide 28 and slide 29, the slide 29 mark-to-market derivative asset has total net of 1036 fair value, and then slide 28 has the net derivative position minus 1.237. What am I missing? Is it qualifying hedges? Is there any relation between those two numbers or are they completely unrelated?

With respect to slide 28, that has hedges in it. With respect to 29, that does not reflect hedges. With respect to 29, the significant number that you see there is the 2009 $781.3 million. As you recall we had very strong GAAP earnings and operating earnings in 2008 during the second quarter that were non-cash. That figure reflects the cash associated or the value associated with those gains and the realization of that in 2009.

How do I reconcile the minus 1.2 to the plus 0.1? Is the difference a little over $2 billion in qualifying hedges against you?

I think it's important. These are derivatives that offset our power plants and other contractual rights. So I think it's really reflective of anything, if you go to slide 21, we show the hedged EBITDA from the generation fleet would be where you see that.

Wait, hold on. But once again, going back to the minus 1.2 and the positive 1, is there any relation between those numbers? Is there anywhere to reconcile, because I see the word derivative on slide 28. The word derivative on slide 29 both seem to say net. The numbers are totally different. I'm trying to understand if they're talking about the same thing, and there's $2 billion of some number that I'm missing, or if they're talking about completely different things?

On 28, it's cash flow hedges we've incurred losses on, and 29, it's part of the FR-61 disclosure where we show in our mark-to-market derivative assets the realization pattern of the value we'd expect to realize.

Okay. I guess I'll just take it offline to, maybe how to reconcile them totally.

Michael, with respect to that I would just say we have underlying gains in our accrual positions. You have offsetting losses in derivative assets. We can absolutely take it offline, but its accounting.

Appreciate it. The other question has to deal with var. I guess over the last six to eight months, there's been a fair amount of articles published as to sale of var to captured sales and things like that, and especially like in very volatile environments how var doesn't always do the job because it's a complete lapse of details and pretend that they don't even exist. Besides var, what other metric do you not -- forget investors, what do you look at besides var to try to capture details and see what may happen in sales in an extreme scenario?

I think what we might do is ask Brenda Boultwood, our Chief Risk Officer, to address that.

We realize the limitation of var. We recognize it, though, as a fair measure, consistent measure of, potential daily changes in earnings for the company. However, internally, we supplement var with a broad array of other risk metrics. Most significantly stress testing, which we believe really captures better these tail events that you speak of. Also internally when we speak of var, we speak of, you know, for sigma-level var may give recognizing really the volatility of commodity prices. So in addition to var in stress testing we have a full set of physician limits, as well as stop loss limits that are very relevant, you know, should large price changes occur in the portfolio.

Got you. So neither net book nor gross book is something that you look at or consider in detail? So, it's more like derivative of what would happen numbers, not what are my current balance sheet numbers?

That's correct.

Thank you. Our next question comes from Ameet Thakkar with Deutsche Bank.

Good morning. I don't want to belabor the point and I haven’t had a chance to kind of fully go through I guess the derivatives and risk management, kind of presentation you guys have on website. I guess just trying to understand, certainly understand that the gross derivatives and assets and liabilities don't necessarily reflect the potential impact on your P&L. I guess, It seems to me that a lot of the slide kind of use a case where you're transacting with the same counterparty and to the extent that you guys are transacting through exchanges such as ICE or in the OTC market, do you necessarily have that ability to kind of pick and choose the same counterparty? In transact with a different counterpart, your net position might be offset, but from a collateral standpoint, you could trust the balance sheet.

Ameet, again with respect to actively selecting counterparties we trade with, we're absolutely doing that. That’s part of the improvements that we've seen in our collateral posting. We've become much more active managers of our relative net exposure to various counterparties in managing that. Obviously in the gross derivative case, even if you have two offsetting positions with a counterparty such as Goldman or Morgan Stanley, they show us both as an asset and liability in a gross basis. But I would say the working capital improvement that you've seen thus far is absolutely the reflection of our more actively managing counterparty selection.

If I could just ask one quick follow-up question on the customer supply on slide 26. On the retail margin for power, I think it's kind of consistent with what you guys had indicated during our last call that you held. And I think you guys mentioned that you're pricing credits into your transactions now and that helps explain some of the I guess margin expansion relative to historical levels. Now is this a case where you are necessarily targeting suboptimal credits and charging them more? And kind of your I guess the make-up of your book from a credit standpoint is changing or you've just kind of redone how you price these deals?

It's Brenda Boultwood again. I would say if anything our credit quality on selection on new transactions has improved, we are selecting higher credit quality counterparties to transact with. But when we talk about pricing credit, we're talking really about two things. One is the underlying creditworthiness of the counterparty customer and just ensuring that we're receiving adequate returns for their credit rating as well as the term of the transactions, whether this is retail or wholesale load sales. And we're doing that we've done that very effectively.

Okay. Thank you very much.

Just a second component, I'm sorry, was contingent collateral. So we're also pricing potential collateral usage on these transactions depending on their term. So that has been another component of the pricing which we've successfully priced.

Great. Thank you, Michael and thank you all today for attending the earnings call. We'll look forward to hearing from you next quarter.

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