UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 1997
Commission file number 1-1910

BALTIMORE GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)

Maryland 52-0280210
(State of incorporation) (IRS Employer Identification No.)

39 W. Lexington Street
Baltimore, Maryland 21201
(Address of principal executive offices) (Zip Code)

410-783-5920
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)

Indicate by check mark whether the registrant (1) has 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) has been subject to such filing requirements
for the past 90 days.

Yes X No

Common Stock, without par value - 147,667,114 shares outstanding
on April 30, 1997.

BALTIMORE GAS AND ELECTRIC COMPANY
----------------------------------

PART I. FINANCIAL INFORMATION
- -----------------------------

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended March 31,
---------------------------------

1997 1996
------------ ------------

(In Thousands, Except Per-Share Amounts)
Revenues

Electric ............................................................................. $ 517,297 $ 554,444
Gas .................................................................................. 213,708 219,264
Diversified businesses ............................................................... 156,681 87,622
--------- ---------
Total revenues ....................................................................... 887,686 861,330
--------- ---------
Expenses Other Than Interest and Income Taxes
Electric fuel and purchased energy ................................................... 135,173 153,852
Gas purchased for resale ............................................................. 133,254 129,028
Operations ........................................................................... 131,874 132,168
Maintenance .......................................................................... 39,545 34,440
Diversified businesses - selling, general, and administrative ........................ 140,080 67,573
Depreciation and amortization ........................................................ 85,599 85,399
Taxes other than income taxes ........................................................ 58,245 57,555
--------- ---------
Total expenses other than interest and income taxes .................................. 723,770 660,015
--------- ---------
Income From Operations ................................................................. 163,916 201,315

Other Income
Allowance for equity funds used during construction .................................. 1,210 1,965
Equity in earnings of Safe Harbor Water Power Corporation ............................ 1,230 1,123
Net other income and deductions ...................................................... (1,477) (2,147)
--------- ---------
Total other income ................................................................... 963 941
--------- ---------
Income Before Interest and Income Taxes ................................................ 164,879 202,256
--------- ---------
Interest Expense
Interest charges ..................................................................... 56,288 52,718
Capitalized interest ................................................................. (2,284) (3,152)
Allowance for borrowed funds used during construction ................................ (654) (1,063)
--------- ---------
Net interest expense ................................................................. 53,350 48,503
--------- ---------
Income Before Income Taxes ............................................................. 111,529 153,753
--------- ---------
Income Taxes
Current .............................................................................. 44,039 46,899
Deferred ............................................................................. (2,741) 7,986
Investment tax credit adjustments .................................................... (1,880) (1,913)
--------- ---------
Total income taxes ................................................................... 39,418 52,972
--------- ---------
Net Income ............................................................................. 72,111 100,781

Preferred and Preference Stock Dividends ............................................... 7,884 9,663
--------- ---------
Earnings Applicable to Common Stock .................................................... $ 64,227 $ 91,118
========= =========
Average Shares of Common Stock Outstanding 147,667 142,527

Earnings Per Share of Common Stock $0.43 $0.62

Dividends Declared Per Share of Common Stock $0.40 $0.39

See Notes to Consolidated Financial Statements.

BALTIMORE GAS AND ELECTRIC COMPANY
----------------------------------

PART I. FINANCIAL INFORMATION (Continued)
- -----------------------------------------

CONSOLIDATED BALANCE SHEETS

March 31, December 31,
1997* 1996
----------------- -----------------

(In Thousands)
ASSETS
Current Assets

Cash and cash equivalents ........................................................ $ 69,946 $ 66,708
Accounts receivable (net of allowance for uncollectibles ......................... 419,719 419,479
of $16,254 and $18,028 respectively)
Trading securities ............................................................... 72,229 68,794
Fuel stocks ...................................................................... 49,972 87,073
Materials and supplies ........................................................... 153,645 147,729
Prepaid taxes other than income taxes ............................................ 30,062 64,763
Deferred income taxes ............................................................ -- 2,943
Other ............................................................................ 23,701 44,709
----------- -----------
Total current assets ............................................................. 819,274 902,198
----------- -----------
Investments and Other Assets
Real estate projects ............................................................. 519,688 525,765
Power generation systems ......................................................... 397,815 379,130
Financial investments ............................................................ 193,589 204,443
Nuclear decommissioning trust fund ............................................... 120,850 116,368
Net pension asset ................................................................ 86,142 84,510
Safe Harbor Water Power Corporation .............................................. 34,374 34,363
Senior living facilities ......................................................... 40,188 36,415
Other ............................................................................ 91,947 92,171
----------- -----------
Total investments and other assets ............................................... 1,484,593 1,473,165
----------- -----------
Utility Plant
Plant in service
Electric ....................................................................... 6,598,858 6,514,950
Gas ............................................................................ 798,645 776,973
Common ......................................................................... 545,019 523,485
----------- -----------
Total plant in service ......................................................... 7,942,522 7,815,408
Accumulated depreciation ......................................................... (2,653,844) (2,613,355)
----------- -----------
Net plant in service ............................................................. 5,288,678 5,202,053
Construction work in progress .................................................... 141,813 221,857
Nuclear fuel (net of amortization) ............................................... 123,521 132,937
Plant held for future use ........................................................ 25,470 25,503
----------- -----------
Net utility plant ................................................................ 5,579,482 5,582,350
----------- -----------
Deferred Charges
Regulatory assets (net) .......................................................... 488,249 512,279
Other ............................................................................ 98,331 80,978
----------- -----------
Total deferred charges ........................................................... 586,580 593,257
----------- -----------
TOTAL ASSETS ....................................................................... $ 8,469,929 $ 8,550,970
=========== ===========

* Unaudited

See Notes to Consolidated Financial Statements.

BALTIMORE GAS AND ELECTRIC COMPANY
----------------------------------

PART I. FINANCIAL INFORMATION (Continued)
- -----------------------------------------

CONSOLIDATED BALANCE SHEETS

March 31, December 31,
1997* 1996
----------------- -----------------

(In Thousands)
LIABILITIES AND CAPITALIZATION
Current Liabilities

Short-term borrowings ............................................................ $ 145,685 $ 333,185
Current portions of long-term debt and preference stock .......................... 272,954 280,772
Accounts payable ................................................................. 155,012 172,889
Customer deposits ................................................................ 28,475 27,993
Accrued taxes .................................................................... 56,570 6,473
Accrued interest ................................................................. 56,001 57,440
Dividends declared ............................................................... 66,952 66,950
Accrued vacation costs ........................................................... 36,780 34,351
Other ............................................................................ 13,851 37,046
----------- -----------
Total current liabilities ........................................................ 832,280 1,017,099
----------- -----------
Deferred Credits and Other Liabilities
Deferred income taxes ............................................................ 1,291,898 1,300,174
Postretirement and postemployment benefits ....................................... 176,852 169,253
Decommissioning of federal uranium enrichment facilities ......................... 38,600 38,599
Other ............................................................................ 63,251 65,463
----------- -----------
Total deferred credits and other liabilities ..................................... 1,570,601 1,573,489
----------- -----------
Capitalization
Long-term Debt
First refunding mortgage bonds of BGE ............................................ 1,619,357 1,619,357
Other long-term debt of BGE ...................................................... 819,000 732,000
Long-term debt of Constellation Companies ........................................ 610,113 607,727
Long-term debt of other diversified businesses ................................... 18,000 12,000
Unamortized discount and premium ................................................. (14,239) (14,543)
Current portion of long-term debt ................................................ (189,954) (197,772)
----------- -----------
Total long-term debt ............................................................. 2,862,277 2,758,769
----------- -----------
Redeemable Preference Stock ........................................................ 217,500 217,500
Current portion of redeemable preference stock ................................... (83,000) (83,000)
----------- -----------
Total redeemable preference stock ................................................ 134,500 134,500
----------- -----------
Preference Stock Not Subject to Mandatory Redemption ............................... 210,000 210,000
----------- -----------
Common Shareholders' Equity
Common stock ..................................................................... 1,429,894 1,429,942
Retained earnings ................................................................ 1,424,224 1,419,065
Net unrealized gain on available-for-sale securities ............................. 6,153 8,106
----------- -----------
Total common shareholders' equity ................................................ 2,860,271 2,857,113
----------- -----------
Total capitalization ............................................................. 6,067,048 5,960,382
----------- -----------
TOTAL LIABILITIES AND CAPITALIZATION ............................................... $ 8,469,929 $ 8,550,970
=========== ===========

* Unaudited

See Notes to Consolidated Financial Statements.

BALTIMORE GAS AND ELECTRIC COMPANY
----------------------------------

PART I. FINANCIAL INFORMATION (Continued)
- -----------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31
------------------------------
1997 1996
---------- ----------

(In Thousands)
Cash Flows From Operating Activities

Net income ............................................................................... $ 72,111 $ 100,781
Adjustments to reconcile to net cash provided by operating activities
Depreciation and amortization .......................................................... 99,460 100,141
Deferred income taxes .................................................................. (2,741) 7,986
Investment tax credit adjustments ...................................................... (1,880) (1,913)
Deferred fuel costs .................................................................... 8,374 15,009
Accrued pension and postemployment benefits ............................................ 6,190 (3,174)
Allowance for equity funds used during construction .................................... (1,210) (1,965)
Equity in earnings of affiliates and joint ventures (net) .............................. (4,001) (1,038)
Changes in current assets, other than sale of accounts receivable ...................... 83,163 19,978
Changes in current liabilities, other than short-term borrowings ....................... 11,057 17,305
Other .................................................................................. 19,436 4,272
--------- ---------
Net cash provided by operating activities ................................................ 289,959 257,382
--------- ---------
Cash Flows From Financing Activities
Net issuance (maturity) of short-term borrowings ......................................... (187,500) 5,540
Proceeds from issuance of long-term debt ................................................. 123,665 21,729
Reacquisition of long-term debt .......................................................... (28,644) (18,149)
Common stock dividends paid .............................................................. (59,067) (57,536)
Preferred and preference stock dividends paid ............................................ (7,884) (9,663)
Other .................................................................................... (348) (512)
--------- ---------
Net cash used in financing activities .................................................... (159,778) (58,591)
--------- ---------
Cash Flows From Investing Activities
Utility construction expenditures (including AFC) ........................................ (78,343) (69,655)
Allowance for equity funds used during construction ...................................... 1,210 1,965
Nuclear fuel expenditures ................................................................ (2,750) (9,153)
Deferred energy conservation expenditures ................................................ (7,273) (5,493)
Contributions to nuclear decommissioning trust fund ...................................... (4,408) (12,260)
Costs to achieve the proposed merger ..................................................... (13,488) (941)
Purchases of marketable equity securities ................................................ (6,140) (11,702)
Sales of marketable equity securities .................................................... 8,873 11,670
Other financial investments .............................................................. 10,166 5,524
Real estate projects ..................................................................... (9,552) (3,585)
Power generation systems ................................................................. (17,089) (4,871)
Other .................................................................................... (8,149) (6,843)
--------- ---------
Net cash used in investing activities .................................................... (126,943) (105,344)
--------- ---------
Net Increase in Cash and Cash Equivalents .................................................. 3,238 93,447
Cash and Cash Equivalents at Beginning of Period ........................................... 66,708 23,443
--------- ---------
Cash and Cash Equivalents at End of Period ................................................. $ 69,946 $ 116,890
========= =========
Other Cash Flow Information Cash paid (received) during the period for:
Interest (net of amounts capitalized) .................................................. $ 52,226 $ 51,754
Income taxes ........................................................................... $ (19,852) $ (9,985)

See Notes to Consolidated Financial Statements.

Certain prior period amounts have been reclassified to conform with the current
period presentation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------

Weather conditions can have a great impact on our results for interim
periods. This means that results for interim periods do not necessarily
represent results to be expected for the year.

Our interim financial statements on the previous pages reflect all
adjustments which Management believes are necessary for the fair presentation of
the financial position and results of operations for the interim periods
presented. These adjustments are of a normal recurring nature.

Statement of Financial Accounting Standards No. 128
- ---------------------------------------------------

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 regarding earnings per share
which requires us to present basic and diluted earnings per share in our
financial statements. We must adopt the requirements of this standard in our
financial statements for the year ended December 31, 1997. Adoption of this
standard is not expected to have a material impact on our financial results.

BGE Financing Activity
- ----------------------
We issued the following long-term debt during the period from January 1,
1997 through the date of this report:
Date Net
Principal Issued Proceeds
Medium-Term Notes, Series D $87,000,000 3/14/97 $86,826,000

In the future, we may purchase some of our long-term debt in the market. This
will depend on market conditions and our capital structure, including our mix of
secured and unsecured debt.

Diversified Business Financing Matters
- --------------------------------------
Please refer to Management's Discussion and Analysis-Capital Requirements of
Our Diversified Businesses on page 27 for additional information about the debt
of our diversified businesses.

Update On Pending Merger With Potomac Electric Power Company (Pepco) - One
Regulatory Approval Contains Unacceptable Conditions
- ----------------------------------------------------

Background
- ----------

As previously disclosed, in September 1995, we agreed with a neighboring
utility, Pepco, to merge together into a new company, Constellation Energy
Corporation, after all necessary regulatory approvals were received. On April
16, 1997, we received two of the necessary approvals related to the merger, but
one of the approvals contains unacceptable conditions.

Management of both companies made a preliminary estimate of the net savings
that could be achieved from combining their utility operations. The net cost
savings are estimated to be up to $1.3 billion over the 10 years following the
merger. These savings would come from:

o reduced labor costs (about two-thirds of estimated savings),
o reduced purchasing costs of items other than fuel, and
o elimination of duplication in corporate and administrative programs.

The estimated savings are net of costs to achieve the merger, currently
estimated at $150 million. BGE and Pepco had proposed that the savings be shared
between the shareholders and customers of Constellation Energy Corporation. The
sharing of these costs will depend upon results of regulatory proceedings in the
various jurisdictions in which BGE and Pepco operate utility businesses.
However, a recent order from the Maryland Public Service Commission (Maryland
PSC) allocated almost all savings to customers. The Maryland PSC order and the
status of other regulatory approvals are discussed below.

The estimate of the net cost savings from the merger was necessarily based
on various assumptions which involve judgments. The assumptions included, among
other items:

o future national and regional economic and competitive conditions,
o inflation rates,
o regulatory treatments,
o weather conditions,
o financial market conditions,
o interest rates, and
o future business decisions.

All of these items and other uncertainties are difficult to predict and many of
them are beyond our or Pepco's control. Accordingly, while we believe the
assumptions are reasonable for developing the estimate of net cost savings, we
cannot provide any assurance that the assumptions will approximate actual
results if the merger is closed or that all of the estimated savings will be
realized.

The reasons for the merger, the terms and conditions contained in the merger
agreement, the regulatory approvals required prior to closing the merger (see
important updates about the Maryland and District of Columbia PSC and FERC
approvals on the following pages), and related matters are discussed in more
detail in a Registration Statement on Form S-4 (Registration No. 33-64799). That
document is included as an exhibit to this Report on Form 10-Q by incorporation
by reference.

An Important Condition to Our Obligation to Close the Merger
- ---------------------------------------------------------------------
The merger agreement includes conditions to BGE's and Pepco's obligations
to close the merger. One condition is that no necessary regulatory approval like
the Maryland PSC order:

would have, or be reasonably likely to have, a material adverse effect on the
business, operations, properties, assets, condition (financial or otherwise),
prospects, or results of operations of Constellation Energy Corporation.

Maryland PSC Order Approving the Merger Contains Unacceptable Financial Terms
- --------------------------------------------------------------------------------
Although the Maryland PSC approved the merger, its April 16, 1997 order
imposed a number of conditions that, together, in BGE's opinion would produce an
unacceptable financial result for Constellation Energy Corporation. BGE and
Pepco had proposed a regulatory plan to the Maryland and District of Columbia
Public Service Commissions that was designed to share the merger benefits
equitably between the shareholders and customers. The Maryland PSC order
included a number of conditions that, together, deny the shareholder a
reasonable opportunity to receive savings associated with the merger. Absent a
change in the order's negative financial implications to Constellation Energy
Corporation and its shareholders, the merger could not proceed.

BGE believes the Maryland PSC order would have a material adverse effect on
Constellation Energy Corporation and thus would not satisfy the condition to
closing mentioned above. On May 2, 1997, BGE and Pepco asked the Maryland PSC to
reconsider its decision. The companies detailed areas of the order that need to
be

revised for the merger to proceed. BGE and Pepco proposed a modified plan to
address these concerns. The highlights of our original regulatory plan, the
Maryland PSC order, and our modified plan are as follows:

BGE/Pepco
Maryland PSC BGE/Pepco Application
Order Original Filing for Rehearing
----- --------------- -------------
(all dollars in millions)

Up-Front Rate $56 $0 $26
Reduction (75% of (synergy sharing (50/50 sharing)
savings) giveback at year-end)

Base Rate Freeze 3 years January 1, 2000 4 years
(from merger (approximately 2.5 (from merger
date) years) date)

Purchased Capacity None for Surcharge Surcharge for
Surcharge Panda and for all all Maryland
(Approx. $100 Ohio Edison Maryland PSC approved
million combined contracts PSC contracts
annual increase by approved (no earnings
1999 in Maryland and (subject to contracts tests)
the District of earnings (no earnings
Columbia in test) tests)
purchased capacity
costs)

Return on Equity 11.4% 13% 11.9%
Threshold for
Synergy Sharing

Costs to Achieve the 5 years for 3 years 4 years
Merger Reflected in employee (rate (rate freeze
Calculation for termination freeze period)
Synergy Sharing costs, 10 period)
Purposes years for
other costs

Accounting Treatment Same as for Same as for Write off in
for Costs to Achieve synergy synergy year merger
the Merger* sharing sharing occurs
purposes purposes

*As of March 31, 1997, BGE had incurred approximately $47 million of costs to
achieve the merger. The total costs expected to be incurred by BGE and Pepco are
estimated to be $150 million.

IBEW Appeal of Maryland PSC Order Clouds Jurisdiction for Rehearing
- -------------------------------------------------------------------
A union, The International Brotherhood of Electrical Workers (IBEW),
represents many of Pepco's employees who are paid by the hour. The IBEW had
attempted to organize BGE workers several times in the past. Their most recent
attempt ended in an election held in December 1996 where BGE workers voted 70%
against the union. The IBEW will have no standing to represent Constellation
Energy Corporation workers after the merger under Federal labor law, unless the
IBEW were to win an election at Constellation Energy Corporation.

The IBEW has intervened in many of the regulatory proceedings about the
merger, including the Maryland PSC proceeding. On May 1, 1997, the IBEW appealed
the Maryland PSC's order to the Circuit Court of Baltimore County. The union
asked the Court to reverse the PSC's approval of the merger. In past
proceedings, the Maryland PSC has taken the position that once an appeal is
filed with the Circuit Court following the Maryland PSC's issuance of an order,
the Maryland PSC loses its jurisdiction to reconsider or modify the order. BGE
believes the Maryland PSC retains jurisdiction and that the most appropriate
forum for consideration of its modified rate plan is the Maryland PSC. Also, the
Maryland PSC order contains certain mathematical errors in calculating the rate
reduction which as

a matter of law should require that the order be remanded. For these reasons,
BGE and Pepco filed with the Circuit Court on May 9, 1997 a motion to have the
order remanded to the Maryland PSC for further consideration.

Where to Find the Maryland PSC Order
- ------------------------------------
The Maryland PSC order approving the merger is available at the Maryland PSC
web site at http://www.psc.state.md.us/psc/. You may also get a copy of the
order by calling us at (410)783-5920 or by writing to Baltimore Gas and Electric
Company, Shareholder Services, P.O. Box 1642, Baltimore, Maryland 21203-1642.

District of Columbia Public Service Commission (D.C. PSC)
- ---------------------------------------------------------
Hearings at the D.C. PSC on our proposed regulatory plan and the
applicability of an antimerger law concluded during the first quarter of 1997.
At this time, we are waiting for decisions on both issues.

The D.C. Office of People's Counsel (the advocates for residential customers)
opposes the merger because they believe that BGE and Pepco have not proved that
the merger is in the public interest. However, if the merger is approved, the
D.C. People's counsel believes that the following conditions, among others,
should be imposed:

o rates should be reduced by $37.4 million,
o divestiture of all nonutility affiliate companies,
o insulation of all D.C. customers from all risks and costs associated with
our Calvert Cliffs Nuclear Power Plant,
o establishment of a 5-year $23.37 million per year economic development
program,
o 50/50 split between customers and shareholders of the costs to achieve the
merger, and
o a full divestiture of generation assets.

The General Services Administration (GSA), a major D.C. customer, believes
that approval of the merger should occur only if three conditions are met:
retail competition access for customers such as GSA is allowed, the costs
incurred to achieve the merger are amortized over 25 years, and generation at
our Calvert Cliffs facility is eliminated from the generating mix.

In addition, the D.C. People's Counsel, Washington Gas Light Company (an
intervenor in the proceeding), and the D.C. Corporation Counsel have questioned
BGE's and Pepco's interpretation that a D.C. statute known as the Antimerger Law
does not apply to the merger. If the statute is determined to apply,
authorization of the merger by Congress would be required. These parties also
suggested that BGE and Pepco should have received approval from Congress to each
own 50% of the common stock of Constellation Energy Corporation before the
merger closed.

Federal Energy Regulatory Commission (FERC)
- ------------------------------------------------
On April 16, 1997, the FERC unanimously approved the merger without any
conditions.

Environmental Matters
- ---------------------
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. Compliance is required in two
separate phases:

o Phase I became effective January 1, 1995. We met the requirements of this
phase by installing flue gas desulfurization systems (scrubbers),
switching fuels, and retiring some units.

o Phase II must be implemented by 2000. We are currently examining what
actions we should take to comply with this phase. We expect to meet the
compliance requirements through some combination of installing flue gas
desulfurization systems (scrubbers), switching fuels, retiring some units,
or allowance trading.

Title I addresses emissions of NOx, but the regulations of this title have
not been finalized by the government. As a result, our plans for complying with
this title are less certain. We expect that by 1999 the regulations will require
more NOx controls for ozone attainment at our generating plants and other
facilities. The additional controls will result in more expenditures, but it is
difficult to estimate the level of those expenditures since the regulations have
not been finalized. However, based on existing and proposed regulations, we
currently estimate that the additional controls at our generating plants will
cost approximately $90 million. We cannot estimate the cost of additional
controls at our other facilities.

We have been notified by the Environmental Protection Agency and several
state agencies that we are considered a potentially responsible party (PRP) with
respect to the cleanup of certain environmentally contaminated sites. Those
sites are owned and operated by others. We cannot estimate the cleanup costs for
these sites. However, we can estimate that our 15.79% share of the possible
cleanup costs at one of these sites, Metal Bank of America (a metal reclaimer in
Philadelphia) could be approximately $7 million higher than amounts we have
recorded. This estimate is based on the highest estimate of costs in the range
of reasonably possible alternatives. The cleanup costs for some of the remaining
sites could be significant, but we do not expect them to have a material effect
on our financial position or results of operations.

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 Maryland Department of the Environment that requires us to
implement remedial action plans for contamination at and around the Spring
Gardens site. The specific remedial actions for this site will be developed in
the future. Based on several remedial action options for all sites, the costs we
consider to be probable to remedy the contamination are estimated to total $50
million in nominal dollars (including inflation). We have recorded these costs
as a liability on our Consolidated Balance Sheet and have deferred these costs,
net of accumulated amortization, as a regulatory asset (we discuss this further
in Note 5 of our 1996 Annual Report on Form 10-K). We are also required by
accounting rules to disclose additional costs we consider to be less likely than
probable costs, 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 $48 million in nominal dollars ($11 million in current dollars,
plus the impact of inflation at 3.1% over a period of up to 60 years).

Nuclear Insurance
- -----------------
If there was an accident or an extended outage at either unit of the Calvert
Cliffs Nuclear Power Plant, it could have a substantial adverse effect on BGE.
The primary contingencies that would result from an incident at the Calvert
Cliffs plant would involve:

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

We have various insurance policies for these contingencies. However, the
costs that could result from a major accident or an extended outage at either of
the Calvert Cliffs units could exceed the insurance coverage limits.

In addition, we could be assessed for a portion of any third party claims
associated with an incident at any commercial nuclear power plant in the
country. Under the provisions of the Price Anderson Act, the limit for third
party claims from a nuclear incident is $8.92 billion. 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 $159 million per incident. That
amount would be payable at a rate of $20 million per year.

As an operator of a commercial nuclear power plant in the United States, we
are required to purchase insurance to cover claims of certain nuclear workers.
We have primary coverage of up to $400 million for claims against us, or against
other operators who are insured by these policies, for radiation injuries. If
certain claims were made under these policies, we could be assessed along with
the other policyholders. Our share could be up to $6.02 million in any one year.
In addition, if these claims exceed the $400 million limit of the primary
coverage, the provisions of the Price Anderson Act (discussed above) would
apply.

For physical damage to Calvert Cliffs, we have $2.75 billion of property
insurance from industry mutual insurance companies. If an outage at Calvert
Cliffs is caused by an insured physical damage loss and lasts more than 21
weeks, we have up to $473.2 million per unit of insurance, provided by an
industry mutual insurance company, for replacement power costs. This amount can
be reduced by up to $94.6 million per unit if an outage to both units at Calvert
Cliffs is caused by a singular insured physical damage loss. If accidents at any
insured plants cause a shortfall of funds at the industry mutuals, we could be
assessed along with other policyholders. Our share could be up to $35.1 million.

Recoverability of Electric Fuel Costs
- -------------------------------------
By statute, we are allowed to recover our cost of electric fuel as long as
the Maryland PSC finds that, among other things, we have kept the productive
capacity of our generating plants at a reasonable level. To do this, the
Maryland PSC will perform an evaluation of each outage (other than regular
maintenance outages) at our generating plants. The evaluation will determine if
we used all reasonable and cost-effective maintenance and operating control
procedures to try to prevent the outage.

Effective January 1, 1987, the Maryland PSC established a Generating Unit
Performance Program to measure, annually, whether we, and other utilities, have
maintained the productive capacity of our generating plants at reasonable
levels. To do this, the program uses a system-wide generating performance target
or an individual performance target for each base load generating unit. In fuel
rate hearings, actual generating performance will be compared first to the
system-wide target. If that target is met, it should mean that the requirements
of Maryland law have been met. If the system-wide target is not met, each unit's
adjusted actual generating performance will be compared to its individual
performance target to determine if the requirements of Maryland law have been
met and determine the basis for possibly imposing a penalty on BGE. Even if we
meet these targets, other parties to fuel rate hearings may still question
whether we used all reasonable and cost-effective procedures to try to prevent
an outage. If successful, the Maryland PSC may not allow us to recover the cost
of replacement energy.

The two units at our Calvert Cliffs Nuclear Power Plant (Calvert Cliffs) use
the cheapest fuel. As a result, the costs of replacement energy associated with
outages at these units can be significant. We cannot estimate the amount of
replacement energy costs that could be challenged or disallowed in future fuel
rate proceedings, but such amounts could be material. We discuss significant
disallowances in prior years related to an extended outage at Calvert Cliffs in
our 1996 Annual Report on Form 10-K.

California Power Purchase Agreements
- ------------------------------------
The Constellation Companies have ownership interests in 16 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:

o a fixed rate for capacity and energy the first 10 years of the agreements,
and
o 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.

From 1996 through 2000, the 10-year periods for fixed energy rates expire for
these 16 power generation projects and they begin supplying electricity at
variable rates. When this happens, the revenues at these projects are expected
to be lower than they are now. It is difficult to estimate how much lower the
revenues may be, but the Constellation Companies' earnings could be affected
significantly.

Eight projects begin supplying electricity at variable rates in 1997 and
1998. This means the Constellation Companies could experience lower earnings
from those projects. However, the remaining projects, which will continue to
supply electricity at fixed rates, are expected to have higher revenues in 1997
and 1998. These higher revenues may offset the lower revenues from the
variable-rate projects during those years.

The California projects that make the highest revenues will begin supplying
electricity at variable rates in 1999 and 2000. As a result, we do not expect
the Constellation Companies to have significantly lower earnings due to the
switch from fixed to variable rates before 2000.

The Constellation Companies are pursuing alternatives for some of these power
generation projects including:

o repowering the projects to reduce operating costs,
o changing fuels to reduce operating costs,
o renegotiating the power purchase agreements to improve the terms,
o restructuring financings to improve the financing terms, and
o selling its ownership interests in the projects.

We cannot predict the financial effects of the switch from fixed to variable
rates on the Constellation Companies or on BGE, but the effects could be
material.

Constellation Real Estate
- -------------------------
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 investments. We believe that until the economy shows sustained growth and
there is more demand for new development, our real estate values will not
improve much. If we were to sell our real estate projects in the current market,
we would have losses, although the amount of the losses is hard to predict.
Management's current real estate strategy is to hold each real estate project
until we can realize a reasonable value for it. Management evaluates strategies
for all its businesses, including real estate, on an ongoing basis. We
anticipate that competing demands for our financial resources, changes in the
utility industry, and the proposed merger with Potomac Electric Power Company,
will cause us to evaluate thoroughly all diversified business strategies on a
regular basis so we use capital and other resources in a manner that is most
beneficial. Depending on market conditions in the future, we could also have
losses on any future sales.

It may be helpful for you to understand when we are required, by accounting
rules, to write down the value of a real estate investment to market value. A
write-down is required 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.

In mid-March we received an unsolicited offer to buy Church Street Station,
which is an entertainment, dining, and retail complex in Orlando, Florida.
Because of the unique character of Church Street Station and the geographic
distance of this project from our other real estate holdings in the
Baltimore-Washington corridor, we decided that considering a sale was the
appropriate strategy. Based on the accounting rules mentioned above, our
decision was a change of intent which required us to write down our investment
to the market value. In the first quarter of 1997, the Constellation Companies
recorded a $12 million after-tax write-down of the investment in the project.
Determining the market value for such a unique project is difficult, but the
unsolicited offer is the best indication available to us and we used it to
determine the amount of the write-down. Subsequently, other parties have
expressed interest in the project and negotiations are ongoing.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- ---------------------------------------------------------------------------
OPERATIONS
- ----------

Introduction
- ------------
In Management's Discussion and Analysis we explain the general financial
condition and the results of operations for BGE and its diversified business
subsidiaries including:

o what factors affect our business,
o what our earnings and costs were in the periods presented,
o why those earnings and costs were different between periods,
o where our earnings came from,
o how all of this affects our overall financial condition,
o what our actual expenditures for capital projects were in the current
period and what we expect them to be in the future, and
o where cash will come from to pay for future capital expenditures.

As you read Management's Discussion and Analysis, it may be helpful to refer
to our Consolidated Statements of Income on page 2, which present the results of
our operations for the three months ended March 31, 1997 and 1996. In
Management's Discussion and Analysis, we analyze and explain the differences
between periods in the specific line items of the Consolidated Statements of
Income. Our analysis may be important to you in making decisions about your
investments in BGE.

BGE and Potomac Electric Power Company have agreed to merge into a new
company named Constellation Energy Corporation. We plan to complete the merger
as soon as we obtain all regulatory approvals, assuming any conditions to the
approvals are acceptable. We discuss these matters in more detail in the Notes
to Consolidated Financial Statements on page 6 and in a Registration Statement
on Form S-4 (Registration No. 33-64799). The merger may impact many of the
matters discussed in Management's Discussion and Analysis including earnings,
results of electric operations, expenses, liquidity, and capital resources.

The electric utility industry is undergoing rapid and substantial change.
Competition is increasing. The regulatory environment (federal and state) is
shifting. These matters are discussed briefly in the "Competition and Response
to Regulatory Change" section on page 16 in Management's Discussion and
Analysis. They are discussed in detail in our 1996 Annual Report on Form 10-K.
We continuously evaluate these changes. Based on the evaluations, we refine
short and long term business plans with the primary goal of protecting our
security holders' investments and providing them with superior returns on their
investment in BGE.

In order to support this primary goal, we also focus on other groups who
impact our primary goal. For example, we stress providing low cost, reliable
power to our electric customers. As you read Management's Discussion and
Analysis, many of our initiatives to support our primary goal are mentioned.
These include the proposed merger with Potomac Electric Power Company, designed
to position us to remain competitive as the industry changes (assuming it is
possible to obtain reasonable regulatory approvals), and our diversification
effort. We enter new businesses which we believe will support our primary goal.
For example, new businesses may be opportunities to:

o provide customers of our core energy business additional services, or
o attract new customers for our core energy business, or
o expand our diversified stream of revenues.

We believe our newest subsidiary, Constellation Power Source, Inc., will
satisfy all three criteria. Its proposed power marketing business is described
in detail under Diversified Businesses on page 25.

Results of Operations for the Quarter Ended March 31, 1997 Compared With the
- -----------------------------------------------------------------------------
Corresponding Period of 1996
- ----------------------------
In this section, we discuss our earnings and the factors affecting them. We
begin with a general overview, then separately discuss earnings for the utility
business and for diversified businesses.

Overview
- --------

Total Earnings per Share of Common Stock
- ----------------------------------------
Quarter Ended
March 31
--------

1997 1996
---- ----

Utility business $ .39 $ .58
Diversified businesses .04 .04
--- ---

Total earnings per share $ .43 $ .62
===== =====

Our total earnings decreased $26.9 million, or $.19 per share, from 1996. Our
total earnings decreased because we had lower utility earnings.

In 1997, we had lower utility earnings due mostly to two factors: we sold
less electricity and gas due to milder winter weather (people use less gas and
electricity to heat their homes in milder weather) and we had higher maintenance
expenses. We discuss our utility earnings in more detail beginning on page 16.

In 1997, our earnings from our diversified business subsidiaries were about
the same as they were for the same period in 1996. In 1997, the Constellation
Companies had higher earnings from power generation projects and financial
investments. However, earnings from real estate projects were lower mostly
because of a $12 million after-tax write-down of an investment in one project.
We discuss this write-down and our diversified business earnings in more detail
beginning on page 21.

Utility Business
- ----------------
Before we go into the details of our electric and gas operations, we believe
it is important to discuss four factors that have a strong influence on our
utility business performance: regulation, the weather, other factors including
the condition of the economy in our service territory, and competition.

Regulation by the Maryland Public Service Commission
- ----------------------------------------------------
The Maryland Public Service Commission (Maryland PSC) determines the rates
we can charge our customers. Our rates consist of a "base rate" and a "fuel
rate". The base rate is the rate the Maryland PSC allows us to charge our
customers for the cost of providing them service, plus a profit. We have both an
electric base rate and a gas base rate. Higher electric base rates apply during
the summer when the demand for electricity is the greatest. Gas base rates are
not affected by seasonal changes.

The Maryland PSC allows us to include in base rates a component to recover
money spent on conservation programs. This component is called an "energy
conservation surcharge." However, under this surcharge the Maryland PSC limits
what our profit can be. If, at the end of the year, we have exceeded our allowed
profit, we lower the amount of future surcharges to our customers to correct the
amount of overage, plus interest.

In addition, we charge our electric customers separately for the fuel
(nuclear fuel, coal, gas, or oil) we use to generate electricity. The actual
cost of the fuel is passed on to the customer with no profit. We also charge our
gas customers separately for the natural gas they consume. 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 on page 19.

From time to time, when necessary to cover increased costs, we ask the
Maryland PSC for base rate increases. Not every request for base rate increases
is granted in full. However, the Maryland PSC has historically allowed BGE to
increase base rates to recover costs for replacing utility plant assets, 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.

Weather
- -------
Weather affects the demand for electricity and gas, especially among our
residential customers. Very hot summers and very cold winters increase demand.
Milder weather reduces demand.

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. Cooling degree days result when the daily actual
temperature exceeds the 65 degree baseline. Heating degree days result when the
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.

The following chart shows the number of cooling degree-days in 1997 and 1996,
and shows the percentage change in the number of degree days from the prior
period. Since the quarter ended March 31 is in the heating season, there are no
cooling degree days for the period.
Quarter Ended
March 31
--------

1997 1996
---- ----

Heating degree days 2,252 2,625
Percent change compared to prior period (14.2)%

Other Factors
- -------------
Other factors, aside from weather, impact the demand for electricity and gas.
These factors include the "number of customers" and "usage per customer" during
a given period.

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.

Usage per customer refers to all other items impacting customer sales which
cannot be separately measured. 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.

We use these terms later in our discussions of electric and gas operations.
In those sections, we discuss how these and other factors affected electric and
gas sales during the periods presented.

Competition and Response to Regulatory Change
- ---------------------------------------------
Our business is also affected by competition. Electric utilities are facing
competition on three fronts:

o in the construction of generating units to meet increased demand for
electricity,
o in the sale of their electricity in the bulk power markets, and
o in the future, for electric sales to retail customers which utilities now
serve exclusively.

We regularly reevaluate our strategies with two goals in mind: to improve our
competitive position, and to anticipate and adapt to regulatory changes. In
September 1995, we decided that a merger with Potomac Electric Power Company
would help us compete by maintaining low-cost production and increasing our
size. The pending merger is more thoroughly discussed in the Notes to
Consolidated Financial Statements on page 6. Although we believe the merger will
improve our competitive position in the future, no one can predict the ultimate
effect competition or regulatory change will have on our earnings or on the
earnings of the merged company.

We will continue to develop strategies to keep us competitive. These
strategies might include one or more of the following:

o the complete or partial separation of our generation, transmission, and
distribution functions
o other internal restructuring
o mergers or acquisitions of utility or non-utility businesses
o addition or disposition of portions of our service territories
o spin-off or distribution of one or more businesses

We cannot predict whether any transactions of the types described above may
actually occur, nor can we predict what their effect on our financial condition
or competitive position might be.

We discuss competition in our electric and gas businesses in more detail in
our 1996 Annual Report on Form 10-K under the headings "Electric Regulatory
Matters and Competition" and "Gas
Regulatory Matters and Competition."

Utility Business Earnings per Share of Common Stock
- ---------------------------------------------------
Quarter Ended
March 31
--------
1997 1996
---- ----

Electric business $ .27 $ .42
Gas business .12 .16
--- ---

Total earnings per share $ .39 $ .58
===== =====

Our utility earnings decreased $27.0 million, or $.19 per share, from 1996.
We discuss the factors affecting utility earnings below.

Electric Operations
- -------------------

Electric Revenues
- -----------------
The changes in electric revenues in 1997 compared to 1996 were caused by:

Quarter Ended
March 31
1997 vs. 1996
-------------
(In millions)

Electric system sales volumes $(24.0)
Base rates 6.3
Fuel rates (6.2)
----
Total change in electric revenues
from electric system sales (23.9)
Interchange and other sales (13.0)
Other (0.2)
----
Total change in electric revenues $(37.1)
======

Electric System Sales Volumes
- -----------------------------
"Electric system sales" 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 1997 compared to 1996 were:
Quarter Ended
March 31
1997 vs. 1996
-------------
Residential (12.6)%
Commercial (2.3)
Industrial (1.7)

In 1997, we sold less electricity to residential and industrial customers
mostly for two reasons: milder winter weather and lower electricity usage per
customer. We sold less electricity to commercial customers mostly due to milder
winter weather. We would have sold even less electricity to commercial customers
except usage per customer increased.

Base Rates
- ----------
In 1997, base rate revenues were higher than they were in 1996. Although we
sold less electricity this year, our base rate revenues increased because of a
higher energy conservation surcharge.

Fuel Rates
- ----------
The fuel rate is the rate the Maryland PSC allows us to charge our customers
for our actual cost of fuel with no profit to us. If the cost of fuel goes up,
the Maryland PSC permits us to increase the fuel rate. If the cost of fuel goes
down, our customers benefit from a reduction in the fuel rate. The fuel rate is
impacted most by the amount of electricity generated at the Calvert Cliffs
Nuclear Power Plant because the cost of nuclear fuel is cheaper than coal, gas,
or oil.

Changes in the fuel rate normally do not affect earnings. However, if the
Maryland PSC disallows recovery of any part of the fuel costs, our earnings are
reduced. (We discuss this more thoroughly in the "Electric Fuel and Purchased
Energy Expenses" section below and in the Notes to Consolidated Financial
Statements on page 11.)

In 1997, fuel rate revenues decreased because we sold less electricity.

Interchange and Other Sales
- ---------------------------
"Interchange and other sales" are sales of energy in the Pennsylvania-New
Jersey-Maryland Interconnection (PJM) and to others. The PJM is a regional power
pool of eight utility member companies, including BGE. We sell energy to PJM
members and to others after we have satisfied the demand for electricity in our
own system.

In 1997, we had lower interchange and other sales mostly because of lower
sales volumes due to reduced demand and a lower price per megawatt of
electricity sold due to market conditions.

Electric Fuel and Purchased Energy Expenses
- -------------------------------------------
Quarter Ended
March 31
--------
1997 1996
---- ----
(In millions)

Actual costs $130.1 $147.5
Net recovery of costs under
electric fuel rate clause
(see Note 1 of the Form 10-K) 5.1 6.4
--- ---
Total electric fuel and
purchased energy expenses $135.2 $153.9
====== ======

Actual Costs
- ------------
In 1997, our actual cost of fuel to generate electricity (nuclear fuel, coal,
gas, or oil) and electricity we bought from other utilities was lower than in
1996 for two reasons: the price of electricity and capacity we bought from other
utilities was lower and we generated and purchased less electricity due to
reduced demand. The price we pay for electricity and capacity we buy from other
utilities changes based on market conditions, complex pricing formulas for PJM
transactions, and contract terms.

Electric Fuel Rate Clause
- -------------------------
The "electric fuel rate clause" (determined by the Maryland PSC) requires
that we defer (to include as an asset or liability on the balance sheet and
exclude from income and expense) the difference between our actual costs of fuel
and our fuel rate revenues collected from customers through the fuel rate. We
bill or refund that difference to customers in the future.

In 1997, our actual fuel costs were lower than the fuel rate revenues we
collected from our customers. As a result, we recovered fuel costs which we had
deferred in prior years.

Gas Operations
- --------------

Gas Revenues
- ------------
The changes in gas revenues in 1997 compared to 1996 were caused by:

Quarter Ended
March 31
1997 vs. 1996
-------------
(In millions)

Gas system sales volumes $ (8.7)
Base rates (2.0)
Gas cost adjustments (2.5)
----
Total change in gas revenues
from gas system sales (13.2)
Off-system sales 7.6
Other 0.0
---
Total change in gas revenues $ (5.6)
======

Gas System Sales Volumes
- ------------------------
The percentage changes in our gas system sales volumes, by type of
customer, in 1997 compared to 1996 were:
Quarter Ended
March 31
1997 vs. 1996
-------------
Residential (16.1)%
Commercial 0.4
Industrial 12.7

In 1997, we sold less gas to residential customers due mostly to milder
winter weather and a decrease in usage per customer. We would have sold even
less gas to residential customers except that the number of customers increased.
We sold about the same amount of gas to commercial customers because the milder
weather lowered the amount we sold, but higher usage per customer and an
increase in the number of customers increased the amount we sold by almost the
same amount. We sold more gas to industrial customers mostly because the milder
winter weather caused fewer service interruptions and because Bethlehem Steel
used more gas. We would have sold even more gas to industrial customers except
gas usage by other industrial customers decreased.

Base Rates
- ----------
In 1997, base rate revenues decreased mostly because of a lower energy
conservation surcharge and because of lower sales volumes due to reduced demand.

Gas Cost Adjustments
- --------------------
Prior to October 1996, the Maryland PSC allowed us to recover the actual cost
of the gas sold to our customers through "gas cost adjustment clauses" that
require us to defer the difference between our actual cost of gas and the gas
revenues we collect from customers. We bill or refund that difference to
customers in the future.

Effective October 1996, the Maryland PSC approved a modification of the gas
cost adjustment clauses to provide a "Market Based Rates" incentive mechanism.
In general terms, 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), and half of the difference belongs to shareholders.

Delivery service customers, including Bethlehem Steel, are not subject to the
gas cost adjustment clauses because we are not selling them gas (we are selling
them the service of delivering their gas).

In 1997, gas adjustment revenues decreased mostly because we sold less gas.

Off-System Sales
- ----------------
Off-system gas sales, which are direct sales to suppliers and end users of
natural gas outside our service territory, also are not subject to gas cost
adjustments. The Maryland PSC approved an arrangement for part of the earnings
from off-system sales to benefit customers (through reduced costs) and the
remainder to be retained by BGE (which benefits shareholders).

In 1997, off-system gas sales increased because we first began off-system
sales of gas in February of 1996.

Gas Purchased For Resale Expenses
- ---------------------------------
Three Months Ended
March 31
--------
1997 1996
---- ----
(In millions)

Actual costs $134.9 $126.9
Net recovery (deferral) of costs
under gas adjustment clauses
(see Note 1 of the Form 10-K) (1.6) 2.1
---- ---
Total gas purchased for
resale expenses $133.3 $129.0
====== ======

Actual Costs
- ------------
Actual costs include the cost of gas purchased for resale to our customers
and for sale off-system. These costs do not include the cost of gas purchased by
delivery service customers, including Bethlehem Steel.

In 1997, actual gas costs increased mostly because we purchased more gas to
resell off-system.

Gas Adjustment Clauses
- ----------------------
We charge customers for the cost of gas sold through gas adjustment clauses
(determined by the Maryland PSC), as discussed under "Gas Cost Adjustments"
earlier in this section.

In 1997, the portion of our actual gas costs subject to these clauses was
higher than the revenues we collected from our customers. As a result, we
deferred the difference and will collect the costs from our customers in the
future.

Other Operating Expenses
- ------------------------

Maintenance Expenses
- --------------------
In 1997, our maintenance expenses increased $5.1 million mostly due to the
timing of payments for costs associated with a regular maintenance outage at our
Calvert Cliffs Nuclear Power Plant.

Other Income and Expenses
- -------------------------

Interest Charges
- ----------------
Interest charges represent the interest we paid on outstanding debt. In 1997,
we had $3.6 million of higher interest charges because we had more debt
outstanding and interest rates were higher.

Income Taxes
- ------------
In 1997, our income taxes decreased $13.6 million because we had lower
taxable income from utility operations.

Environmental Matters
- ---------------------
We are subject to increasingly stringent federal, state, and local laws and
regulations that work to improve or maintain the quality of the environment. If
certain substances were disposed of or released at any of our properties,
whether currently operating or not, these laws and regulations require us to
remove or remedy the effect on the environment. This includes Environmental
Protection Agency Superfund sites. You will find details of our environmental
matters in the Notes to Consolidated Financial Statements on page 9 and in our
1996 Annual Report on Form 10-K under Item 1. Business - Environmental Matters.
These details include financial information. Some of the information is about
costs that may be material.

Diversified Businesses
- ----------------------
In the 1980's, we began to diversify our business in response to limited
growth in gas and electric sales. Today, we continue to diversify our business
in response to regulatory changes in the utility industry. Some of our
diversified businesses are related to our core utility business and others are
not. Our diversified businesses are in three groups:

o Constellation Holdings, Inc. and Subsidiaries, together known as the
Constellation Companies,
o BGE Corp. and Subsidiaries, and
o BGE Home Products & Services, Inc. and Subsidiary.

Diversified Business Earnings per Share of Common Stock
- -------------------------------------------------------
Quarter Ended
March 31
--------
1997 1996
---- ----

Constellation Companies $ .04 $ .04
BGE Corp. .00 .00
BGE Home Products & Services .00 .00
--- ---
Total diversified business
earnings per share $ .04 $ .04
===== =====

Our diversified business earnings were about the same as they were in 1996.
These earnings came from the Constellation Companies. We discuss factors
affecting the earnings of our diversified businesses below.

The Constellation Companies - Power Generation, Financial Investments, and
- --------------------------------------------------------------------------
Real Estate
- -----------

The Constellation Companies engage in the following:

o development, ownership, and operation of power generation projects, and
o financial investments, and
o development, ownership, and management of real estate and senior-living
facilities.

Earnings per share from the Constellation Companies were:

Quarter Ended
March 31
--------
1997 1996
---- ----

Power generation systems $ .07 $ .04
Financial investments .04 .01
Real estate development and
senior-living facilities (.07) (.01)
Other .00 .00
--- ---
Total Constellation Companies'
earnings per share $ .04 $ .04
===== =====

Power Generation
- ----------------
The Constellation Companies' power generation business develops, owns, and
operates power generation facilities.

In 1997, earnings increased from 1996 mostly due to our share of higher
earnings from energy projects. Energy projects had higher earnings mostly
because operating performance improved.

California Power Purchase Agreements
- ------------------------------------
The Constellation Companies have $226 million invested in 16 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:

The Constellation Companies are pursuing alternatives for some of these power
generation projects including:

We cannot predict the financial effects of the switch from fixed to variable
rates on the Constellation Companies or on BGE, but the effects could be
material.

International
- -------------
Historically, the Constellation Companies' power generation projects have
been in the United States. Over the last two years, however, the Constellation
Companies have sought projects in Latin America. As of March 31, 1997, the
Constellation Companies had invested about $17.4 million and committed another
$6.3 million in power projects in Latin America. In the future, the
Constellation Companies' power generation business may be expanding further in
both domestic and international projects.

Financial Investments
- ---------------------
Earnings from the Constellation Companies' portfolio of financial investments
include:

o income from marketable securities,
o income from financial limited partnerships, and
o income from financial guaranty insurance companies.

In 1997, earnings were higher than in 1996 because of better earnings from
marketable securities and increased gains from financial limited partnerships.

Real Estate Development and Senior-Living Facilities
- ----------------------------------------------------
The Constellation Companies' real estate development business
includes:

o land under development,
o office buildings,
o retail projects,
o distribution facility projects,
o an entertainment, dining, and retail complex in Orlando, Florida,
o a mixed-use planned-unit development, and
o senior-living facilities.

Most of these projects are in the Baltimore-Washington corridor. The area has
had a surplus of available land and office space in recent years, during a time
of low economic growth and corporate downsizings. Our

projects have been economically hurt by these conditions. In 1997, earnings from
real estate development and senior-living facilities were lower mostly because
of a $12 million after-tax write-down of the investment in one project
(discussed later in this section).

The Constellation Companies' real estate portfolio has continued to incur
carrying costs and depreciation over the years. Additionally, the Constellation
Companies have 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 operations has not been enough to make the monthly
loan payments on some of these projects. Cash shortfalls have been covered by
cash from Constellation Holdings. Constellation Holdings obtained those funds
from the cash flow from other Constellation Companies and through additional
borrowing.

We will consider market demand, interest rates, the availability of
financing, and the strength of the economy in general when making decisions
about our real estate investments. We believe that until the economy shows
sustained growth and there is more demand for new development, our real estate
values will not improve much. If we were to sell our real estate projects in the
current market, we would have losses, although the amount of the losses is hard
to predict. Management's current real estate strategy is to hold each real
estate project until we can realize a reasonable value for it. Management
evaluates strategies for all its businesses, including real estate, on an
ongoing basis. We anticipate that competing demands for our financial resources,
changes in the utility industry, and the proposed merger with Potomac Electric
Power Company, will cause us to evaluate thoroughly all diversified business
strategies on a regular basis so we use capital and other resources in a manner
that is most beneficial. Depending on market conditions in the future, we could
also have losses on any future sales.

BGE Corp. and Subsidiaries - Our Energy Marketing Companies
- -----------------------------------------------------------
BGE Corp. is a wholly owned subsidiary of BGE and serves as the holding
company for our three energy marketing businesses:

o Constellation Power Source, Inc. - our power marketing business,
o Constellation Energy Source, Inc. (formerly named BNG, Inc.) - our natural
gas brokering business, and
o BGE Energy Projects & Services, Inc. and Subsidiaries - our energy
services business.

Earnings per share from our energy marketing subsidiaries were not
significant in 1997 or 1996. We describe each subsidiary's business in detail
below.

Constellation Power Source
- --------------------------
Constellation Power Source was formed in February 1997 for the purpose of
entering the power marketing business. This new business involves the purchase
and sale of electric power and electric power derivatives, and related
activities including:

o power brokering,
o power marketing,
o risk management activities, and
o derivative trading.

Goldman Sachs Power, LLC, an affiliate of Goldman Sachs & Co., the investment
banking firm, is the exclusive advisor to Constellation Power Source for risk
management and power marketing.

Constellation Energy Source
- ---------------------------
Constellation Energy Source (formerly named BNG, Inc.) engages in natural
gas brokering and related services for wholesale and retail customers.

BGE Energy Projects & Services, Inc.
- ------------------------------------
BGE Energy Projects & Services provides a broad range of customized energy
services, including:

o private electric and gas distribution systems,
o energy consulting,
o power quality services, and
o campus and multi-building energy systems,

BGE Energy Projects & Services also provides district energy systems through
ComfortLink (a partnership with the Poole & Kent Company).

BGE Home Products & Services, Inc. and its Subsidiary - Our Home Products and
- ------------------------------------------------------------------------------
Commercial Building Systems Businesses
- --------------------------------------

BGE Home Products & Services engages in:

o sales and service of electric and gas appliances,
o home improvements, and
o sales and service of heating and air conditioning systems.

This subsidiary had no significant earnings in 1997 or 1996.

LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

Overview
- --------
Our business requires a great deal of capital. Our actual capital
requirements for the three months ended March 31, 1997, along with estimated
annual amounts for the years 1997 through 1999, are shown below. For the twelve
months ended March 31, 1997, our ratio of earnings to fixed charges was 2.88 and
our ratio of earnings to combined fixed charges and preferred and preference
dividend requirements was 2.30.

Three Months Ended
March 31 Calendar Year Estimate
1997 1997 1998 1999
---- ---- ---- ----
(In millions)
Utility Business Capital Requirements:
- --------------------------------------
Construction expenditures (excluding AFC)
Electric $ 53 $ 230 $216 $215
Gas 16 72 70 73
Common 7 33 39 37
-- -- -- --
Total construction expenditures 76 335 325 325
AFC 2 7 7 7
Nuclear fuel (uranium purchases
and processing charges) 3 49 50 50
Deferred energy conservation expenditures 7 24 19 18
Retirement of long-term debt and
redemption of preference stock - 165 117 357
--- --- --- ---
Total utility business
capital requirements 88 580 518 757
-- --- --- ---

Diversified Business Capital Requirements:
- ------------------------------------------
Investment requirements 40 232 185 205
Retirement of long-term debt 24 130 210 122
-- --- --- ---
Total diversified business
capital requirements 64 362 395 327
-- --- --- ---

Total capital requirements $152 $942 $913 $1,084
==== ==== ==== ======

Capital Requirements of Our Utility Business
- --------------------------------------------
Capital requirements for our utility business do not include costs to
complete the pending merger with Potomac Electric Power Company. These costs,
which are expected to be $150 million, are discussed in the Notes to
Consolidated Financial Statements on page 6.

We continuously review and change our construction program, so actual
expenditures may vary from the estimates for the years 1997 through 1999 in the
capital requirements chart. Additionally, actual capital requirements may be
different than the estimates for 1997 through 1999 because adjustments which may
result from the pending merger with Potomac Electric Power Company have not been
considered in those estimates.

Electric construction expenditures include improvements to generating
plants and to our transmission and distribution facilities. Our projections of
future electric construction expenditures do not include costs to build more
generating units.

During the twelve months ended March 31, 1997, our utility operations
provided about 88% of the cash needed to meet our capital requirements,
excluding cash needed to retire debt and redeem preference stock.

During the three years from 1997 through 1999, we expect utility operations
to provide 115% of the cash needed to meet our capital requirements, excluding
cash needed to retire debt and redeem preference stock. This estimate does not
consider the pending merger with Potomac Electric Power Company.

When we cannot meet utility capital requirements internally, we sell debt
and equity securities. The amount of cash we need and market conditions
determine when and how much we sell. From January 1, 1997 through the date of
this report, we issued $87 million of long-term debt and we redeemed $2 million
of preference stock.

Security Ratings
- ----------------
Independent credit-rating agencies rate our fixed-income securities. The
ratings indicate the agencies' assessment of our ability to pay interest,
dividends, and principal on these securities. These ratings affect how much it
will cost us to sell these securities. The better the rating, the cheaper it is
for us to sell. At the date of this report, our securities ratings were as
follows:

Standard Moody's
& Poors Investors Duff & Phelps
Rating Group Service Credit Rating Co.
------------ ------- -----------------
Mortgage Bonds A+ A1 AA-
Unsecured Debt A A2 A+
Preference Stock A "a2" A

Capital Requirements of Our Diversified Businesses
- --------------------------------------------------

In the past, capital requirements of our diversified businesses only
included the Constellation Companies because they had the only significant
capital requirements. From time to time, however, our other diversified
businesses may develop significant capital requirements. As that occurs, we will
include the capital requirements of those businesses in the capital requirements
table on page 26. As discussed below under "Diversified Business Investment
Requirements," capital requirements for Constellation Power Source and
ComfortLink are also included this year.

Our diversified businesses expect to expand their businesses. This may
include expansion in the energy marketing, power generation, financial
investments, real estate, and senior-living facility businesses. Such expansion
could mean more investments in and acquisition of new projects. Our diversified
businesses have met their capital requirements in the past through borrowing,
cash from their operations, and from time to time, loans or equity contributions
from BGE. Our diversified businesses plan to raise the cash needed to meet
capital requirements in the future through these same methods.

Diversified Business Investment Requirements
- --------------------------------------------
The investment requirements of our diversified businesses include:

o the Constellation Companies' investments in financial limited partnerships
and funding for the development and acquisition of projects, as well as
loans made to project partnerships,
o ComfortLink's funding for construction of district energy projects, and
o funding for growing Constellation Power Source's power marketing business.

Investment requirements for 1997 through 1999 include estimates of funding
for ongoing and anticipated projects. We continuously review and modify those
estimates. Actual investment requirements could vary a great deal from the
estimates on page 26 due to:

o the type and number of projects selected for development,
o the effect of market conditions on those projects,
o the ability to obtain financing, and
o the availability of cash from operations.

Diversified Business Debt and Liquidity
- ---------------------------------------
Our diversified businesses plan to meet capital requirements by refinancing
debt as it comes due, by additional borrowing, and with cash generated by the
businesses. This includes cash from operations, sale of assets, and earned tax
benefits. BGE Home Products & Services may also meet capital requirements
through sales of receivables.

If the Constellation Companies can get a reasonable value for real estate,
additional cash may be obtained by selling real estate projects. The
Constellation Companies' ability to sell or liquidate assets will depend on
market conditions, and we cannot give assurances that these sales or
liquidations could be made. For more information, see the discussion of the real
estate business and market on page 23.

On May 5, 1997, the Constellation Companies issued $274 million of three
and four-year notes. The three-year notes have an interest rate of 7.50%. The
four-year notes have an interest rate of 7.66%. The notes were issued to several
institutional investors in a private placement offering. In addition, the
Constellation Companies have a $75 million revolving credit agreement and
ComfortLink has a $50 million revolving credit agreement to provide additional
cash for short-term financial needs.

Part II. OTHER INFORMATION
- ---------------------------

Item 1. Legal Proceedings
- --------------------------

Asbestos
- --------
Since 1993, we have been involved in several actions concerning asbestos. All
of the actions together are titled In re Baltimore City Personal Injuries
Asbestos Cases in the Circuit Court for Baltimore City, Maryland. 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 are 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
520 individuals that were never employees of the Company each claim $6 million
in damages ($2 million compensatory and $4 million punitive). We do not know the
specific facts necessary to estimate our potential liability for these claims.
The specific facts we do not know include:

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

The second type are claims by one manufacturer - Pittsburgh Corning Corp. -
against us and approximately eight others, as third-party defendants. These
claims relate to approximately 1,500 individual plaintiffs. We does not know the
specific facts necessary to assess our potential liability for these type
claims. The specific facts we do not know include;

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

Until the relevant facts for both type 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.

Environmental Matters
- ---------------------
Our potential environmental liabilities and pending environmental actions are
listed in Item 1. Business- Environmental Matters of our 1996 Annual Report on
Form 10-K.

In April, 1997, we received an information request from the Environmental
Protection Agency (EPA) concerning the 68th Street Dump Site, also known as the
Robb Tyler Dump, located in Baltimore, Maryland. This site is not currently
listed as a federal Superfund site, however the State of Maryland has asked the
EPA to so designate the site. We understand that the EPA has sent information
requests to approximately 30 other parties. We are currently reviewing all
relevant documents and interviewing employees involved in waste disposal for the
Company from 1950 to 1975, which is the period covered by the EPA's inquiry. Our
potential liability cannot be estimated at this time.

Part II. OTHER INFORMATION (Continued)
- ---------------------------------------

Item 5. Other Information
- -------------------------

Unaudited Pro Forma Combined Condensed Financial Information
- ------------------------------------------------------------
The following unaudited pro forma condensed financial information combines
our historical consolidated balance sheets and statements of income with those
of Potomac Electric Power Company (Pepco) and presents the effect of our
proposed merger into Constellation Energy Corporation. As previously disclosed,
we plan to complete the merger as soon as we obtain all regulatory approvals,
assuming any conditions to the approvals are acceptable.

The unaudited pro forma combined condensed balance sheet at March 31, 1997
gives effect to the Merger as if it had occurred at March 31, 1997. The
unaudited pro forma combined condensed statement of income for the three months
ended March 31, 1997, gives effect to the Merger as if it had occurred at
January 1, 1997. These statements are prepared on the basis of accounting for
the Merger as a pooling of interests and are based on the assumptions included
in the notes following the financial statements. Constellation Energy
Corporation was formed September 22, 1995 and has no assets or operations.
Therefore, Constellation Energy Corporation has no financial statements so there
has been no audit of such statements.

The following pro forma financial information was prepared using our
consolidated financial statements and related notes that are included in this
document and the consolidated financial statements and related notes that are
included in Pepco's quarterly filing under the Securities Exchange Act of 1934
(1934 Act). The pro forma information should be read in conjunction with those
consolidated financial statements. The pro forma financial information does not
necessarily indicate the financial position or operating results that would have
occurred if the Merger was consummated on the dates for which the Merger is
being given effect nor is it necessarily indicative of future financial position
or operating results.

The following unaudited pro forma combined condensed financial information of
Constellation Energy Corporation is set forth in this Form 10-Q:

Balance Sheet as of March 31, 1997
Income Statement for the Three Months Ended March 31, 1997
Notes to Consolidated Financial Statements

The following financial information of Pepco is also set forth in this Form
10-Q:

Reclassifying Balance Sheet as of March 31, 1997
Reclassifying Income Statement for the Three Months Ended March 31, 1997

Other Information
- -----------------
Both BGE and Pepco file annual and quarterly reports with the Securities and
Exchange Commission (SEC) under the 1934 Act. These are available at the SEC's
public reference rooms in Washington, D.C. and New York, New York (call
1-800-SEC-0330 for more information); and at the SEC's web site at
http://www.sec.gov. BGE's reports are also available at BGE's web site at
http://www.bge.com.

CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)

BGE PEPCO Pro Forma Pro Forma
(As Reported) (As Reclassified) Adjustments Combined
------------ ------------- ---------- --------------
ASSETS (See Note 5)

Current Assets

Cash and cash equivalents ........................... $ 69,946 $ 54,543 $ - $ 124,489
Accounts receivable - net ........................... 419,719 221,910 - 641,629
Materials and supplies .............................. 153,645 143,269 - 296,914
Prepayments and other ............................... 175,964 21,603 - 197,567
------------ ------------ ------ ------------
Total current assets ............................. 819,274 441,325 - 1,260,599
------------ ------------ ------ ------------
Investments and Other Assets
Notes receivable .................................... -- 57,226 - 57,226
Real estate projects ................................ 519,688 72,476 - 592,164
Power generation systems ............................ 397,815 847 - 398,662
Financial investments ............................... 127,511 -- - 127,511
Marketable securities ............................... 36,943 310,473 - 347,416
Investment in finance leases ........................ 29,135 493,761 - 522,896
Operating lease equipment - net ..................... -- 188,974 - 188,974
Assets held for disposal ............................ -- 5,900 - 5,900
Other investments ................................... 373,501 112,557 - 486,058
------------ ------------ ------ ------------
Total investments and other assets ............... 1,484,593 1,242,214 - 2,726,807
------------ ------------ ------ ------------
Utility Plant
Plant in service
Electric ......................................... 6,598,858 6,244,707 - 12,843,565
Gas .............................................. 798,645 -- - 798,645
Common ........................................... 545,019 -- - 545,019
------------ ------------ ------ ------------
Total plant in service ........................... 7,942,522 6,244,707 - 14,187,229
Accumulated depreciation ............................ (2,653,844) (1,919,736) - (4,573,580)
------------ ------------ ------ ------------
Net plant in service ................................ 5,288,678 4,324,971 - 9,613,649
Construction work in progress ....................... 141,813 74,292 - 216,105
Nuclear fuel - net .................................. 123,521 -- - 123,521
Other plant - net ................................... 25,470 26,273 - 51,743
------------ ------------ ------ ------------
Net utility plant ................................ 5,579,482 4,425,536 - 10,005,018
------------ ------------ ------ ------------
Deferred charges
Regulatory assets ................................... 488,249 465,953 - 954,202
Other ............................................... 98,331 181,455 - 279,786
------------ ------------ ------ ------------
Total deferred charges ........................... 586,580 647,408 - 1,233,988
------------ ------------ ------ ------------

============ ============ ====== ============
Total Assets ........................................... $ 8,469,929 $ 6,756,483 $ - $15,226,412
============ ============ ====== ============

See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements

CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)

BGE PEPCO Pro Forma Pro Forma
(As Reported) (As Reclassified) Adjustments Combined
----------- ----------- ----------- ----------
LIABILITIES AND CAPITALIZATION (See Note 5)

Current Liabilities

Short-term borrowings ......................................... $ 145,685 $ 174,540 $ - $ 320,225
Current portion of long-term debt, ............................ --
preferred stock, and preference stock ...................... 272,954 533,807 - 806,761
Accounts payable .............................................. 155,012 211,451 - 366,463
Other ......................................................... 258,629 100,711 - 359,340
----------- ----------- ------ -----------
Total current liabilities .................................. 832,280 1,020,509 - 1,852,789
----------- ----------- ------ -----------
Deferred Credits and Other Liabilities ........................... --
Deferred income taxes ......................................... 1,291,898 1,025,904 - 2,317,802
Capital lease obligations ..................................... -- 162,322 - 162,322
Pension and postemployment benefits ........................... 176,852 -- - 176,852
Other ......................................................... 101,851 45,856 - 147,707
----------- ----------- ------ -----------
Total deferred credits and other liabilities ............... 1,570,601 1,234,082 - 2,804,683
----------- ----------- ------ -----------
Capitalization
Long-term debt ................................................ 2,862,277 2,374,968 - 5,237,245
Preferred stock ............................................... -- 267,797 - 267,797
Preference stock .............................................. 344,500 -- - 344,500
Common shareholders' equity ................................... 2,860,271 1,859,127 - 4,719,398
----------- ----------- ------ -----------
Total capitalization ....................................... 6,067,048 4,501,892 - 10,568,940
----------- ----------- ------ -----------

=========== =========== ====== ===========
Total Liabilities and Capitalization ............................. $ 8,469,929 $ 6,756,483 $ - $15,226,412
=========== =========== ====== ===========

See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements

CONSTELLATION ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

BGE PEPCO Pro Forma Pro Forma
(As Reported) (As Reclassified) Adjustments Combined
------------- -------------- ------------ ------------
(See Note 5)
Revenues

Electric ................................................ $ 517,297 $ 389,060 $ - $ 906,357
Gas ..................................................... 213,708 -- - 213,708
Diversified businesses .................................. 156,681 39,807 - 196,488
---------- ---------- ------ ----------
Total revenues ....................................... 887,686 428,867 - 1,316,553
---------- ---------- ------ ----------
Operating Expenses
Electric fuel and purchased energy ...................... 135,173 165,525 - 300,698
Gas purchased for resale ................................ 133,254 -- - 133,254
Operations .............................................. 131,874 51,836 - 183,710
Maintenance ............................................. 39,545 21,173 - 60,718
Diversified businesses expenses ......................... 140,080 20,313 - 160,393
Depreciation and amortization ........................... 85,599 57,600 - 143,199
Taxes other than income taxes ........................... 58,245 45,409 - 103,654
---------- ---------- ------ ----------
Total operating expenses ............................. 723,770 361,856 - 1,085,626
---------- ---------- ------ ----------
Income From Operations ..................................... 163,916 67,011 - 230,927

Total Other Income ......................................... 963 2,032 - 2,995

---------- ---------- ------ ----------
Income Before Interest and Income Taxes .................... 164,879 69,043 - 233,922
---------- ---------- ------ ----------

Net Interest Expense ....................................... 53,350 54,062 - 107,412

---------- ---------- ------ ----------
Income Before Income Taxes ................................. 111,529 14,981 - 126,510
---------- ---------- ------ ----------

Income Taxes ............................................... 39,418 (8,001) - 31,417

---------- ---------- ------ ----------
Net Income ................................................. 72,111 22,982 - 95,093
---------- ---------- ------ ----------

Preferred and Preference Stock Dividends ................... 7,884 4,145 - 12,029

========== ========== ====== ==========
Earnings Applicable to Common Stock ........................ $ 64,227 $ 18,837 $ - $ 83,064
========== ========== ====== ==========

Average Shares of Common Stock
Outstanding (Note 2) 147,667 118,499 - 265,811

Earnings Per Share of Common Stock $0.43 $0.16 $0.31

See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements

PEPCO
RECLASSIFYING BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)

PEPCO PEPCO PEPCO
(As Reported) (Reclasses) (As Reclassified)
----------- ----------- -----------
ASSETS
Current Assets

Cash and cash equivalents ................................ $ 1,263 $ 53,280 $ 54,543
Accounts receivable - net ................................ -- 221,910 221,910
Customer accounts receivable - net ....................... 119,047 (119,047) --
Other accounts receivable - net .......................... 30,491 (30,491) --
Accrued unbilled revenue ................................. 62,976 (62,976) --
Materials and supplies ................................... -- 143,269 143,269
Fuel .................................................. 74,243 (74,243) --
Construction and maintenance .......................... 69,026 (69,026) --
Prepayments and other .................................... -- 21,603 21,603
Prepaid taxes ............................................ 18,004 (18,004) --
Other prepaid expenses ................................... 3,599 (3,599) --
----------- ----------- -----------
Total current assets .................................. 378,649 62,676 441,325
----------- ----------- -----------
Investments and Other Assets
Notes receivable ......................................... -- 57,226 57,226
Real estate projects ..................................... -- 72,476 72,476
Power generation systems ................................. -- 847 847
Marketable securities .................................... -- 310,473 310,473
Investment in finance leases ............................. -- 493,761 493,761
Operating lease equipment - net .......................... -- 188,974 188,974
Assets held for disposal ................................. -- 5,900 5,900
Other investments ........................................ -- 112,557 112,557
----------- ----------- -----------
Total investments and other assets .................... -- 1,242,214 1,242,214
----------- ----------- -----------
Utility Plant
Plant in service
Electric .............................................. 6,244,707 -- 6,244,707
Construction work in progress ......................... 74,292 (74,292) --
Electric plant held for future use .................... 4,170 (4,170) --
Nonoperating property ................................. 22,976 (22,976) --
----------- ----------- -----------
Total plant in service ................................ 6,346,145 (101,438) 6,244,707
Accumulated depreciation ................................. (1,920,609) 873 (1,919,736)
----------- ----------- -----------
Net plant in service ..................................... 4,425,536 (100,565) 4,324,971
Construction work in progress ............................ -- 74,292 74,292
Other plant - net ........................................ -- 26,273 26,273
----------- ----------- -----------
Net utility plant ..................................... 4,425,536 -- 4,425,536
----------- ----------- -----------
Deferred Charges
Regulatory assets ........................................ -- 465,953 465,953
Income taxes recoverable through future rates, net ....... 238,517 (238,517) --
Conservation costs, net .................................. 229,684 (229,684) --
Unamortized debt reacquisition costs ..................... 54,851 (54,851) --
Other .................................................... 168,268 13,187 181,455
----------- ----------- -----------
Total deferred charges ................................ 691,320 (43,912) 647,408
----------- ----------- -----------
Nonutility Subsidiary Assets
Cash and cash equivalents ................................ 53,280 (53,280) --
Marketable securities .................................... 310,473 (310,473) --
Investment in finance leases ............................. 493,761 (493,761) --
Operating lease equipment - net .......................... 188,974 (188,974) --
Assets held for disposal ................................. 5,900 (5,900) --
Receivables - net ........................................ 66,622 (66,622) --
Other investments ........................................ 185,880 (185,880) --
Other assets ............................................. 16,133 (16,133) --
----------- ----------- -----------
Total nonutility subsidiary assets .................... 1,321,023 (1,321,023) --
----------- ----------- -----------

=========== =========== ===========
Total Assets ................................................ $ 6,816,528 $ (60,045) $6,756,483
=========== =========== ===========

PEPCO
RECLASSIFYING BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)

PEPCO PEPCO PEPCO
As Reported) (Reclasses) (As Reclassified)
---------- ----------- -----------
LIABILITIES AND CAPITALIZATION
Current Liabilities

Short-term borrowings ...................................... $ 173,540 $ 1,000 $ 174,540
Current portion of long-term debt
and preferred stock ..................................... 200,985 332,822 533,807
Accounts payable and accrued expenses ...................... 143,565 67,886 211,451
Capital lease obligation due within one year ............... 20,772 (20,772) --
Other ...................................................... 79,939 20,772 100,711
---------- ---------- ----------
Total current liabilities ............................... 618,801 401,708 1,020,509
---------- ---------- ----------
Deferred Credits and Other Liabilities
Deferred income taxes ...................................... 986,453 39,451 1,025,904
Deferred investment tax credits ............................ 60,045 (60,045) --
Capital lease obligations .................................. -- 162,322 162,322
Other ...................................................... 39,398 6,458 45,856
---------- ---------- ----------
Total deferred credits and other liabilities ............ 1,085,896 148,186 1,234,082
---------- ---------- ----------
Other Noncurrent Liabilities
Capital lease obligations .................................. 162,322 (162,322) --
---------- ---------- ----------
Total other noncurrent liabilities ...................... 162,322 (162,322) --
---------- ---------- ----------
Capitalization
Long-term debt ............................................. 1,718,310 656,658 2,374,968
Preferred stock ............................................ -- 267,797 267,797
Serial preferred stock ..................................... 125,297 (125,297) --
Redeemable serial preferred stock .......................... 142,500 (142,500) --
Common shareholders' equity ................................ -- 1,859,127 1,859,127
Common stock ............................................... 118,497 (118,497) --
Other common equity ........................................ 1,740,630 (1,740,630) --
---------- ---------- ----------
Total capitalization .................................... 3,845,234 656,658 4,501,892
---------- ---------- ----------
Nonutility Subsidiary Liabilities
Long-term debt ............................................. 989,480 (989,480) --
Short-term notes payable ................................... 1,000 (1,000) --
Deferred taxes and other ................................... 113,795 (113,795) --
---------- ---------- ----------
Total nonutility subsidiary liabilities ................. 1,104,275 (1,104,275) --
---------- ---------- ----------

========== ========== ==========
Total Liabilities and Capitalization .......................... $6,816,528 $ (60,045) $6,756,483
========== ========== ==========

PEPCO
RECLASSIFYING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PEPCO PEPCO PEPCO
(As Reported) (Reclasses)(As Reclassified)
--------- --------- ---------
Revenues

Electric ..................................................... $ 389,060 $ -- 389,060
Diversified businesses ....................................... -- 39,807 39,807
--------- --------- ---------
Total revenues ............................................ 389,060 39,807 428,867
--------- --------- ---------
Operating Expenses
Electric fuel and purchased energy ........................... -- 165,525 165,525
Fuel ......................................................... 78,507 (78,507) --
Purchased energy ............................................. 51,074 (51,074) --
Capacity purchase payments ................................... 35,944 (35,944) --
Operations ................................................... 51,836 -- 51,836
Maintenance .................................................. 21,173 -- 21,173
Diversified businesses expenses .............................. -- 20,313 20,313
Depreciation and amortization ................................ 57,600 -- 57,600
Income taxes ................................................. 5,295 (5,295) --
Taxes other than income taxes ................................ 45,409 -- 45,409
--------- --------- ---------
Total operating expenses .................................. 346,838 15,018 361,856
--------- --------- ---------
Income From Operations .......................................... 42,222 24,789 67,011

Other Income
Nonutility subsidiary income ................................. 39,807 (39,807) --
Expenses, including interest and income taxes ................ (26,357) 26,357 --
--------- --------- ---------
Net earnings from nonutility subsidiary ................... 13,450 (13,450) --
Allowance for other funds used during construction
and capital cost recovery factor .......................... 1,660 -- 1,660
Other, net ................................................... 686 (314) 372
--------- --------- ---------
Total Other Income......................................... 15,796 (13,764) 2,032
--------- --------- ---------
--------- --------- ---------
Income Before Interest and Income Taxes ......................... 58,018 11,025 69,043
--------- --------- ---------
Interest Expense
Interest on debt ............................................. 34,744 -- 34,744
Other ........................................................ 2,098 -- 2,098
Subsidiary interest expense .................................. -- 19,026 19,026
Allowance for borrowed funds used during construction
and capital cost recovery factor .......................... (1,806) -- (1,806)
--------- --------- ---------
Net Interest Expense ...................................... 35,036 19,026 54,062
--------- --------- ---------
--------- --------- ---------
Income Before Income Taxes ...................................... 22,982 (8,001) 14,981
--------- --------- ---------
Income Taxes
Income taxes-utility ......................................... -- 5,295 5,295
Income taxes-nonoperating .................................... -- (314) (314)
Income taxes-subsidiary ...................................... -- (12,982) (12,982)
--------- --------- ---------
Total Income Taxes ........................................ -- (8,001) (8,001)
--------- --------- ---------
--------- --------- ---------
Net Income ...................................................... 22,982 -- 22,982
--------- --------- ---------
Preferred Dividends ............................................. 4,145 -- 4,145
========= ========= =========
Earnings Applicable to Common Stock ............................. $ 18,837 $ -- $ 18,837
========= ========= =========
Average Shares of Common Stock Outstanding 118,499 118,499

Earnings Per Share of Common Stock $0.16 $0.16

Notes to Unaudited Pro Forma Combined Condensed Financial Statements
- --------------------------------------------------------------------

1.The revenues, expenses, assets, and liabilities of Pepco's nonregulated
subsidiaries have been reclassified to conform with the presentation used by
BGE. The effect of accounting policy differences are immaterial and have not
been adjusted in the pro forma combined condensed financial statements.

2.Pro forma per common share amounts give effect to the conversion of each share
of BGE and Pepco Common Stock into 1 share and .997 share, respectively of
Constellation Energy Corporation Common Stock. The pro forma combined
condensed financial statements are presented as if the companies were combined
during all periods included therein.

3.The allocation between BGE and Pepco and their customers of the estimated cost
savings resulting from the Merger, net of the costs incurred to achieve such
savings, will be subject to regulatory review and approval. None of these
estimated cost savings, the costs to achieve such savings, or transaction
costs have been reflected in the pro forma combined condensed financial
statements.

4.Intercompany transactions between BGE and Pepco during the periods presented
were not material and, accordingly, no pro forma adjustments were made to
eliminate such transactions.

5.The Pepco reclassifying information reflects the reclassifying entries
necessary to adjust Pepco's consolidated balance sheet and statement of income
presentation to be consistent with the presentation expected to be used by
Constellation Energy Corporation.

PART II. OTHER INFORMATION (Continued)
- ---------------------------------------

Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit No. 2* Registration Statement on Form S-4
of Constellation Energy
Corporation, as amended, which
became effective February 9,
1996, Registration No. 33-64799.

Exhibit No. 12 Computation of Ratio of Earnings
to Fixed Charges and Computation
of Ratio of Earnings to Combined
Fixed Charges and Preferred and
Preference Dividend Requirements.

Exhibit No. 27 Financial Data Schedule.

*Incorporated by Reference.

(b) Reports on Form 8-K for the quarter ended March 31,
1997:

Date Filed Items Reported
---------- --------------
February 26, 1997 Item 5. Other Events
Item 7. Financial
Statements and Exhibits

March 7, 1997 Item 5. Other Events
Item 7. Financial
Statements and Exhibits

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, 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 May 14, 1997 /s/ D. A. Brune
------------ ------------------------
D. A. Brune, Vice President
on behalf of the Registrant and
as Principal Financial Officer

EXHIBIT INDEX

Exhibit
Number
------

2* Registration Statement on Form S-4 of
Constellation Energy Corporation, as
amended, which became effective
February 9, 1996, Registration No. 33-
64799.

12 Computation of Ratio of Earnings to
Fixed Charges and Computation of Ratio
of Earnings to Combined Fixed Charges
and Preferred and Preference Dividend
Requirements.

27 Financial Data Schedule.

*Incorporated by Reference.