Exhibit 8
MILLER & CHEVALIER
Chartered
655 Fifteenth Street, N.W. Suite 900
Washington, D.C. 20005-5701
(202) 626-5800 FAX:(202) 628-0858
March 3, 1999
Baltimore Gas & Electric Company
P.O. Box 1475
Baltimore, Maryland 21203-1475
Constellation Energy Group, Inc.
39 W. Lexington Street
17th Floor, G & E Building
Baltimore, Maryland 21201
Attn: David A. Brune, Vice-President
Dear Mr. Brune:
Baltimore Gas and Electric Company ("BGE") has asked for our opinion
regarding certain federal income tax consequences of a proposed share exchange
in which Constellation Energy Group, Inc. ("Constellation Energy") will acquire
all of the common stock of BGE. As explained in more detail below, we believe
that the proposed share exchange will qualify as a tax-free transaction under
the federal income tax laws, so that the participants in the exchange will not
recognize any income, gain or loss as a result of the exchange. A more specific
statement of our conclusions follows summaries of the relevant facts and the
analysis that supports our conclusions. Our conclusions are based on our review
of (i) drafts of relevant documents, including the proxy statement for BGE's
1999 annual meeting of shareholders, the Agreement and Plan of Share Exchange
between BGE and Constellation Energy, the Amended and Restated Articles of
Incorporation of Constellation Energy, and the amended By-Laws of Constellation
Energy, (ii) the representations provided in the letter to us dated this date
from David A. Brune, Vice President, Chief Financial Officer, and Secretary of
BGE, and (iii) other information that BGE has provided to us.
FACTS
THE PARTIES. BGE is engaged in the utility business. Its activities
include the generation, purchase and sale of electricity and the purchase,
transportation and sale of natural
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March 3, 1999
Page 2
gas. BGE has six classes of stock outstanding: common stock and five classes of
preference shares. The common shares are widely-held and are traded on the New
York Stock Exchange. The preference shares, although issued in public offerings,
are not traded on any exchange.
The preference shares generally provide their holders with limited
but preferred rights. Holders of preference shares are entitled to vote in only
two circumstances. First, a favorable vote of the holders of two-thirds of the
preference shares is required for any amendment of BGE's charter that would
create or authorize any stock that would rank prior to or on a parity with the
preference shares as to dividends or distribution of assets or that would
substantially adversely affect the rights of the preference shares. Second, if
BGE were to fail to pay full dividends on a class of preference shares for one
year, the holders of those shares would be entitled to one vote per share on all
matters until BGE pays in full the deficiency in dividends. No such deficiency
in dividends on BGE preference shares currently exists. The holders of each
class of preference stock are entitled to dividends, as and when declared, equal
to a fixed rate that varies by class. Dividends on each class of preference
shares are cumulative, and must be paid before any dividends may be paid on
common stock. Each class of preference shares is redeemable at the option of the
Board of Directors by payment of a prescribed redemption price plus accrued
dividends. The prescribed redemption price includes a premium over par ($100)
that declines with time. The 7.78% Cumulative Preference Stock, 1973 Series may
be redeemed at any time. The redemption price for these shares began at $108 per
share for any redemptions prior to December 1, 1978 and has declined to $101 per
share for any redemptions after December 1, 1988. The shares in the remaining
series, issued in 1993 and 1995, are not currently redeemable, but become
redeemable ten years after issuance. In each case, the maximum premium, for
redemptions that occur ten years after issuance, would be less than $4. The
stated premium then declines each year, and is eliminated entirely for
redemptions that occur twenty or more years after issuance. Upon the
liquidation, dissolution, or winding up of BGE, the holders of the preference
shares will be entitled to receive, from any assets of BGE remaining after
payment of debts and claims, the par value of their shares plus any accrued
dividends on those shares. All of the preference shares were issued at their par
value of $100. The preference shares are not convertible into shares of another
class of BGE stock.
Constellation Energy is a wholly-owned subsidiary of BGE. It was
formed in 1995 for the purpose of a proposed transaction that did not occur.
Since its formation, Constellation Energy has not held any assets or engaged in
any business operations.
Constellation Enterprises, Inc. ("Constellation Enterprises") is also
a wholly-owned subsidiary of BGE. Constellation Enterprises owns the stock of
several other companies primarily engaged in unregulated, energy-related
businesses.
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March 3, 1999
Page 3
THE TRANSACTION. Management of BGE has determined that it would be
advisable to establish a holding company to own the stock of BGE and
Constellation Enterprises. This structure will divide between separate chains of
corporations BGE's regulated business and the unregulated businesses conducted
by Constellation Enterprises and its subsidiaries. This separation of regulated
and unregulated businesses will have several favorable effects. First, the new
structure will allow funds to be raised for the unregulated businesses more
efficiently. Second, the structure will facilitate valuation of the separate
lines of businesses by the investment community. Third, it will allow regulators
to more easily verify the absence of any subsidies between the two types of
businesses. Fourth, it will protect the assets of the regulated business from
claims arising from the unregulated businesses.
To carry out the purposes described above, BGE management has
proposed that Constellation Energy be established as a holding company that will
own all of the stock of Constellation Enterprises and all of the common stock of
BGE. The establishment of Constellation Energy as a holding company will be
accomplished by means of a statutory "share exchange" under section 3-102(a)(7)
of the Maryland Corporations and Associations Code. The Boards of Directors of
both BGE and Constellation Energy have each unanimously adopted a draft
Agreement and Plan of Share Exchange (the "Draft Agreement"). As a result of the
share exchange, the holders of BGE common stock will be deemed to have exchanged
their BGE stock for Constellation Energy common stock, as provided in articles
of share exchange that will be filed with the Maryland Department of Assessments
and Taxation. MD. CODE ANN., CORPS. & ASS'NS ss. 3-114.1 (1993). The deemed
exchange will occur by operation of law, without any further act by the BGE
common shareholders. ID. The articles will provide for the cancellation of the
Constellation Energy stock owned by BGE immediately prior to the share exchange.
Draft Agreement, ss. 2.08.
Completion of the proposed share exchange is subject to several
conditions. The share exchange must be approved by a vote of two-thirds of those
BGE shareholders entitled to vote on the matter. MD. CODE ANN., CORPS. & ASS'NS
ss. 3-105(d) (1998). In addition, formation of a holding company to own the BGE
stock will require an amendment of the Maryland Public Utilities Code. Draft
Agreement, ss. 1.01. Further, the Constellation Energy stock that will be issued
in the deemed exchange must be covered by a Registration Statement under the
Securities Act of 1933 and must be listed on the New York Stock Exchange.
Finally, the transaction is subject to the approval of various state and federal
regulatory agencies.
The share exchange will not affect the holders of BGE preference
shares. The preference shares will not be subject to the share exchange but
instead will remain outstanding after the transaction.
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March 3, 1999
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After completion of the share exchange, the stock of Constellation
Enterprises will be distributed to Constellation Energy, thereby separating the
regulated and unregulated businesses into two chains of corporations beneath the
single holding company.
ANALYSIS
SHARE EXCHANGE TAX-FREE TO HOLDERS OF BGE COMMON STOCK. In general,
transfers of property to a corporation in exchange for its stock qualify for
tax-free treatment if the transferors, in the aggregate, control the corporation
after the transfer. I.R.C. ss. 351(a). For this purpose, "control" means the
ownership of 80 percent of the corporation's voting stock and 80 percent of each
class of the corporation's nonvoting stock.
I.R.C. ss. 368(c).
The proposed share exchange will meet the requirements for tax-free
treatment under section 351(a). The holders of BGE common stock will be deemed
by operation of law to have transferred property, in the form of their BGE
shares, to Constellation Energy. They will own all of the stock of Constellation
Energy immediately after the exchange. The Constellation Energy stock currently
owned by BGE will be cancelled as part of the transaction. Consequently, the
former holders of BGE common shares will "control" Constellation Energy, within
the meaning of section 368(c), immediately after the share exchange.
NO TAX CONSEQUENCES TO HOLDERS OF BGE PREFERENCE STOCK. The share
exchange will not have any tax consequences to the holders of BGE preference
stock because those holders will not participate in the share exchange. In
general, the owner of property recognizes gain or loss on the property only upon
a "sale or other disposition" of the property. I.R.C. ss. 1001.
BASIS AND HOLDING PERIOD OF CONSTELLATION ENERGY STOCK. When an owner
of property transfers that property to a corporation in a tax-free exchange to
which section 351(a) applies, the transferor's basis in the stock received is
determined by reference to the basis of the transferred property. I.R.C. 358(a).
This "substituted basis" rule ensures that the taxation of any unrealized
appreciation in the transferred property is merely deferred. Under section
358(a)(1), the transferor's basis in the transferred property serves as the
starting point for the basis of the stock received. The statute provides for
various adjustments to this basis when the transferor receives cash or property
other than stock of the transferee corporation, or when the transferor
recognized a loss on the exchange. SEE I.R.C. ss. 358(a)(1)(A) and (B). None of
these adjustments will apply in the present case. Therefore, the aggregate tax
basis of shares of Constellation Energy common stock received by a former BGE
common shareholder in the exchange will equal the shareholder's tax basis in the
shares of BGE common stock exchanged. I.R.C. ss. 358(a)(1).
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March 3, 1999
Page 5
The holding period of property received in a "substituted basis"
transaction includes the holding period of the property surrendered in the
exchange if the taxpayer held that property as a capital asset. I.R.C. ss.
1223(1). Because the deemed exchange of BGE common stock for Constellation
Energy common stock will be a substituted basis transaction, if a holder of BGE
common stock holds that stock as a capital asset, the holding period for that
stock will be tacked on to the holding period of the Constellation Energy stock
received in the exchange. ID.
SHARE EXCHANGE TAX-FREE TO CONSTELLATION ENERGY AND BGE. A
corporation recognizes no gain or loss on its receipt of cash or other property
in exchange for stock of the corporation. I.R.C. ss. 1032(a). Section 1032(a),
by its plain terms, will apply to Constellation Energy's acquisition of
property, in the form of BGE common stock, in exchange for Constellation
Energy's own stock. Therefore, Constellation Energy will recognize no gain or
loss as a result of the share exchange.
A corporation generally recognizes no gain or loss on the transfer of
its shares between shareholders because the transfer does not involve property
owned by the corporation. CF. I.R.C. ss. 1001. In certain cases, a purchaser of
a controlling interest in the stock of a corporation can elect to have the
transaction treated as a purchase of the corporation's assets. SEE GENERALLY
I.R.C. ss. 338. In the present case, Constellation Energy will not acquire the
BGE common stock by purchase, and would not make an election to treat the
transaction as a transfer of BGE's assets even if such an election were
possible. Therefore, the share exchange will not involve an actual or
constructive transfer of any assets owned by BGE, and BGE, consequently, will
recognize no gain or loss as a result of the share exchange.
EFFECT OF SHARE EXCHANGE ON BGE AFFILIATED GROUP. The Internal
Revenue Code and Treasury regulations provide special rules for affiliated
groups of corporations. These rules allow an affiliated group to file a single,
consolidated tax return. The filing of consolidated returns can be advantageous
because it allows losses incurred by one member of the group to offset income
earned by another member of the group. In addition, the recognition of gain or
loss on transactions between members of the group is generally deferred as long
as the members remain affiliated and the transferred property remains within the
group.
BGE and its direct and indirect subsidiaries currently comprise an
affiliated group within the meaning of section 1504(a) of the Code. (Unless
otherwise noted, references to Code sections are to sections of the Internal
Revenue Code of 1986, as amended.) That section defines "affiliated group" as a
group of corporations connected by one or more chains of at least 80 percent
stock ownership.
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March 3, 1999
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The identity of an affiliated group is generally determined by the
common parent of the group. SEE Treas. Reg. ss. 1.1502-75(d)(1) (a group remains
in existence if the common parent remains the common parent and at least one
subsidiary remains affiliated with it).
Despite the general rule identifying an affiliated group by reference
to the common parent, in certain circumstances, an affiliated group can remain
in existence with a new common parent. One such circumstance is a transaction
that the regulations label a "reverse acquisition." Treas. Reg. ss.
1.1502-75(d)(3). A transaction is a reverse acquisition if it meets two
requirements. First, an acquiring corporation must acquire substantially all of
the assets of another corporation or an amount of stock of the acquired
corporation sufficient to cause the acquired corporation to become an affiliated
subsidiary of the acquiring corporation. Second, after the transaction, the
shareholders of the acquired corporation must own, by reason of their prior
ownership of acquired corporation stock, at least 50 percent of the stock of the
acquiring corporation. Treas. Reg. ss. 1.1502-75(d)(3)(i). If a reverse
acquisition occurs, any affiliated group of which the acquired corporation was
the common parent remains in existence after the transaction, with the acquiring
corporation as its new common parent. ID.
Constellation Energy's acquisition of BGE common stock will meet each
of the two requirements of a reverse acquisition. First, as explained in more
detail below, Constellation Energy will acquire, pursuant to the share exchange,
an amount of BGE stock sufficient to cause BGE to become an affiliated
subsidiary of Constellation Energy. Second, because BGE's stock in Constellation
Energy will be cancelled pursuant to the share exchange, the Constellation
Energy stock that the current holders of BGE common stock will receive in the
exchange will constitute all of the outstanding stock of Constellation Energy.
In acquiring all of the common stock of BGE, Constellation Energy
will acquire a sufficient amount of BGE stock to cause BGE to become an
affiliated subsidiary of Constellation Energy. The affiliation test of section
1504(a)(2) of the Code requires the ownership of 80 percent of the stock of the
affiliate, determined by both vote and value. In applying this test, certain
preferred stock is not treated as stock. I.R.C. ss. 1504(a)(4). Preferred stock
is excluded from the test if it (i) is nonvoting, (ii) is limited and preferred
as to dividends and does not participate in corporate growth to any significant
extent, (iii) has redemption and liquidation rights which do not exceed the
issue price of the stock (except for a reasonable redemption or liquidation
premium), and (iv) is not convertible into another class of stock. I.R.C. ss.
1504(a)(4)(A) through (D). As explained below, the preference shares in the 1993
and 1995 series meet each of these conditions. Therefore, these preference
shares will not be taken into account in applying the affiliation test of
section 1504(a)(2). It is possible, though less clear, that the 1973 series
preference shares would not be treated as stock for purposes of the affiliation
test. The issue is moot, however, because the 1973 series preference shares are
nonvoting and their value is only a small fraction of the value of the BGE
common shares. Thus, even if the 1973
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March 3, 1999
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series preference shares were treated as stock, the common stock acquired by BGE
would carry all of the voting power of the BGE stock and would have a value of
more than 80 percent of the value of all shares that could be treated as stock
for purposes of the affiliation test.
Although BGE's preference shares have limited and contingent voting
rights, the shares are treated as nonvoting stock for purposes of section
1504(a)(4)(A) of the Code. For this purpose, stock is voting stock if its
holders have the present ability to elect directors of the corporation. The
ability of preferred shareholders to vote on matters other than the election of
directors does not make their stock voting stock for purposes of the affiliation
test. ERIE LIGHTING CO. V. COMMISSIONER, 93 F.2d 883 (1st Cir. 1937). In
addition, the ability of the holders of preference shares to vote for directors
if BGE fails to pay dividends on those shares for at least one year does not
mean that the shares are currently voting shares. The classification of stock as
voting stock depends on the rights of the holders during the period in issue.
VERMONT HYDRO-ELECTRIC CORP. V. COMMISSIONER, 29 B.T.A. 1006 (1934). If
preferred stock entitles its holders to vote after a failure to pay dividends,
the stock is treated as voting stock only after the contingency arises. ID.
Because no deficiency currently exists in the payment of dividends on BGE
preference shares, those shares constitute nonvoting stock within the meaning of
section 1504(a)(4)(A).
The BGE preference shares in the 1993 and 1995 series are limited and
preferred as to dividends and do not participate in corporate growth to any
significant extent. These shares carry a fixed dividend that must be paid before
BGE can pay dividends on its common shares. Thus, the shares are limited and
preferred as to dividends. Neither the dividend feature nor any other term of
the shares enables the holders to participate in corporate growth to a
significant extent. The shares do not participate in dividends with the common
stock. The stated dividend rate serves as a ceiling. Although the terms of the
shares do provide for a small redemption premium in certain circumstances, that
premium is separately addressed under section 1504(a)(4)(C). As explained below,
the redemption premium provided under the terms of the shares in the 1993 and
1995 series should be viewed as "reasonable," within the meaning of that
section. Consequently, the redemption premium should not be viewed as affording
significant participation in corporate growth for purposes of section
1504(a)(4)(B).
The liquidation rights of the preference shares do not exceed the
issue price, and the redemption rights provided under the terms of the shares in
the 1993 and 1995 series exceed the issue price only by a reasonable redemption
premium. Upon liquidation, the holders of the preference shares will receive
only the par value, at which the shares were issued, plus accrued dividends.
Although the holders of preference shares could receive a premium on redemption,
in addition to par value plus accrued dividends, these premiums, at least in the
case of the shares in the 1993 and 1995 series, should be viewed as
"reasonable," within the meaning of section 1504(a)(4)(C).
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March 3, 1999
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Regulations issued under section 305 of the Code provide the best
available guidance on when a redemption premium is reasonable. Neither the
Treasury Department nor the courts have defined the term "reasonable redemption
premium" specifically for the purpose of section 1504(a)(4)(C). When Congress
enacted that section in 1984, however, the phrase "reasonable redemption
premium" was significant under section 305 and the accompanying regulations. In
the absence of special rules, redemption premiums could be used as a means to
convert what would otherwise be dividend income, taxed at ordinary rates, into
capital gain recognized on redemption. Section 305 and the accompanying
regulations address this issue by requiring the holder of the preferred stock,
in certain circumstances, to include the premium in income prior to redemption.
Before their amendment in 1995, the regulations provided that this accrual rule
did not apply to a "reasonable redemption premium." Treas. Reg. ss.
1.305-5(b)(2) (prior to amendment by T.D. 8643). For this purpose, a redemption
premium was considered reasonable if it was "in the nature of a penalty for
premature redemption of the preferred stock and if such premium does not exceed
the amount the corporation would be required to pay for the right to make such
premature redemption under market conditions existing at the time of issuance."
ID. The regulations provided a safe harbor under which a redemption premium was
considered reasonable if it did not exceed 10 percent of the issue price of the
stock and the stock was not redeemable for at least 5 years after issuance. ID.
Amendments to the regulations adopted in 1995 eliminated the exception for
reasonable redemption premiums. The regulations now require accrual of a
redemption premium if two conditions are met. First, the premium must exceed a
de minimis amount determined by reference to the original issue discount rules
that require the accrual of interest on debt instruments. Treas. Reg. ss.
1.305-5(b)(1). Second, in the case of stock that is callable at the option of
the issuer, accrual is required only when the issuer is likely to exercise the
call option. Treas. Reg. ss. 1.305-5(b)(3)(i). In general, exercise of the call
option is not considered likely if doing so would not reduce the yield on the
stock. Treas. Reg. ss. 1.305-5(b)(3)(ii). A call premium on redemption that
would reduce the yield cannot be viewed as a penalty for premature redemption.
Notice of Proposed Rulemaking and Notice of Public Hearing, Distributions of
Stock and Stock Rights, CO-8-91, 1994-2 C.B. 844, 845. Therefore, the only
circumstances in which a call premium would be subject to accrual - when
redemption would reduce the yield of the stock - would necessarily be
circumstances in which the premium could not be viewed as a reasonable
prepayment penalty. Consequently, the exception for reasonable redemption
premiums was no longer necessary. Nonetheless, the definition of reasonable
redemption premium in the prior regulations, including the safe harbor
provision, provide the best evidence of the concept Congress had in mind when it
used that term in section 1504(a)(4).
In assessing the reasonableness of the redemption premiums provided
under the terms of BGE's preference shares, separate analyses apply to the
shares in the 1973 shares and those in the 1993 and 1995
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March 3, 1999
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series. The redemption premiums provided for the shares in 1993 and 1995 series
meet the safe harbor test and thus are clearly reasonable within the meaning of
the prior section 305 regulations. Because the shares in the 1973 series were
redeemable from the time of issuance, the safe harbor does not apply to the
redemption premium provided for those shares. Therefore, assessing the
reasonableness of the redemption premium on those shares would require a factual
inquiry into such factors as the market conditions when the shares were issued.
As explained below, however, this factual inquiry is unnecessary in the present
case because the Constellation Energy's acquisition of the BGE common shares
would cause BGE to become an affiliated subsidiary of Constellation Energy even
if the BGE 1973 series preference shares, which Constellation Energy will not
acquire, are treated as stock for purposes of the affiliation test.
The safe harbor test provided in the prior section 305 regulations
will apply to the redemption premiums provided under the terms of the 1993 and
1995 series preference shares. The maximum premium that might be paid on the
redemption of shares in these series would be well below 10 percent of the par
value at which the shares were issued. The 7.125% Cumulative Preference Shares,
1993 Series provide the highest possible redemption premium. At $3.56, this
premium is only 3.56 percent of the $100 issue price. Further, the shares in the
1993 and 1995 series do not become callable until ten years after issuance.
Although the redemption premiums in each case exceed the de minimis threshold
that applies for purposes of the original issue discount rules, SEE I.R.C. ss.
1273(a)(3), that should not prevent the premiums from being treated as
reasonable. In each case, exercise by BGE of its option to call the preference
shares would increase the yield on the shares. Therefore, the amended
regulations under section 305 would not require accrual of the premiums, even
though they exceed the applicable de minimis threshold. The fact that exercise
of the call option would increase the yield on the shares illustrates that the
redemption premium is in the nature of a prepayment penalty. Therefore, the
premiums are reasonable in amount, based on the safe harbor provided in the
regulations in effect under section 305 when Congress enacted section
1504(a)(4).
The redemption premium provided for the shares in the 1973 series may
also be viewed as reasonable under the general rule of the prior section 305
regulations. Again, the regulations provided that a redemption premium was
considered reasonable if it was "in the nature of a penalty for premature
redemption of the preferred stock and if such premium does not exceed the amount
the corporation would be required to pay for the right to make such premature
redemption premium under market conditions existing at the time of issuance."
Treas. Reg. ss. 1.305-5(b)(2) (prior to amendment by T.D. 8643). The fact that
the shares were immediately redeemable strongly suggests that the stated premium
was intended to compensate the holder for the loss of the dividends he would
have earned had the stock not been redeemed. Nonetheless, concluding that the
redemption premium provided on the 1973 series preference shares was reasonable
within the meaning of the prior section 305 regulations would require an inquiry
into
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March 3, 1999
Page 10
market conditions existing in 1973. As explained below, such an inquiry is
unnecessary in the present case.
The BGE preference shares are not convertible into shares of any
other class of BGE stock. Therefore, the preference shares meet the fourth and
last condition for being disregarded in applying the affiliation test of section
1504(a)(2). SEE I.R.C. ss. 1504(a)(4)(D).
The preceding analysis demonstrates that the BGE preference shares in
the 1993 and 1995 series meet all of the conditions specified in section
1504(a)(4) and thus are disregarded in applying the affiliation test of section
1504(a)(2). The shares in the 1973 series may also meet the conditions for being
disregarded. If all of the preference shares were disregarded, the BGE common
shares that Constellation Energy will acquire in the share exchange would
constitute all of the stock taken into account for purposes of the affiliation
test. Even if the 1973 series preference shares were treated as stock, the BGE
common shares would still carry all of the voting power of the BGE stock and
would represent well more than 80 percent of the BGE stock by value. Because the
1973 series preference shares may be redeemed at any time for $101, their value
cannot exceed the prescribed redemption price. There are currently 200,000 of
these shares outstanding. Thus, they have an aggregate value of $20,200,000
(200,000 x $101). By contrast, 149,556,416 BGE common shares are outstanding. A
recent trading price of those shares (at mid-day on February 18, 1999) was
$26.88. Therefore, at that price, the common shares have an aggregate value of
approximately $4,040,276,462 (149,556,416 x $26.88). Even if the 1973 series
preference shares were treated as stock, the BGE common shares would constitute
approximately 99.5 percent of the total BGE stock by value (4,020,076,462 /
(4,020,076,462 + $20,200,000) = .995) Thus, regardless of whether the 1973
series preference shares are treated as stock, Constellation Energy's
acquisition of all of the BGE common shares will cause BGE to become an
affiliated subsidiary of Constellation Energy.
Because Constellation Energy's acquisition of BGE common stock will
constitute a reverse acquisition, within the meaning of section 1.1502-75(d)(3)
of the regulations, the share exchange will not terminate the existence of the
BGE affiliated group. Instead, the group will remain in existence with
Constellation Energy as the new common parent. Treas. Reg. ss.
1.1502-75(d)(3)(i).
OPINION
For the reasons explained above, assuming the accuracy of the facts
stated in this letter and the representations made in your letter to us of this
date, in our opinion:
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March 3, 1999
Page 11
(1) No income, gain or loss will be recognized by a BGE common
shareholder upon the deemed exchange solely of such holder's BGE
common stock solely for Constellation Energy Common stock. I.R.C.
ss. 351(a).
(2) No income, gain or loss will be recognized on the share exchange
by holders of outstanding shares of BGE preference stock with respect
to their shares because they will not participate in the share
exchange and will keep their BGE preference stock. CF. I.R.C. ss.
1001.
(3) The aggregate tax basis of shares of Constellation Energy common
stock received by a former BGE common shareholder in the exchange
will equal the shareholder's tax basis in the shares of BGE common
stock exchanged. I.R.C. ss. 358(a)(1). The holding period for the
Constellation Energy common stock received will include the holding
period for the BGE common stock exchanged to the extent that such
shares were held as capital assets at the time the share exchange
occurred. I.R.C. ss. 1223(1).
(4) No gain or loss will be recognized by Constellation Energy or BGE
on account of the share exchange or the issuance of shares of
Constellation Energy common stock to the former BGE shareholders
pursuant to the Agreement and Plan of Share Exchange. I.R.C. ss.
1032(a).
(5) The share exchange will not result in the termination of the
existence of the affiliated group of corporations of which BGE has
been the common parent, and Constellation Energy will be included in
such affiliated group of corporations of which Constellation Energy
will become the new common parent. Treas. Reg. ss. 1.1502-75(d)(3).
The opinions stated above are based on the Code, Treasury
regulations, court decisions, and published rulings of the Internal Revenue
Service currently in effect. Each of these authorities is subject to change and
any such changes could affect the validity of the above opinions. To the extent
that the opinions address the federal income tax consequences of the share
exchange to holders of BGE common stock, the opinions assume that the
shareholders are not subject to special treatment because of unique
circumstances, as could be the case, for example, for foreign corporations or
individuals who are not citizens or residents of the United States.
We hereby consent to (i) the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the registration statement
regarding the issuance of Constellation Energy common stock and (ii) the
reference to our firm under the heading "Material Federal Income Tax
Consequences" in the Proxy Statement/Prospectus that constitutes a part of the
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March 3, 1999
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registration statement. In giving such consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
MILLER & CHEVALIER, CHARTERED
By: /s/ Thomas W. Mahoney, Jr.
Thomas W. Mahoney, Jr.