Kevin W. Hadlock - VP, IR Mayo A.

Shattuck III - Chairman, President and CEO John R. Collins - EVP and CFO Thomas V.

Brooks - President, EVP

Daniel Eggers - Credit Suisse First Boston John Kiani - Deutsche Bank Greg Gordon - Citigroup Gregg Orrill - Lehman Brothers Jonathan Arnold - Merrill Lynch

Thank you, good morning everyone. I am Kevin Hadlock, Vice President of Investor Relations and Financial Planning and Analysis.

Welcome to our first quarter 2008 earnings calls and thanks for being with us today. Before we begin our presentation, let me remind you that our comments toady will include forward-looking statements which are subject to certain risk and uncertainties.

For a complete discussion of these risks, we encourage you to read our documents on file with the SEC. Our presentation today is being webcast and the slides are available on our website, which you can access at constellation.com under Investor Relations.

On slide three you'll notice we will use non-GAAP financial measures in this presentation to help you understand our operating performance. We've attached an appendix to the charts on our website, reconciling non-GAAP measures to GAAP measures.

With that, I would like to turn the time over to Mayo Shattuck, Chairman, President and CEO of Constellation Energy.

Thank you, Kevin. Good morning everyone and thank you for joining us today.

For the first quarter of 2008, we recorded adjusted earnings of $0.95 per share, $0.08 below the adjusted $1.03 per share earned during a strong first quarter of last year. These results were in line with our exceptions and reflect solid operating performance.

We are also reaffirming earnings guidance for 2008 of $5.25 to $5.75 per share. Now let's turn to slide 5 to review operating highlights from the first quarter.

We achieved several key operating successes in the first quarter. Strong results from our generation fleet continue to be driven by the roll off of below-market hedges.

Our nuclear plants also delivered particularly strong operating performance as we successfully completed a planned outage at Calvert Cliffs Unit 1 in 19 days 15 hours, setting a new record for the shortest refueling outage for any plant of its type. In addition, forced outages in the nuclear fleet were limited to less than three days.

We reached another milestone in our plans to develop and construct new nuclear plants by filing a complete Combined License application for Calvert Cliffs Unit 3. In addition, we continue to make progress working with the federal government to move the loan guarantee program forward.

We also announced the acquisition of a partially complete Hillabee Energy Center in Alabama, which will complement our customer supply business in the Southeast. And finally, we were able to come to an agreement with Maryland legislative and regulatory leaders on a comprehensive settlement of prior legal, regulatory and legislative issues.

Moving over to slide six, I'll walk you through the specifics of that settlement. Late last week, Governor O'Malley signed legislation passed by the General Assembly finalizing our settlement agreement with Maryland.

Under this settlement, all PSE cases, investigations and pending litigation relating to the 1999 settlement agreement are satisfied and fully released. We believe this agreement provides far reaching benefits for our customers, our investors and the state.

BGE residential electric customers will receive a $170 one-time credit and are relieved of any future potential liability for decommissioning of Calvert Cliffs. In addition, a roadmap was established for future electric rate cases while improving BGE's earnings with negligible impact on BGE customers.

The legislation also eases investor ownership restrictions of regulated gas and electric utility holding companies, enabling an investor to own up to 20% without prior PSE approval. Transactions that directly affect BGE, or are in excess of 20% will be subject to a 180-day PSE review.

These changes provide us with greater future flexibility when pursuing investment partners to help finance large scale, capital intensive projects such as new nuclear. We share with state leaders the desire to develop new nuclear plants in Maryland.

So it is important that we agreed, all things being equal, that Calvert Cliffs would be our priority site should we move forward on plans for a new nuclear plant. This package incorporates a direct and significant consumer benefit while strengthening the strategic flexibility of Constellation Energy.

Furthermore, it removes statutory barriers that could have slowed or limited the growth of our company. All parties gain meaningfully in this carefully crafted settlement and the overarching value is a return to regulatory stability and normalcy.

There is commitment to putting the past behind us and focusing on discussions around the many energy-related challenges and opportunities that lie in Maryland's future. As Governor O'Malley was quoted as saying, We have huge challenges ahead, but I believe that some of the contentious and divisive issues of the past are now behind us with this agreement.

At Constellation, we fully recognize that the expression of many different views and concerns about Maryland's future energy policy will continue and is likely to spark rather intensive debates. However, we are confident that we can go about these discussions in a constructive manner now that the past has been laid to rest.

Turning to slide seven. Let me now turn to the market environment.

As these charts indicate and everyone on the call knows, crude oil, coal and natural gas prices rose significantly in the first quarter. Oil was up 24%, coal increased 49% and natural gas rose 24% since year-end 2007.

Despite the rise in these fuel inputs, power prices did not rise as quickly, resulting in a significant breakdown in the historic relationship between natural gas and power. We believe that the sharp decline in heat rates was a marked departure from a fairly steady trend that is not easily explained by energy fundamentals.

This trend in heat rates is shown on slide eight. Over the past five years, we have seen essentially two eras in PGM forward heat rates, separated here by the blue line on the Left.

May 2003 through the first half of 2004 was essentially the tail end of the power plant building boom that started in the early part of this decade. About 13,000 megawatts of new capacity came online in 2003 and 2004 causing reserve margins to increase and heat rates to decrease as result.

In the period from mid 2004 until the present, little new capacity has come online given generally unattractive new build economics. With continuous demand growth, reserve margins have declined and heat rates have increased steadily with a brief and temporary downward detour caused by the immediate natural gas price run up following Hurricane Katrina in the fall of 2005.

In the first quarter of this year, forward heat rates departed dramatically from this long-term trend. With no shock event or long-term supply demand fundamental explanation to rationalize this dramatic move, we believe it is most likely explained by what will be temporary trading market dynamics as many financial players may have decreased their exposure to the power products during the quarter.

This phenomenon had an impact on our first quarter results which john will address shortly. If the relationship between natural gas and power returns to the historical trends based on increasing power prices, we would expect to see long-term upside.

Turning to slide 9. In closing, I am pleased with the performance of the company during the first quarter.

We were successful in putting the 1999 Maryland settlement behind us and are turning our full attention to the future. Our market leading customer businesses performed very well in a market environment that was complicated by overall economic conditions.

We continue to see strong investment opportunities to support future business growth. We are also seeing attractive opportunities to expand our generation footprint in Maryland, Alberta, Alabama and other parts of North America.

We are reaffirming our 2008 earnings guidance of $5.25 to $5.75. For 2009, we continue to forecast earnings growth of 15% to 20% over 2008.

Over the five year planning horizon, we continue to project an average growth rate of greater than 10%. With that, I will turn the presentation over to John to review the financial results.

Thank you Mayo and good morning everyone. Let's begin on slide 11.

As Mayo discussed earlier, we saw strong performance in the first quarter. Let me start by highlighting several of our key financial successes.

During the first quarter, we continued to transact opportunistically. As Mayo mentioned, we purchased the Hillabee Energy Center for approximately $155 million, which will be completed at about 45% of new build cost.

The project is expected to be operational in 2010. Consistent with our invest, develop, harvest strategy in upstream gas, we executed the sale of a non-operating interest in producing wells to Constellation Energy Partners, recognizing a gain of $14 million.

At BGE, beginning in January 2008, we implemented electric revenue decoupling for residential and small commercial customers to eliminate the effect of abnormal weather and usage patterns on our electric distribution volumes. Going forward, these revenues will primarily be driven by customer growth and will not be affected by actual weather or usage conditions.

While going without any notice, we retired $145 million of BGE's long-term debt, eliminating the lien on Constellation's generating assets previously owned by the utility. As Mayo highlighted, we achieved a settlement in Maryland of prior legal, regulatory and legislative issues.

As part of this settlement, we will contribute approximately $187 million as a one-time credit to residential customers. BGE customers will also be relieved at the potential future liability for decommissioning Calvert Cliffs.

We do not anticipate the assumption of this potential decommissioning liability from BGE's customers will result in material incremental costs to Constellation when it is time to decommission the plant. In addition, BGE agreed to delay the next electric distribution rate case such that new rates will be effective no earlier than October 2009 with a resulting increase in distribution rates capped at 5%.

To bridge the gap, BGE will resume collection of $20 million per year of the residential provider of last resort or POLR return, beginning June 1st for two years. BGE will also implement revised depreciation rates effective June 1st, resulting in an increase of $22 million to $24 million in annualized pre-tax earnings.

We expect these two items will increase BGE's 2008 earnings by approximately $0.08 per share and 2009 earnings by $0.13 per share. Now let's turn to slide 12 to discuss first quarter earnings.

First quarter GAAP earnings were $0.81 per share. Let me walk you through the adjustments to GAAP.

We had a $0.19 loss on economic, non-qualifying hedges associated primarily with gas transportation. We also had a $0.04 favorable special item at BGE related to the $187 million customer credit that will be accrued in April.

The credit causes a reduction in BGE's full year effective tax rate which impacts all four quarters. Therefore, the impact of the lower effective tax rate on normal earnings will be classified as a special item in each quarter beginning in the first.

Finally, synfuel earnings were positive a penny per share due to a true up of the estimated 2007 phase out. After special items, first quarter adjusted earnings were $0.95 per share, which was in line with our expectations, reflecting solid operating performance.

Two isolated market-driven effects tempered our results: first, the combination of a dramatic rise in coal prices and operational challenges at two coal suppliers led to defaults on their delivery obligations. This reduced first quarter earnings by $0.23 per share.

Earnings were further suppressed by an additional loss of $0.21 per share due to hedge ineffectiveness in our merchant operations. Excluding these two items, our earnings would have been $0.44 higher than reported.

Looking at our segment performance in the first quarter compared to last year, merchant was down $0.04, the utility was up $0.01 and other non-regulated was down $0.05. Overall, adjusted earnings were down $0.08 per share.

I will speak to the segment results in more detail on the next few pages. Turning to slide 13.

BGE's first quarter of 2008 adjusted earnings of $0.37 per share were toward the upper end of first quarter guidance range of $0.33 to $0.38 per share. Compared to the prior year, BGE was up $0.01 on an adjusted basis due to higher transmission revenue, favorable gas supply revenue, favorable storm expenses and share accretion.

These positive items were partially offset by higher interest expense and other costs. Let's turn to slide 14 to discuss the merchant business.

Our merchant business performed steadily during the quarter in somewhat tumultuous markets. Before I get to the details of our merchant results, I wanted to highlight a few factors that had a meaningful impact since we will return to them as I discuss the various areas.

First, energy prices increased dramatically, although North American power did lag noticeably. Coal led the way, up about 50% since the beginning of the year.

This dramatic coal price increase meaningfully benefited our coal supply business and we were able to transact to rebalance our portfolio and capture gains. This benefit was partially offset by isolated production problems at two of our smaller coal suppliers.

I'll talk more about both effects. Second, we saw sharp declines in forward heat rates despite normal weather and stable to declining reserve margins deviating from a fairly strong trend.

If forward heat rates revert back to a trend that reflects market fundamentals, we would see some longer term upside given that natural gas prices increased dramatically in the quarter. Not surprisingly, this decoupling of the historical relationship between gas and power did result in some unrealized losses in the quarter due to the requirements of FAS 133 which I'll discuss in greater detail shortly.

Finally, given the potential for a recessionary economy, commercial and industrial customers appear to be shifting away from long-term fixed price contracts to month-to-month purchases. It seems interesting to note that given recent heat rate compression, the opposite approach may be more advantageous.

While our win rates, renewal rates and unit margins remain steady, less demand for fixed price products effectively limits the size in the near term. We expect this trend to reverse itself, but it may take a supply shock event to shift buying patterns away from the short-term products that are riskier for the buyer and toward longer term fixed price products.

Now let's turn to slide 15 to review the merchant first quarter results. Compared to the first quarter of last year, merchant adjusted earnings were down $0.04 per share.

On the positive side, generation was up $0.12. The primary drivers were the impact of the shorter planned refueling outage at Calvert Cliffs which was favorable $0.06 and higher energy and capacity prices as below market hedges continue to roll off added $0.07.

Customer supply was unfavorable $0.02 per share and global commodities was down $0.07 compared with the first quarter of 2007. I will cover the drivers to customer supply and global commodities in a moment.

Lastly, higher net interest expense and other items reduced earnings by $0.07 per share versus last year. Turning to slide 16.

This chart provides an update on how changes in market forward prices and hedging activity affect generation EBITDA. For 2008, we are forecasting unhedged EBITDA of $2.85 billion.

Netting the hedging impacts of $1.77 billion, our hedged EBITDA is forecast to be $1.1 billion. You'll note that unhedged EBITDA is forecast to decline over the next three years due to the backward dated power curve, higher coal prices and the estimated cost of carbon credits.

However, as our hedges on the generation fleet continue to reprice at higher levels, the hedge impact diminishes significantly, resulting in hedged EBITDA of approximately $1.8 billion by 2011. Turning to slide 17.

As you see in the chart on the top of the slide, during the quarter, customer supply realized gross margin of $82 million. This was right in line with our first quarter expectations.

Year-over-year, this was a decline of $23 million from the first quarter of 2007. A portion of this reduction is due to a change in how we measure our business performance.

Part of the merchant integration efforts were directed at consolidating our risk management activities. As we explained in January, results from customer supply will include the effects of variable load risk and customer attrition.

On the other hand, any impacts from risk management activities will be reported in portfolio management and trading. As a result, $8 million of variable load cost appears in the wholesale power results in 2008 while any such expense in 2007 would have been included in portfolio, management and trading.

Conversely, $2 million of positive portfolio management results appeared in retail power's first quarter 2007 results and will not appear there in 2008. The remaining difference is primarily due to reduced wholesale power backlog of $30 million, reduced realized retail power gross margin of $14 million, offset by increased retail gas new business of $27 million, which was driven by strong mark-to-market results.

The retail power retention rate was 53%, about the same as the first quarter of 2007. However, including the customers that remain on a month-to-month basis, our retention rate jumped to 75%, up from last year's rate of 69%.

Our retention rate and win rates were consistent with recent history. However, customers appear to be selecting shorter term products in the current market.

Looking forward, gas price margins were $3.17 per megawatt hour, down a bit from the $3.31 per megawatt hour level for the first quarter of 2007, but still healthy. Retail gas retention rates remain strong at 98% and realized margins improved by $0.04 per decatherm over last year.

In summary, our customer supply wholesale power, retail power and retail gas are on track to achieve the 2008 earnings targets. As we mentioning January due to lower sales volumes and tightening margins at end of 2007, we did not expect wholesale power or retail power performance to match 2007's, strong results.

Turning to slide 18. This chart highlights global commodities contribution margin compared to the first quarter of 2007, and you can see in the column on the left, global commodity's contribution margin excluding the impact of hedging effectiveness in the isolated defaults by two call supplier was $217 million in the first quarter, up $84 million or 63% from the first quarter of 2007.

Structured products produce gains of $239 million, an increase of $116 million over the first quarter of 2007. For the past several years as market conditions dictate we often transact to realize gains rebalance the risk characteristics of our structure products portfolio.

While we have traditionally reported this structure products activity and the management level decisions are made as part of over all portfolio management. In the past quarter, an historically unprecedented jump in coal prices caused us to realize gains in our current portfolio that resorted from the price move.

We also realize gains embedded in a unique contingent PPA from nuclear unit, reducing our exposure to performance rest, as we have done and reported on several occasions in the past. While we are obviously not expecting the dramatic run-up in coal prices to create the magnitude of opportunity that it did, activity of this type was in vision in our 2008 plan.

We may see further opportunities over the balance of the year, but we would not expect them to be as large as those that we saw in the first quarter. Our energy investment contributed $26 million an increase of $21 million from the first quarter of 2007, approximately $14 million of this came from the sale of producing gas wells through Constellation Energy Partners.

Offsetting these increases portfolio management and trading lost $47 million in the first quarter of 2008, this was a decrease of $97 million from the first quarter of 2007. Given our approach of managing the value of our entire portfolio centrally including structure product contract, energy investment assets and portfolio management and trading activity, we were pleased with the total performance as we expect to do in a very fairly tumultuous market environment, we experienced gains in some areas and loses in others, resulting in a total performance that was fairly strong.

We have already mentioned the sharp drop in heat rates, a direct impact of that drop was the increase in hedge ineffectiveness experienced in the first quarter. While some quarters will have large hedge ineffectiveness as a result, our expectation is that over time hedge ineffectiveness has the cumulative impact of zero.

The dramatic run up in coal prices discussed earlier created operational challenges for two of our coal suppliers they sold forward coal in anticipation of increased production and coal availability, as a result, they defaulted other contracts and we recorded a $68 million loss in the first quarter. Turning to slide 19.

Looking to the future, the merchant continued to build a strong backlog of earnings in the first quarter. After accounting for backlog impacts, of the structured transaction I just discussed, global commodities added $201 million to its backlog.

The customer supply group contributed $40 million to its backlog, while less than our expectations, it is consistent with our experience of customers deferring the decision to enter into longer term contracts, as customers eventually stop purchasing on a month to month basis, we expect to see the pace of building backlog to increase. As mentioned earlier, we added to our generation portfolio with the purchase of the Hillabee energy center.

While we include the projected earnings through 2012 from this acquisition in our generation EBITDA, we show here our estimate of future earnings as if we have source to 15-year toll at comparable economics. In total for the first quarter, we added over $360 million to our future earnings.

Turning to slide twenty, and a discussion with cash flow. We have refined our cash flow reporting to more closely align with our GAAP cash flow statement.

The new cash flow reporting format shown here provides more insight into operating cash flow and clearly breaks out the amortization of acquired contracts and structured deals. The additional modeling session, we have provided a description of the unamortized energy contracts and annual amortization of these items.

Adjusted cash flow from operating activities was a positive $474 million during the first quarter. Adjusting for investing activities free cash flow with the use of $196 million primarily driven by the purchase of Hillabee and planned capital expenditures.

Cash flow from financing activities, which primarily reflect dividends paid and net debt maturities, was a use of $237 million, resulting in a change in net cash of $433 million in the first quarter. Turning to slide twenty one, the balance sheet and associated credit metrics continue to be very strong.

Total debt outstanding decrease slightly to $4.8 million in the quarter, reflecting debt maturities at BGE. Equity increased during the quarter primarily driven by price movements and contract exploration on our hedging activities, which is captured in a cumulated other comprehensive income.

The result in changes on the capital structure leads a net debt to total capital metrics in line with year end 2007. Adjusted net debt to adjusted total capital saw slight deterioration in the quarter, due to an increase in the third party collateral held and a change in cumulated other comprehensive income described above.

As you will recall all these metrics exclude the impact of the BGE securitization debt. We expect an improvement in the ratio of funds from operations to debt from 2007 levels largely due to the elimination of the drag created by the fuels expenses deferred under Senate Bill one rate phase in plan 2007, as we have mentioned in prior presentation we primarily focus on the FFO to debt ratio which is currently the most important ratio for the rating agencies When the rating agencies look at this metric they increase the amount of debt by imputing debt from power purchase agreement, pension obligations, training activities and other comparable activities.

We also adjust funds from operations for imputed interest. As a result they ride a much different ratio, looking at 2008, we estimate the standard impose will calculate FFO to debt in...

24 to 28% range versus our forecast of 40% to 45%. Turning to slide to 22, this chart shows our excess liquidity which was $3.1 billion at the end of March.

The top blue line represents our cash balances plus our bank lines, the total of which was approximately 5.7 billion at the end of March. The green line of the bottom of the chart shows our bank line usage as we post letters of credit with counter parties.

At the end of the first quarter, we had posted about $2.6 billion and letters of credit. Turning to slide 23, consistent with the approach we introduced in January for the first quarter of 2008.

We are not providing specific earnings guidance for the second quarter alternatively we are providing a few key operating at financial metrics. First we are providing a BGE earnings range of $0.04 to $0.08 per share.

This compares to our second quarter 2007 earnings of $0.08 per share reflecting higher cost partially offset by favorable polar margins and transmission revenue. I will also note that we expect to recognize the $187 million credit to BGE customers in the second quarter and reported special item of approximately $0.70 per share.

For generation, we are proving a hedge EBITDA forecast of $130 million which is $47 million lower than hedge EBITDA of $177 million earned in the second quarter of 2007. In 2008, we may be refueling outage and higher cost to improve fossil plant reliability or the key drivers.

The final metric provided is customer supply backlog which is expected to be $257 million in the second quarter of 2008 because we did not measure 2007 backlog in a manner comparable today. We are not providing an estimate for second quarter last year however as a point of reference, total realized customer supply gross margin in the second quarter of 2007 was $217 million.

That concludes our prepared remarks. We will now turn the call over to the operator for questions.

Question And Answer

Good morning, just thinking a little bit about PM&T and kind of loss in the quarter, a better performance elsewhere, do we need to think about reshuffling expectations for the full year from those different businesses or is the expectation that you are going to make up, the loss plus the full year contribution expecting this year, arbitrating, where is that level of confidence come from?

I guess I would say of course we've reaffirmed for the year, and probably I wouldn't... in terms of...

I don't know precisely what you mean by reshuffling expectations. But I think the short answer would be no.

Obviously, we have stated our confidence on the year. In terms of the characterization of portfolio management trading in one category and structured products in another we have reported earnings in that format for several, -- in those separated distinction between portfolio management and trading and structured transactions for several years now, at a management level I think John highlighted in terms of the way we mange the over all portfolio, is a very similar activity, so in terms of the structured products gains, the principle driver was significant increase in the coal prices that created opportunities that we acted on quickly to capture gains, and I think the combination of, $47 million of traditionally characterize this portfolio management and trading losses combine with $239 million structured products gains, so it reflects the over all, pretty strong performance out of our portfolio management at management level.

Just looking, looking at the heat rate movements in PJM in the quarter kind of a disruption that had on results, if there is a not written kind of more normal expectation for heat rates is that cast any shadow over, full-year contribution or has an everything been marked down to reflect this world, what we see a you should pick some of that back up as the as year goes along?

I'm sorry. So Dan, the question was if it...

What happens if the doesn't recover, and what happens if it does? If it does, do you is it easier to get to your targets?

And if it doesn't... have you already reflected all, of that non recovery in your numbers.

Yes.

Easy. Okay and I guess Mayo or John you guys talked earlier about being at the high end of the guidance range for this year, previously kind of being a little bit behind on some of the trading structure product side a bit it seems than a kind of a little bit of down visible earnings contribution in the second quarter, what is the level of confidence that you are going to be at the high end of the guidance this year.

Yeah, I mean and this is John Collins, in fact we know and as you know we are maintaining guidance in the range of $525 to $575 per share for the year. We would say based on where we are at to date in the current market conditions, we do not have the exact same level of confidence around hitting the mid to upper end of the guidance range.

But we do still see opportunities to do that, so we haven't change our guidance at this point in time.

Okay. Thank you.

Good morning.

Good morning John.

I have a few questions. What were, outside of the transport that you mentioned John.

What were the positions and the associated hedges that were disqualified, were there some accrual positions and some hedges that obviously as you mentioned disqualified and what were those exactly?

Yeah they are actually... it's...

I don't know if you are confusing two concepts in the non qualifying hedges. The two components that are in there are gas transportation and gas storage and that the vast majority of that was gas transportation.

So just as a way we have to manage those, we assume they are non-qualifying tank hedges. And the other piece I don't know if you are getting..

I am sorry I met the FAS 133 hedging effectiveness, I missed both.

That's was I was going to go.

Thank you.

I amsorry, I missed the FAS 133 hedging effectiveness, I missed both.

The FAS 133 hedging effectiveness is really a result of how we manage primarily generation length out the curve where you get into more illiquid markets where we primarily use gas the hedging forward generation length positions. And with breakdown in the heat rates that we saw in the first quarter is primarily the driver to that position.

So the primarily driver and the two things that really happened in the other piece of it would have international freight business where we also saw some correlation breakdowns. But hedging effectiveness you're aware, is broken down into two pieces.

There's the piece that's between 80% and 125% of the relationship and once you're below the 100% or above 100% you then within that range, you then have to do basically take that delta or dollar value offset to earnings. Once you go outside those ranges, 80% to 125% the whole hedge is disqualified and you basically than have to take the whole change in value to earnings.

When we look at that $63 million in the first quarter $25 million was due to the correlations failures outside the, 81, 25 and roughly $38 million is related to the dollar value offset or the relationship between the 80 and 125.

Okay, John so that's -- I see that you that helpful. So is the right way to think about it that your long power -- in other words, sounds like you said there's generation length.

So did you maybe by power from generators or you just long power from generators fairly for out on the curve and in order to hedge that long power position you bought gas as a hedge as a hedge against it?.

Effectively, of course, we're naturally long power in our portfolio, owing to the fact that we own power plants.

Right.

And to some extent out the curve in less liquid location, whereas not necessarily easy on a forward bases to sell power, we will to a certain degree sell gas instead of power and this tends to be a fairly stable relationships so historically as generally been a reasonably stable and effective hedging approach in the first quarter of course that historically stable relationship in forward relationship between gas prices and power prices broke down a bit. So fundamentally there is not a lot of news here other then the fact that since this forward correlation broke down to the requirement of FAS-133 caused us to take some unrealized losses to current earnings.

I see so, whatever long power position it was generating assets or whatever. You sold gas as a hedge against it and the heat rate moved downward and that was the exposure of both from an economic prospective and also from the hedge and effectiveness perspective.

Correct and because as John highlighted the correlation between gas and power of built outside of the range required in the fairly complicated accounting standard FAS-133 since that correlation break down occurred, this required us as John highlighted to take unrealized losses to current earnings.

Okay, that's helpful. And then another question I have is related to VAR, can you tell us what your average in max VAR were during the quarter?

Yes, we can...

Yes, hold on one second.

The average war at the 95%

The average VAR at the 95% confidence interval for the quarter for the total mark-to-market portfolio was $17.1 million and the high was $22.3 million.

Is that an overnight or 7 day or?

1 day, overnight, 95% compensated calculation.

Okay. Thank you and then I think you mentioned some gains or asset sales that were included in the merchant results.

Can you talk about those a little bit more please?

Sure John, this is Tom again. Two basic categories and structured products and as over arching comment, of course this category of activity transacting to entering the structured transaction to capture gains as marketplaces move during the year.

This has been a fundamental part of our operating approach for several years now. We have reported several such transactions directly over the years and certainly as part of our 2008 operating plan as we highlighted in January, this sorts of activities transacting to realize gains, it was part of our operating plan.

The '08 operating plan contemplated of course a range of scenarios, but effectively embedded in that plan was gains of this type in the range of $100 to $200. So we have experienced gains of...

$239 million as John indicated in the first quarter. So a bit above of our full year expectation and certainly faster than our full year expectation but fundamentally coal prices of course increased quite dramatically.

We saw opportunities and we absolutely move quickly to transact to realize gains and rebalance the risk characteristics of our coal supply portfolio, so you fundamentally that was the principle driver. In addition, they were several transactions in our coal portfolio that are unable us to do that, our coal in London was very adept at acting quickly to capture the market opportunity, that was created in addition, we entered into a transaction of a type, we've entered into in prior years and reported on and prior years, which was we expectedly sold a unique contingent long power purchase position which had been purchased several years ago at much lower for billing market prices as market price increase on such unique contingent power positions.

Our exposure to counter party performance risk increases, so on a repeated basis over the last several years, we transacted in effect selling these positions as a means of reducing our net exposure to counter party performance risk, so we did that as well this quarter again something that we've done several times in our report and several times in the past and again the type of transaction that absolutely contemplated in our 2008 operating plan.

Yes, if I can add just two things you know, to what Tom said, number one is that there is same market environment that allowed us to capture those coal price increases with the same environment and causes us to have the two producers default on their contracts, high prices, operational issues. And so what you basically were able to do is you don't take advantage of market opportunities to balance the portfolio properly, and secondly while we were able to, capture these upside in this pool transaction and at the same time were able to increase our backlog going forward.

It's a very positive result on both parts of the equation there.

Okay, that's helpful. Thank you.

Good morning Greg.

Thanks good morning, so given that you started to answer my question, you gave a backlog number in the Analyst presentation in January. Backlog number for structured products of about a 150 million in '08, 160 million in '09 and 110 million in 2010 just eyeballing the bar charts.

Did you monetize a big chunk of that future value to taking those gains in the first quarter or did you, in fact, build on the total backlog in the first quarter relative to what you disclosed in the analyst presentation?

We definitely built in net built on the backlog. So as John indicated we added in global commodities about $200 million to the backlog, net of the backlog reduction impact of the transactions through which we realized gains.

So fundamentally and this has been a basic management metric we've followed for years, we obviously want to be adding to our total... creating total economic value in the quarter and we think in some of the change in the backlog we did that, we took...

we saw market opportunities to realize some gains and market condition that made that attractive. We did so, we also added to the backlog to the degree that exceeded by $200 million, the amount of backlog reduction that resulted from the transactions through which we realized those gains.

Right so put in another way, you didn't rob Peter to pay Paul and make the earnings in the first quarter?

Yes.

Second question with regard to backlog and related to the coal business. Who were the counterparties that defaulted?

Well I think they are both public. So the first one was Black Diamond which was the largest majority of the loss and the other one was somewhat of almost a related party to Black Diamond because they did business with each other as a small company called Kyva so those were the two counter parties, these were coal suppliers where we had tonnage to be delivered through '08 basically through 2010 and however these contracts are derivatives and more mark-to-market and as a result we had to take these write offs.

But my arguments, are they domestic providers?

Yes, they are both domestic, they are both Central Appalachian coal providers. They...

in some cases specific type of coal, and these were really isolated events because in this price market, eventually most coal suppliers are doing much better. However, in the case of Black Diamond, they had a plan to increase their production quite rapidly over the next 12 to 18 months.

However, what... and so they had sold forward quite a bit of what they thought, they were going to produce and they ran into operational problems in trying to bring some new mine online and there lender CIT which is very public actually forced them into an involuntary bankruptcy, its been converted to a voluntary chapter 11 proceeding and we're on the unsecured creditors committee.

So, however most of our when you take a look at coal suppliers most of them are performing much better in this market place, but it was the isolated operational event here I mean Kvya was buying from Black Diamond to met their needs.

I would just like to you sort of answered my next question, which was when you got into this coal business, there was a definitive increase in number of counter parties that you are transacting with that don't have credit ratings for which you had to apply your own credit metrics and you indicate in your K that a large majority of them were from your perspective, investment grade business. Should we begin to worry about your ability to effectively examine the credit of your counter parties as you expand these business?

No I don't think that you know... I don't think that's the case.

I think we've very strong ability to examine the credit worthiness of our counter parties. I would correct one thing I think you said, Greg, though.

There's very rarely you ever find a coal counter party that's investment grade and in fact if you look at the change in the credit quality of our portfolio over the last two years, it's going down to be less credit worthy primarily driven by international coal and freight and in domestic coal producers. So it is basically the best credit you find in the coal industry are generally in the mid to low BB range.

Okay, two more questions.

Greg let me to just add one thing in terms of the just the over the... your overarching question on the coal business...

on our coal business as John indicated as you know we are supplier of coal, so we purchase coal from producers, we deliver coal to customers that are consumers of coal the majority of them electric utilities of course. As John indicated, most coal producers have sub investment great balance sheets and certainly as we assess those credits, we very much bear in mind the right way risk that applies that have to say our exposure to those coal producers increases if we've made long-term purchases as coal prices go up.

These sub investment Greg coal producers financial strength also in general goes up as coal prices increase. So the phenomenon that causes our exposure to them in general also causes them to be more able to perform on all their obligation so we regard the portfolios containing a significant element of right way risk in this particular instance a single can single producer a small producer in the Appalachian region experience some specific performance or production problems which were whose financial impact was exacerbated by the quick one up in coal prices.

So this producers had production prompts they cause in to be less able to produce coal then they though to be and in environment prices were much higher so in a very quickly they got a situation were they in the falls. Importantly across the whole portfolio back to your question we don't think there's a big system risk because these produces ability to perform in general goes up in correlation with our exposure to them we think this is very much in EDO syncretic situation as specific production problem and a specific small producers so we don't think it reflective of some broader problem across the whole portfolio its not to say that such a think could never happen again but nearly we don't think its reflective of bigger broader problem across the whole portfolio.

Great. Couple of more questions, one related to global commodities as we first question was ask just to stay that you gave us specific breakdown of $441 million of expect EBIT global commodities and then in your speak in the January you obviously already exceeded the structure product both of already exceeded what you have expect to earn from certain aspects of that should we assume that $391 million of portfolio management and trading all for 2008 and is now significantly lower and that in fact going to be offset by the fact that you were able to take these gains in the quarter and are you still targeting that $441 million?

Hey Greg, it's George Persky. Obviously we have a mix with in global commodities we have a mix of businesses and over the course of the year in aggregate, we still expect the combination of the three businesses to perform as expected, but obviously inside every year, there is variation in terms of what businesses are making the money and what businesses are not making the money.

But in the case of portfolio management and trading prior to this quarter, we had 20 straight quarters of positive results. So its not I don't think it's too far of a stretch to think that PM&T will get back to profitability for the balance of the year.

Question of could we make less in PM&T and more in structured products and was in our plant sure, does that reflect anything sort of material long-term in terms of the direction of the business now.

So that the overall target number is still achievable in your mind at this point of the year.

Yes.

Okay, one more question, the hedge EBITDA you gave an update on unhedged and hedge EBITDA for the generation business and while the unhedged EBITDA is up the hedge EBITDA is actually down modestly and then up using...dramatically 10, to 11 looks like the major reason for that is O&M you talk about what adjustments happened over the first quarter that effected the update of that, of those metrics.

The total unhedged EBITDA as, you have done the math, the total unhedged EBITDA over the 9 to 12 period is up about 900 million from what we told you in January hedged EBITDA is up I think about 200 million is significantly back and loaded or back and loaded over the 9 to 12 period in some to the specific question as to '09 I believe under most of that small negative was due the to the way we... we had a bit of a plan with respect to the way we plan for the cost of SO2 emissions, which was a negative, other than that, other than the arithmetic take is pretty transparent, how prices moved in order position for that we provided so, principally that slight downward was due to some plan issues,

Okay, so either more SO2 credits higher pricing for SO2 credit for some competition of the above?

Yes, I mean that we just we missed the modeling of SO2 credit appropriately in the plan that we gave you back in January, and so it's it is basically an impact within the $35 million to $40 million range.

And then when the scrubbers are up and running, that model error becomes not an issue any more?

Well it's not an issue [ph]. It was just specific to '09 and it exactly just was kind of like a bust.

And so it was just specific to '09.

Okay, thank you gentlemen.

Thanks a lot. Two quick questions.

The first one being on heat rates, and just really what's changed about your thesis on heat rates after seeing a downside year-to-date and what gets it back to where you think it should be? And then secondly, if you could address the second quarter generation EBITDA guidance being lower than Q2 '07.

I'll take the first one and John will take the second. Greg, this is Tom Brooks.

On the first one what has changed... what has this done to change our thesis, nothing.

As Mayo described, we look at this as situation where heat rates over the last several years have done pretty much which you... you would intuitively expect.

In the '03, '04 time frame as significant new generation was being added as reserve margins increased, we saw a trend of declining heat rates since then with little new capacity being added and demand continuing to grow reserve margins have declined a bit and heat rates have increased and this has been a pattern with some ups and downs driven by various events particularly the hurricanes in the fall of '05 which influenced gas prices more than power. But it has been a fairly clear long-term trend.

What we saw in the first quarter of this year was a significant departure from that trend. We can't explain it, we don't think its reflective of fundamentals, we think it could be, although this is purely speculative terms reflective of perhaps financial player who have shifted there risk preferences away from power and toward much more liquid commodities but that's only speculation on our part.

We don't really no of course what influence this base it's hard for us to imagine a circumstances were in an environment of continued declining reserve margins, heat rates should significantly reduce over a short period of time. So we think it's likely to rebound.

And, in fact in the first part of Q2 we've seen some rebound already.

On the second part of the question, you asked about the generation hedge EBITDA on the second quarter versus last year primarily it's just a couple of real driver there. In the second quarter of this year, we had a Ganay refueling outage and Ganay so you remember is our 18 month refueling outage so we did not have any refueling outage at all in 2007 and so that actually reduces our generation EBITDA by about $27 million in the second quarter year-over-year.

The other big piece of it is primarily as part of our plan we're investing fairly heavily in the reliability improvements in our Baltimore-based combustion turbine fleet because of the requirements of our RPM, and the and the potential penalties that exist if your plants don't operate as expected. That actually year-over-year is about a $12 million increase and there is a lot of other factors that are going up and down there but those are the two biggest drivers of the year-over-year change in the generation EBITDA calculation.

Okay.

Operator, we've time for one more question.

Hey. Good morning.

Good morning.

I just wanted to revisit this heat rate question a little further. Sorry to do that, But to what extent do you think it's possible that the presence of the RPM capacity value had on the forward market is having an influence on heat rates as generators have that payment in that revenue stream going forward and I guess secondly...

another possible thought is around gas is spiking your non-fuel components of the cost stack smaller portion of the overall cost. Might it be that with higher gas prices yield structurally you are going to see lower heat rates, can you comment on those thoughts?

On the first question I would say its certainly possible obviously the dynamics of forward markets are you know not only easy to disarm particularly in the short-term so its certainly possible that the existence of the RPM program, the likelihood of the RPM program will continue to cause generators to invest capital is influencing forward key rate that certainly could be I think we would doubt that such a view would cause anything close to the dramatic impact that we saw in the first quarter. So a possible hypothesis but I don't think it explains what happened in Q1 in terms of on a second question, I think probably, which to restate, I think was if gas prices increase from this level, could you simply...

could you this actually influence heat rates themselves. And I suppose the answer to that too certainly is yes, but that would require in the long term a shift in the generation mix away from gas into other fuel types.

Could that happen at high gas prices? Absolutely.

I doubt that effect would be this dramatically... the potential for that effect would be anything close to this dramatically visible in the first quarter.

Thanks a lot.

Thank you all very much for attending this quarter and we will see you next quarter.