We have a sustainable business model that allows us to be successful in competitive energy markets. We're one of the very few companies in our industry that has a strong growth story - growing 10 percent in a 3 percent industry. We are a stable, flexible, competitive company delivering results and creating value for our customers and shareholders. Our vision is clear. We're working to be the first-choice provider for customers seeking energy solutions in the complex and changing energy marketplace. Our strategy starts and ends with our customers. Meeting their needs guides all that we do. We're prospering and growing We've transformed our company, building a business with almost $10 billion in revenues. We serve customers in nearly three dozen states and three Canadian provinces. Our large commercial and industrial customers include 53 of the Fortune 100 companies. The markets rewarded our growth and performance during 2003. Our stock price appreciated nearly 41 percent. Including our $1.04 per share dividend, our total return to shareholders - assuming the dividend was reinvested - was 45 percent. In January 2004, we increased our dividend 10 percent to an annual rate of $1.14 per share. In 2003, our earnings - excluding cumulative effects of changes in accounting principles and special items - increased 9.5 percent to $2.76 per share, up from $2.52 earnings per share in 2002. We're doing it right Our performance in 2003 is a strong affirmation that we have the right business model. We have the right pieces - a leading competitive supply business, a low-cost generation fleet, and a reliable customer - focused regulated utility. To those pieces, we add intellectual capital, technology, market understanding, and disciplined risk management. In advance of other companies, we saw the importance of transparency and built an infrastructure to provide the right metrics and accurately project our results. We have met or exceeded our earnings guidance in every quarter since then. That's nine consecutive quarters as of year end 2003. We also expanded our risk and financial controls to ensure we are taking and managing risk in a manner in line with the interests of our shareholders. In disciplined fashion, over the last three years, we've found opportunities from among the fallen and restructuring energy companies. We held out for the right assets at the right prices - NewEnergy, Fellon-McCord/Alliance Energy Services, Blackhawk Energy Services, Kaztex Energy Management, the Nine Mile Point Nuclear Station, the Ginna Nuclear Power Plant, and several portfolios of customer contracts. Our strong financial and operating results tell the story. Our growing sales force, increasing brand recognition, product excellence, credit strength, and leading management have us well positioned to continue prospering and growing. We're reaching for the future Reliable energy is critical to our economy and our quality of life. Two events during 2003 provided an unwelcome experience of life without energy. In August, the largest blackout in history hit eight Midwest and Northeast states and Canada. Major cities - including New York, Toronto, Cleveland and Detroit - were left without power. More than 50 million people were affected, some for days. While this cascading blackout did not affect our transmission system or utility operations, it did impact our Nine Mile Point Power Plant in New York. We brought the plant safely off line and then back on line as soon as conditions allowed. In September, Hurricane Isabel hit the Mid-Atlantic states, causing $200 million in damage. It disrupted service to 3.1 million customers - including 790,000 customers of BGE, our regulated utility in Central Maryland. Our planning and preparation paid off, and we were able to restore service to all of our BGE customers in eight days. For our efforts, we received the Edison Electric Institute Emergency Response Award. While hurricanes cannot be avoided, this blackout could have been. Its causes and effects are symptomatic of the challenges within our fragmented industry. Imagine the inefficiencies and complexities if every major city or state had its own particular airline and air traffic control system...its own unique computer technology and operating system...its own independently operated postal service. All with little or no common standards, or incentive to work together. That describes the fragmentation of today's energy industry. It's clear that well-functioning competitive energy markets need standards. They must have a solid structure, clear rules, a number of competing suppliers, and an open and reliable transmission system. Customers do not benefit fully from markets in which individual companies discriminately control when and how much energy they can receive...and at what price they can receive it. At a time when customers would benefit from well-functioning competitive markets, some companies in our industry are grabbing for the past. They've retreated from competitive markets, attempting to restructure back into the old regulated utility model. We - on the other hand - are reaching for the future. Our progressive strategy is distinct from many companies in our industry. It creates a business designed to succeed in the reality of today's competitive markets. The future is competitive markets We believe competitive markets will continue to evolve and grow, eventually dominating the energy landscape and leading to innovations, efficiencies and growth. Competition is in the best interests of energy customers, and it's good for our economy. Customers need and want convenience, reliability and efficiency - all at the best value. In regulated markets where customers have only one supplier with no ability to choose, the level of convenience, reliability, efficiency and value is limited by the capability, willingness and motivation of their one supplier. In competitive markets where customers can choose suppliers, the level of convenience, reliability, efficiency and value continuously improves with the technologies and skills of companies competing to be the best at meeting customers' energy needs. By letting fair competitive markets work, our industry will create the potential for developing new ways to deal with environmental challenges and reliability issues, while also sending appropriate market signals that will ensure we have the right amount of generating capacity. Regulated markets provide no incentives to be innovative. Competitive markets do. The way energy works We're redefining America's energy industry, and we're excited about it. Customers, investors, financial analysts and even other energy companies have taken note. I am energized, my team is committed, and our employees are focused on the opportunity at hand. We know the way energy works. We also know the opportunity competitive markets present to create value for our customers, our economy, our quality of life, and for our shareholders. And we'll work tirelessly to realize that value. Sincerely, Mayo A. Shattuck III Chairman, President and Chief Executive Officer March 15, 2004