Pepco Holdings Reports Full Year and Fourth-Quarter 2004 Results; Conference Call Scheduled

Tuesday, March 15, 2005

Pepco Holdings, Inc. (NYSE: POM) today reported for the full year 2004, consolidated earnings of $258.7 million, or $1.47 per share, compared to $113.5 million, or 66 cents per share, for the full year 2003. Excluding special items (as described below), earnings for the full year 2004 would have been $272.6 million, or $1.54 per share, compared to $212.4 million, or $1.24 per share, for the full year 2003.

"Overall, we are pleased with our financial results in 2004," said Dennis R. Wraase, Chairman of the Board, President and Chief Executive Officer. "We demonstrated successful execution of our stated strategy to keep focus on our core power delivery business, improve the profitability of our competitive energy businesses, shed non-core assets and strengthen the balance sheet. Earnings per share excluding special items was up 24 percent from 2003. Much of this increase was driven by the improved performance of our competitive energy businesses." Wraase also noted that he was pleased with the continued improvement in PHI''s balance sheet and that PHI remains focused on the overall goal to reduce debt and preferred stock by $1.3 billion over the period 2003 - 2007.

2004 Highlights

  • Exceeded the debt and preferred stock reduction goal by reducing debt by approximately $480 million, inclusive of the application of common stock issuance proceeds;
  • Improved the common equity ratio from 34.6 percent at the end of 2003 to 39.2 percent at the end of 2004 (exclusive of transition bonds issued by ACE Funding, Pepco Energy Services'' project debt and capital leases) enabled by solid cash flows from operations, supplemented by the equity issuance in September;
  • Sold the investment in Starpower Communications as well as the last remaining aircraft demonstrating the commitment to focus on the core power delivery business; and
  • Effectively worked with regulators to transition to market-based default supply service, as demonstrated in Maryland and the District of Columbia.

For the fourth quarter 2004, Pepco Holdings reported consolidated earnings of $6.1 million, or 3 cents per share, compared to a loss of $62.0 million, or 36 cents per share, for the fourth quarter 2003. Excluding special items (as described below), earnings for the fourth quarter of 2004 would have been $31.3 million, or 16 cents per share, compared to $4.9 million, or 3 cents per share, for the fourth quarter 2003.

"In the fourth quarter, we continued to see consistent, predictable results from the Power Delivery business driven by sales growth, favorable weather and an increase in Standard Offer Service gross margins," said Wraase. As for our competitive energy businesses, we continue to be pleased with their profitable performance. Conectiv Energy had a significant increase in generation output during the quarter primarily due to increased demand resulting from unit outages in the eastern PJM power grid and colder weather in the second half of December. Pepco Energy Services benefited from higher electric sales and improved commodity margins."

Further details regarding the change in consolidated earnings between 2004 and 2003 can be found in the following schedules and by referring to the Pepco Holdings, Inc. Form 10-K for the year ended Dec. 31, 2004, as filed with the Securities and Exchange Commission.

Special Items

GAAP earnings for the full year 2004 included the following items which management believes are not representative of the company''s core business operations (referred to herein as "special items"):

  • After-tax earnings of $13.2 million, or 7 cents per share, related to the impact of changes in local tax regulations that were retroactive to 2001;
  • After-tax earnings of $8.6 million, or 5 cents per share, related to a gain on the condemnation settlement associated with the transfer of Vineland distribution assets;
  • After-tax earnings of $6.6 million, or 4 cents per share, related to the disposition of a joint venture associated with the Vineland co-generation facility;
  • After-tax charges of $19.7 million, or 11 cents per share, related to the charge taken by Potomac Capital Investment in connection with an Internal Revenue Service settlement;
  • After-tax charges of $7.7 million, or 4 cents per share, related to the early payment of Conectiv Energy''s Bethlehem debt;
  • After-tax charges of $7.7 million, or 4 cents per share, related to severance costs accruals; and
  • After-tax charges of $7.3 million, or 4 cents per share, related to the impairment of the Starpower investment.

GAAP earnings for the full year 2003 included the following special items:

  • After-tax earnings of $44.7 million, or 26 cents per share, related to the gain on the Edison Place office building sale;
  • After-tax earnings of $5.9 million, or 4 cents per share, related to an Atlantic City Electric Company (BL England) accrual reversal;
  • After-tax charges of $66.7 million, or 39 cents per share, related to the impairment of the Starpower investment;
  • After-tax charges of $29.5 million, or 17 cents per share, related to Conectiv Energy's cancellation of a contract for the delivery of four combustion turbines;
  • After-tax charges of $26.6 million, or 16 cents per share, related to net energy trading losses prior to the cessation of proprietary energy trading;
  • After-tax charges of $16.3 million, or 10 cents per share, related to Atlantic City Electric Company's New Jersey deferral disallowance;
  • After-tax charges of $8.7 million, or 5 cents per share, related to the reserve of a portion of a pre-bankruptcy receivable from Mirant; and
  • After-tax charges of $1.7 million, or 1 cent per share, related to Conectiv Energy's cancellation of a contract for the delivery of four combustion turbines.

GAAP earnings for the fourth quarter 2004 included the following special items:

  • After-tax charges of $19.7 million, or 10 cents per share, related to the charge taken by Potomac Capital Investment in connection with an Internal Revenue Service settlement and
  • After-tax charges of $5.5 million, or 3 cents per share, related to severance costs accruals.

GAAP earnings for the fourth quarter 2003 included the following special item:

  • After-tax charges of $66.7 million, or 39 cents per share, related to the impairment of the Starpower investment.

CONFERENCE CALL FOR INVESTORS

PHI will host a conference call to discuss fourth quarter results on Thursday, Mar. 17 at 10 a.m. EST. Investors, members of the media and other interested persons may access the conference call on the Internet at www.pepcoholdings.com/investors or by calling 800-299-0433 before 9:55 a.m. The pass code for the call is "Pepco Holdings." International callers may access the call by dialing 617-801-9712, using the same pass code, "Pepco Holdings." An on-demand replay will be available for seven days following the call. To hear the replay, dial 888-286-8010 and enter pass code 59664086. International callers may access the replay by dialing 617-801-6888 and entering pass code 59664086. An audio archive will be available at PHI''s Web site, www.pepcoholdings.com/investors/index_financialrelease.html.

Note: If any non-GAAP financial information (as defined by the Securities and Exchange Commission in Regulation G) is used during the quarterly earnings conference call, a presentation of the most directly comparable GAAP measure and a reconciliation of the differences will be available at www.pepcoholdings.com/investors/index_financialrelease.html.

Complete press release with selected financial information.
Adobe Acrobat Format.

###

About PHI:

Pepco Holdings, Inc. is a diversified energy company with headquarters in Washington, D.C. Its principal operations consist of PHI Power Delivery, which delivers 50,000 gigawatt-hours of power to more than 1.8 million customers in Washington, D.C., Delaware, Maryland, New Jersey and Virginia. PHI engages in regulated utility operations by delivering electricity and natural gas, and provides competitive energy and energy products and services to residential and commercial customers.

Forward-Looking Statements:

Except for historical statements and discussions, the statements in this news release constitute "forward-looking statements" within the meaning of federal securities law. These statements contain management's beliefs based on information currently available to management and on various assumptions concerning future events. Forward-looking statements are not a guarantee of future performance or events. They are subject to a number of uncertainties and other factors, many of which are outside the company's control. Factors that could cause actual results to differ materially from those in the forward-looking statements herein include general economic, business and financing conditions; availability and cost of capital; changes in laws, regulations or regulatory policies; weather conditions; competition; governmental actions; and other presently unknown or unforeseen factors. These uncertainties and factors could cause actual results to differ materially from such statements. PHI disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This information is presented solely to provide additional information to further understand the results and prospects of PHI.