Pepco Holdings Reports Second-Quarter 2005 Earnings; Conference Call Scheduled

Monday, August 08, 2005

Pepco Holdings, Inc. (NYSE: POM) today reported second quarter 2005 consolidated earnings of $64.0 million, or 34 cents per share, compared to $90.4 million, or 53 cents per share, in the second quarter of 2004. Excluding special items (as described below), earnings for the second quarter of 2004 would have been $82.5 million, or 48 cents per share. The weighted average shares outstanding for the second quarter 2005 were 188.8 million compared to 172.2 million for the second quarter of 2004, which resulted in 3 cents per share of dilution in consolidated earnings quarter over quarter.

The earnings decline, excluding special items, for the second quarter of 2005 as compared to the prior year was driven primarily by lower power delivery sales resulting from milder weather, lower earnings at Conectiv Energy and dilution, partially offset by lower interest expense and higher earnings at Pepco Energy Services. A second quarter adjustment to correct the unbilled revenue amount reported by Potomac Electric Power Company (Pepco) in the first quarter of 2005 (3 cents per share) and the impact of changes by Delmarva Power and Light Company (Delmarva Power) and Atlantic City Electric Company (Atlantic City Electric) in the estimation of unbilled revenue (4 cents per share) also contributed to lower earnings. The revision to the estimated unbilled revenue balance for Delmarva Power and Atlantic City Electric, which has no cash impact, primarily reflects an increase in the estimated amount of power line losses (estimates of electricity expected to be lost in the process of its transmission and distribution to customers). Pepco Holdings does not expect the future use of the increased power line loss factors used to estimate unbilled revenue to have a significant impact on future periods.

"Though we were negatively impacted by the weather and higher energy prices this quarter, compared with the second quarter of last year, I remain pleased with the progress made on the execution of our business plans," stated Dennis R. Wraase, Chairman, Presidentand Chief Executive Officer. "Our system performed well during the recent heat wave, our competitive energy businesses are performing as expected and our cash flow remains strong," he added.

For the six months ended June 30, 2005, consolidated earnings were $119.5 million, or 63 cents per share, compared to $141.6 million,or 82 cents per share, for the same period in the prior year. Excluding special items, earnings for the six months ended June 30, 2005 would havebeen $114.4 million, or 60 cents per share, compared to $120.5 million,or 70 cents per share, for the first six months of 2004. The weighted average shares outstanding for the six months ended June 30, 2005 were 188.6 million compared to 172.0 million for the same period in the prior year, which resulted in 6 cents per share of dilution in consolidated earnings from the prior year.

The decrease in earnings, excluding special items, for the six months ended June 30, 2005 compared to the prior year was driven by lower power delivery sales resulting from milder weather, lower earnings at Conectiv Energy and dilution, partially offset by lower interest expenseand by higher earnings at Pepco Energy Services. Changes in estimated unbilled revenue recorded by Delmarva Power and Atlantic City Electricin the 2005 period (4 cents per share), also contributed to lower earnings.

Highlights
Operations

  • Power Delivery electric sales in gigawatt hours (Gwhs) were 11,400 in the second quarter of 2005 compared to 12,351 for the same period last year. Cooling degree days decreased by 28.8% for the three months ended June 30, 2005 as compared to the same period in 2004.
  • Pepco, Delmarva Power and Atlantic City Electric each hit a new peak for electric usage in July 2005.
  • Conectiv Energy's total generating output was 971 Gwhs in the second quarter of 2005 compared to 1,336 Gwhs in the second quarter of 2004.The decrease resulted primarily from milder April and May weather resulting in lower run time.
  • Conectiv Energy''s gross margin (defined as revenue less cost of goods sold) on merchant generation was $55.7 million in the second quarter of 2005, compared to $48.8 million in the second quarter of 2004. The increase resulted primarily from higher spark spreads and unit flexibility allowing the plants to capture opportunities during peak periods. 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 $4.9million, or 3 cents per share, for the fourth quarter 2003.
  • Conectiv Energy''s gross margin on full requirements load service was $8.9 million in the second quarter of 2005, compared to $18.9 millionin the second quarter of 2004. The decrease was driven by lower volumes and higher energy costs used to supply the load.
  • Pepco Energy Services had retail electricity sales of 3,272 Gwh in the second quarter of 2005, up from retail sales of 1,850 Gwh in the second quarter of 2004. This increase primarily reflects the acquisition of additional commercial and industrial customer loads.

Regulatory Matters

  • On May 26, 2005, the New Jersey Board of Public Utilities approved the settlement reached in the Atlantic City Electric base rate case. The settlement became effective June 1, 2005 and, while revenue neutral, will have a positive annual pre-tax earnings impact of approximately $20 million.
  • On July 18, 2005, Delmarva Power and several other parties to the Delaware Standard Offer Service (SOS) proceedings, including the Commission Staff and the Division of Public Advocate, filed a settlement that, if approved, will resolve most of the remaining issues in the case. Other parties to the proceeding are opposing the settlement. The Delaware Public Service Commission previously determined that SOS should be provided by Delmarva Power using a wholesale bidding approach. The settlement provides for the company to recover its costs associated with providing SOS and earn a margin. A hearing on the settlement was held on August 4, 2005. The commission's decision is anticipated early in the fourth quarter.

Financing Activities

  • On June 1, 2005, Pepco issued $175 million of 5.4% senior secured notes due 2035. The net proceeds will be used to redeem $75 million of 7.375% first mortgage bonds due 2025 and to pay at maturity $100 million of 6.5% first mortgage bonds due September 15, 2005.
  • On June 1, 2005, Delmarva Power issued $100 million of 5.0% unsecured notes due 2015. The net proceeds were used to redeem $100 million of 7.71% first mortgage bonds due 2025.
  • On June 1, 2005, Conectiv paid at maturity $250 million of its 5.3%notes, $30 million of its 6.73% notes and called for early redemptionthe remaining $20 million of its 6.73% notes due 2006. There is no longer any public debt outstanding at Conectiv.
  • On June 10, 2005, Pepco Holdings issued $250 million of floating rate unsecured notes due 2010. The net proceeds were used to repay commercial paper issued to fund the redemption of Conectiv debt as described above.

Mirant

  • On April 13, 2005, Pepco received a payment from Mirant of approximately $57.5 million representing the full amount then due relating to the Power Purchase Agreements. To date, Mirant continues to make the scheduled payments under these agreements.

Other

  • On July 18, 2005, Pepco finalized an agreement for the sale of excessnon-utility land located at Buzzard Point in the District of Columbia. Closing is scheduled to occur in August 2005. The sale price of the land is $75 million in cash and is expected to result in an after-tax gain of approximately $38 million to $42 million that will be recordedby Pepco upon the closing of the sale.

Further details regarding the change in consolidated earnings between 2005 and 2004 can be found in the following schedules. Additional information regarding financial results and recent regulatory events can be found in the Pepco Holdings, Inc. Form 10-Q for the quarter ended June 30, 2005 as filed with the Securities and Exchange Commission, which is availableat www.pepcoholdings.com/investors.

Special Items

There were no special items for the second quarter 2005. Generally Accepted Accounting Principles (GAAP) earnings for the second quarter 2004 include the following special items which management believes are not representative of the company''s core business operations:

  • After-tax earnings of $8.6 million, or 5 cents per share, relatedto 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; and
  • After-tax charges of $7.3 million, or 4 cents per share, related tothe impairment of the Starpower investment.

GAAP earnings for the six months ended June 30, 2005 include the following special item:

  • After-tax earnings of $5.1 million, or 3 cents per share, related to the Atlantic City Electric base rate case proceedings settlement.

In addition to the items listed above for the second quarter 2004, GAAP earnings for the six months ended June 30, 2004 included the following special item:

  • After-tax earnings of $13.2 million, or 7 cents per share, related to the impact of changes in local tax regulations that were retro activeto 2001.

CONFERENCE CALL FOR INVESTORS

Pepco Holdings Inc. will host a conference call to discuss second quarter results on Wednesday, August 10th at 10:00 a.m. E.D.T. Investors, members of the media and other interested persons may access the conference call on the Internet at http://www.pepcoholdings.com/investorsor by calling 1-800-299-9086 before 9:55 a.m. The pass code for the callis 81279299. International callers may access the call by dialing 1-617-786-2903, using the same pass code, 81279299. An on-demand replay will be available for seven days following the call. To hear the replay, dial 1-888-286-8010 and enter pass code 30967337. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 30967337. An audio archive will be available at PHI''s Web site, http://www.pepcoholdings.com/investors/index_financialrelease.html.

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

Note: If any non-GAAP financial information (as definedby 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.

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About PHI: PepcoHoldings, Inc. is a diversified energy company with headquarters in Washington,D.C. Its principal operations consist of 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:

PepcoHoldings, Inc. is a diversified energy company with headquarters in Washington,D.C. Its principal operations consist of 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.