Pepco Holdings Reports Full-Year and Fourth-Quarter 2005 Earnings; Conference Call Scheduled

Monday, March 13, 2006

March 13, 2006

Pepco Holdings, Inc. (NYSE: POM ) today reported full year 2005 consolidated earnings of $371.2 million, or $1.96 per share, compared to $260.6 million, or $1.48 per share, in 2004. Excluding special items (as described below), earnings for the full year 2005 would have been $287.8 million, or $1.52 per share, compared to $273.6 million, or $1.56 per share, in 2004. The weighted average shares outstanding in 2005 were 189.0 million compared to 176.8 million in 2004, which resulted in 14 cents per share of dilution.
 
The earnings increase, excluding special items, for the full year 2005 as compared to the prior year was driven primarily by lower interest expense, higher Power Delivery sales resulting from warmer summer weather, and increased earnings at Pepco Energy Services driven by higher retail sales. Partially offsetting factors were lower earnings at Conectiv Energy primarily due to lower Full Requirements Load Service earnings, higher operations and maintenance expense at Power Delivery, and changes in estimated unbilled revenue recorded by Delmarva Power and Atlantic City Electric in the second quarter of 2005.
 
"Our 2005 results demonstrate progress on several fronts," said Dennis R. Wraase, Chairman, President and Chief Executive Officer. "I am pleased with our debt reduction progress and the ongoing improvement of our balance sheet. In our Power Delivery business, we continue to focus on operational excellence, including investments to expand and upgrade our transmission and distribution system. Conectiv Energy demonstrated improved operating performance and Pepco Energy Services doubled its net income over the previous year. In 2006, consistent with our strategic plan we will remain focused on investing in utility infrastructure, controlling costs in the Power Delivery business and building on the competencies demonstrated by the competitive energy businesses. The recent action taken by our Board of Directors to increase the common stock dividend by 4% reflects our improving fundamentals and the confidence in our ability to execute our strategic plan."
 
For the fourth quarter of 2005, consolidated earnings were $82.1 million, or 43 cents per share, compared to $13.9 million, or 7 cents per share, for the fourth quarter of 2004. Excluding special items, earnings for the fourth quarter of 2005 would have been $36.4 million, or 18 cents per share, compared to $38.1 million or 20 cents per share for the same period in 2004. 

The weighted average shares outstanding for the fourth quarter of 2005 were 189.5 million compared to 188.0 million for the same period in the prior year.
 
The decrease in earnings, excluding special items, for the fourth quarter of 2005 compared to the same period in 2004 was primarily due to lower earnings at Conectiv Energy driven by lower merchant generation earnings, partially offset by lower interest expense and increased earnings at Pepco Energy Services driven by higher retail sales.
 
Full Year Highlights

  • Debt and preferred stock were reduced by approximately $410 million in 2005 bringing the three year total reduction to $1.14 billion.
  • The common equity ratio at year end 2005 was 41.8%, an improvement of 370 basis points since year end 2004. 
  • Atlantic City Electric's New Jersey rate case was settled effective June 2005 resulting in an annual pre-tax earnings increase of $20 million. 
  • Pepco, Delmarva Power and Atlantic City Electric hit new peaks for electric usage in July 2005. 
  • Pepco sold excess non-utility land located at Buzzard Point in the District of Columbia in Aug. 2005. The sale price was $75 million and the transaction resulted in an after-tax gain of $40.7 million. 
  • Atlantic City Electric reached an agreement in Nov. 2005 to sell its interests in two jointly owned fossil fuel-fired generating plants for $173.1 million. Net gains on the sale will be an offset to stranded costs. The sale, subject to approval by regulatory agencies, is expected to be completed mid-year 2006. 
  • Pepco sold its allowed claim in the Mirant Corporation bankruptcy proceeding in the amount of $105 million plus accrued interest for a cash payment of $112.4 million in Dec. 2005. Pepco anticipates that customers will receive approximately $42.3 million of the cash payment. 

Fourth Quarter Operational Highlights 

  • Power Delivery electric sales were 12,478 gigawatt hours (Gwhs) in the fourth quarter of 2005 compared to 11,779 Gwhs for the same period last year. Heating degree days increased by 3.3% for the three months ended Dec. 31, 2005 compared to the same period in 2004. 
  • Pepco Energy Services had retail commercial and industrial electricity sales of 2,770 Gwh in the fourth quarter of 2005, up from retail sales of 2,143 Gwh in the fourth quarter of 2004. This increase primarily reflects the acquisition of additional commercial and industrial customer loads.
  • Conectiv Energy's gross margin on Other Power, Oil and Gas Marketing was $13.2 million in the fourth quarter of 2005, compared to ($0.2) million in the fourth quarter of 2004. The increase was driven primarily by higher margin sales of lower cost supply from inventory which was purchased prior to the escalation of gas and oil prices. 
  • Conectiv Energy's total generating output was 967 Gwhs in the fourth quarter of 2005 compared to 1,203 Gwhs in the fourth quarter of 2004. The decrease resulted primarily from a 2004 nuclear plant outage in PJM which resulted in higher run time for Conectiv Energy generating units during that period. 

Further details regarding changes 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-K for the year ended Dec. 31, 2005 as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors. Pepco Holdings Inc. has restated its previously reported consolidated financial statements as of Dec. 31, 2004 and for the years ended Dec. 31, 2004 and 2003, the quarterly financial information for the first three quarters of 2005, and all quarterly periods in 2004, to correct the accounting for certain deferred compensation arrangements. The restatement includes the correction for the same periods of other items, which are considered to be immaterial by management. The impact of the restatement was an increase of $1.9 million to 2004 net income and a decrease of $6.2 million to 2003 net income. See Note 15 to Pepco Holdings Inc.'s audited financial statements included in the 2005 Form 10-K for more information.
 
Special Items
 
PHI's earnings for the fourth quarter of 2005 determined in accordance with Generally Accepted Accounting Principles (GAAP) include the following special items which management believes are not representative of the company's core business operations: 

  • After-tax earnings of $42.2 million, or 22 cents per share, related to the gain associated with the settlement of the Mirant Transition Power Agreement (TPA) claim and asbestos claim; 
  • After-tax earnings of $8.9 million, or 5 cents per share, related to the liquidation of a financial investment previously written off;
  • After-tax charges of $2.6 million, or 1 cent per share, related to the impairment charge taken by Conectiv Energy to reduce the value of an investment in a jointly owned generation project; and 
  • After-tax charges of $2.6 million, or 1 cent per share, related to the increase in income tax expense for the interest accrued on the potential impact of the IRS Revenue Ruling on mixed service costs ( IRS Revenue Ruling 2005-53).
     

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

  • After-tax charges of $4.5 million, or 2 cents per share, related to severance costs accruals and 
  • After-tax charges of $19.7 million, or 11 cents per share, resulting from a tax settlement with the Internal Revenue Service related to Potomac Capital Investment's non-lease financial assets.

Complete press release with selected financial information.
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Media Contact: Robert Dobkin (202) 872-2680
Investor Contact: Anthony Kamerick (202) 872-2056

Conference Call for Investors
Pepco Holdings Inc. will host a conference call to discuss fourth quarter results on Tuesday, March 14th at 10:00 a.m. E.S.T. Investors, members of the media and other interested persons may access the conference call on the Internet at http://www.pepcoholdings.com/investors or by calling 1-866-713-8562 before 9:55 a.m. The pass code for the call is 25665525. International callers may access the call by dialing 1-617-597-5310, using the same pass code, 25665525. 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 73857412. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 73857412. An audio archive will be available at PHI's Web site, http://www.pepcoholdings.com/investors .
 
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 http://www.pepcoholdings.com/investors .
 
About PHI : Pepco Holdings, Inc., headquartered in Washington, D.C., delivers electricity and natural gas to about 1.9 million customers in Delaware, the District of Columbia, Maryland, New Jersey and Virginia, through its subsidiaries Pepco, Delmarva Power and Atlantic City Electric. PHI also provides competitive wholesale generation services through Conectiv Energy and retail energy products and services through Pepco Energy Services.

 
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 .