Pepco Holdings Reports First-Quarter 2006 Earnings; Conference Call Scheduled
Friday, May 05, 2006
Pepco Holdings, Inc. (NYSE: POM) today reported first quarter 2006 consolidated earnings of $56.8 million, or 29 cents per share, compared to $54.7 million, or 29 cents per share, in the first quarter of 2005. Excluding special items (as described below), earnings for the first quarter of 2006 would have been $53.0 million, or 27 cents per share, compared to $49.6 million, or 26 cents per share, in the first quarter of 2005. The weighted average shares outstanding for the first quarter of 2006 were 189.9 million compared to 188.4 million for the first quarter of 2005.
The earnings increase, excluding special items, for the first quarter of 2006 as compared to the 2005 quarter was due primarily to increased earnings at Pepco Energy Services driven by higher retail commodity earnings and increased earnings at Conectiv Energy driven by higher merchant generation earnings. Partially offsetting these increases were lower earnings at Power Delivery resulting primarily from a weather related decrease in kWh sales.
"Given the mild winter weather, we are pleased with our results which reflect continued progress in executing our strategic plan" said Dennis R. Wraase, Chairman, President and Chief Executive Officer. "We saw continued good performance from our competitive energy businesses and remain positive about the improvement in the energy market." He added, "During the first quarter, we also saw considerable concern in Maryland and Delaware around the higher Standard Offer Service rates resulting from the recent competitive bids for supply. We worked collaboratively with our state legislatures and regulators to develop plans to address customer concerns while maintaining the financial integrity of our utility subsidiaries. The end result was a balanced approach that will enable our customers to transition to the higher rates over time, while allowing the utilities to fully recover the deferred balances over a reasonable period."
Highlights
Operations- Power Delivery electric sales were 12,015 gigawatt hours (Gwhs) in the first quarter of 2006 compared to 12,576 Gwhs for the same period last year. Heating degree days decreased by 15% for the three months ended March 31, 2006 as compared to the same period in 2005.
- Conectiv Energy's total generating output was 803 Gwhs in the first quarter of 2006 compared to 1,275 Gwhs in the first quarter of 2005. The decrease resulted primarily from mild winter weather.
- Conectiv Energy's gross margin (defined as revenue less cost of goods sold) on merchant generation was $69.6 million in the first quarter of 2006, compared to $54.9 million in the first quarter of 2005. The increase resulted primarily from favorable hedge results.
- Conectiv Energy's gross margin on Full Requirements Load Service was $(20.5) million in the first quarter of 2006, compared to $(7.7) million in the first quarter of 2005. The decrease was driven primarily by the expiration of favorable hedge contracts.
- Pepco Energy Services had commercial and industrial retail electricity sales of 2,447 Gwh in the first quarter of 2006, compared to 2,911 Gwh in the first quarter of 2005. This decrease primarily reflects the return of customers to standard offer service supply in light of the rising energy price environment.
- Pepco Energy Services' gross margins on retail commodity were $20.7 million in the first quarter of 2006, compared to $13.5 million in the first quarter of 2005. The increase was driven primarily by improved congestion cost management and gains on the sale of excess energy supply that resulted from the return of customers to standard offer service supply.
- On April 6, 2006, the Governor of Delaware signed into law legislation that provides for a three-step phase-in of the new Standard Offer Service rates that took effect on May 1, 2006. Delmarva Power estimates that the phase in of new rates would create a maximum after-tax deferral balance of approximately $65 million, assuming 100% participation. Because the program has an "opt-out" feature that allows customers to elect not to participate, Delmarva Power expects less than 100% participation. As of May 4, 2006, 48% of Delaware customers have "opted-out" of the deferral program. The deferral balance, excluding interest costs, will be recovered from customers over a 17-month period beginning January 1, 2008. Assuming 100% participation, the after-tax interest expense to fund the deferral over the 37-month rate deferral and recovery period would be approximately $4 million.
- On April 21, 2006, the Maryland Public Service Commission approved the settlement that provides for a three-step phase-in of the new Standard Offer Service rates that are scheduled to take effect on June 1, 2006. The phase-in of new rates would create an estimated maximum after-tax deferral balance of approximately $94 million in total for Pepco and Delmarva Power, assuming 100% participation. Because the program is an "opt-in" program under which customers must make an affirmative choice to participate, the companies expect less than 100% participation. The "opt-in" election period began May 1 and runs through May 26, 2006. As of May 4, 2006, less than 1% of Pepco and Delmarva Power eligible Maryland customers have "opted-in" to the deferral program. The deferral balance, excluding interest costs, will be recovered from customers over an 18-month period beginning June 1, 2007. Assuming 100% participation, the after-tax interest expense to fund the deferral over the 30-month rate deferral and recovery period would be approximately $4 million for Pepco and Delmarva Power combined.
- On April 25, 2006, the Delaware Public Service Commission issued an order in Delmarva Power's base rate case. The order decreases distribution rates by $11.1 million annually and authorizes a 10% return on equity. The order also assigns $4.9 million of annual costs from distribution rates to the supply component of SOS rates, modifies plant depreciation rates and adopts certain tariff modifications. The after-tax annual earnings and cash flow impacts are reductions of approximately $1.6 million and $3.5 million, respectively.
- On March 1, 2006, Pepco redeemed all outstanding shares of its Serial Preferred Stock of each series, at 102% of par, for an aggregate redemption amount of $21.9 million.
- On March 15, 2006, Atlantic City Electric issued $105 million of 5.80% senior notes due 2036. Proceeds were used to repay short-term debt that was issued to repay maturing long-term debt.
- On April 13, 2006, Pepco issued $109.5 million of auction rate pollution control refunding revenue bonds through the Maryland Economic Development Corporation due 2022. The initial auction rate is 3.30%. Proceeds will be used to refund $109.5 million of fixed rate (5.375% - 6.375%) tax exempt securities in the second quarter of 2006.
Further details regarding changes in consolidated earnings between 2006 and 2005 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 March 31, 2006 as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors.
Special Items
PHI's earnings for the first quarter of 2006 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 $7.9 million, or 4 cents per share, related to a gain on Conectiv Energy's disposition of its interest in a co-generation facility and
- After-tax charges of $4.1 million, or 2 cents per share, related to an impairment loss on certain Pepco Energy Services' assets associated with its energy services business.
GAAP earnings for the first quarter of 2005 included 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 New Jersey.
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Reconciliation of GAAP Earnings to Earnings Excluding Special Items |
||
Net Earnings – Dollars in Millions |
Three Months Ended |
|
|
|
(Restated) |
Reported (GAAP) Net Earnings |
$56.8 |
$54.7 |
Special Items: |
|
|
Gain on disposition of interest in a co-generation facility |
(7.9) |
- |
Impairment loss on energy services assets |
4.1 |
- |
New Jersey base rate case settlement |
- |
(5.1) |
|
|
|
|
|
|
Net Earnings, Excluding Special Items |
$53.0 |
$49.6 |
Earnings per Share |
Three Months Ended |
|
|
|
(Restated) |
Reported (GAAP) Earnings per Share |
$0.29 |
$0.29 |
Special Items: |
|
|
Gain on disposition of interest in a co-generation facility |
(0.04) |
- |
Impairment loss on energy services assets |
0.02 |
- |
New Jersey base rate case settlement |
- |
(0.03) |
|
|
|
|
|
|
Earnings per Share, Excluding Special Items |
$0.27 |
$0.26 |
CONFERENCE CALL FOR INVESTORS
Pepco Holdings Inc. will host a conference call to discuss first quarter results on Monday, May 8th 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 www.pepcoholdings.com/investors or by calling 1-800-798-2884 before 9:55 a.m. The pass code for the call is 36077957. International callers may access the call by dialing 1-617-614-6207, using the same pass code, 36077957. 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 46305011. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 46305011. An audio archive will be available at PHI's Web site, 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 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.
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