Pepco Holdings Reports Second-Quarter 2007 Earnings; Conference Call Scheduled
Monday, August 06, 2007
Pepco Holdings, Inc. (NYSE: POM) today reported second quarter 2007 consolidated earnings of $57.2 million, or 30 cents per share, compared to $51.2 million, or 27 cents per share, in the second quarter of 2006. There were no special items for the second quarter of 2007 or the second quarter of 2006. The weighted average shares outstanding for the second quarter of 2007 were 193.0 million compared to 190.2 million for the second quarter of 2006.
The increase in earnings for the second quarter of 2007 as compared to the 2006 quarter was due primarily to higher weather related kWh sales at Power Delivery, higher Merchant Generation and Load Service margins at Conectiv Energy driven primarily by higher generation output, and higher Pepco Energy Services earnings related primarily to Energy Services construction activity. Partially offsetting these increases were higher operation and maintenance expenses at Power Delivery and Conectiv Energy and the impact on Power Delivery of lower network transmission revenue resulting from a true-up in the 2006 transmission rates for rates in effect in 2005.
"We recently achieved another regulatory milestone with the electric distribution rate orders received from the Maryland Public Service Commission for Pepco and Delmarva Power," said Dennis R. Wraase, Chairman, President and Chief Executive Officer. "Importantly, the orders approved the implementation of the Bill Stabilization Adjustment Mechanism which is a key element of our previously announced "Blueprint for the Future." We are committed to aggressively pursuing energy efficiency and demand-side management programs, along with infrastructure development, to help our customers better manage their energy usage, and these orders provide a critical step toward that objective." He added, "In addition to the approval of the Bill Stabilization Adjustment Mechanism, the orders approved rate increases for Pepco and Delmarva Power and mostly reflected the adherence to regulatory precedents."
For the six months ended June 30, 2007, consolidated earnings were $108.8 million, or 56 cents per share, compared to $108.0 million, or 56 cents per share, for the same period in the prior year. There were no special items in the six months ended June 30, 2007. Excluding the special items described below, earnings for the six months ended June 30, 2006, would have been $104.3 million, or 54 cents per share. The weighted average shares outstanding for the six months ended June 30, 2007 were 192.6 million compared to 190.0 million for the same period in the prior year.
The increase in earnings for the six months ended June 30, 2007, compared to earnings excluding special items for the same period in the prior year was driven primarily by higher weather related kWh sales at Power Delivery and increased Merchant Generation and Load Service margins at Conectiv Energy due to higher generation output and higher margin supply contracts. Partially offsetting these increases were higher operation and maintenance expenses at Power Delivery and Conectiv Energy and the impact on Power Delivery of lower network transmission revenue resulting from a true-up in the 2006 transmission rates for rates in effect in 2005.
Second-Quarter Highlights
Operations
• Power Delivery electric sales were 12,145 gigawatt hours (GWhs) in the second quarter of 2007 compared to 11,670 GWhs for the same period last year. Heating degree days (electric service territory) increased by 45% for the three months ended June 30, 2007, as compared to the same period in 2006. Cooling degree days (electric service territory) increased by 24% for the three months ended June 30, 2007, compared to the same period in 2006. Weather adjusted electric sales were 11,816 GWhs in the second quarter of 2007 compared to 11,842 GWhs for the same period last year.
• Conectiv Energy's gross margin from Merchant Generation and Load Service was $51.4 million in the second quarter of 2007, compared to $47.0 million in the second quarter of 2006. The increase resulted primarily from higher generation output.
• Conectiv Energy's total generating output was 1,172 GWhs in the second quarter of 2007 compared to 834 GWhs in the second quarter of 2006. The increase resulted primarily from a cooler April 2007 and a hotter June 2007.
• Pepco Energy Services’ gross margin from Retail Energy Supply was $20.9 million in the second quarter of 2007, compared to $18.4 million in the second quarter of 2006. The increase was driven by higher retail electric volumes and more favorable natural gas margins.
• Pepco Energy Services had retail electric sales of 4,416 GWhs in the second quarter of 2007, compared to 2,753 GWhs in the second quarter of 2006. This increase primarily reflects the acquisition of additional commercial and industrial customer loads.
Regulatory Matters
• On July 19, 2007, the Maryland Public Service Commission issued an order in Pepco's base rate case. The order authorizes a $10.6 million increase in electric distribution base rates annually, effective June 16, 2007, and a 10% return on equity. The order also authorizes a change in depreciation rates that results in a $30.7 million reduction in pre-tax annual depreciation expense and the adoption of a Bill Stabilization
Adjustment Mechanism, which decouples revenues from kilowatt-hour sales. The change in rates is deemed to be temporary pending resolution of a second phase of the proceeding for the purpose of examining Pepco’s compliance with its Cost Allocation Manual.
• On July 19, 2007, the Maryland Public Service Commission issued an order in Delmarva Power's base rate case. The order authorizes a $14.9 million increase in electric distribution base rates annually, effective June 16, 2007, and a 10% return on equity. The order also authorizes a change in depreciation rates that results in a $0.9 million reduction in pre-tax annual depreciation expense and the adoption of a Bill Stabilization Adjustment Mechanism, which decouples revenues from kilowatt-hour sales. The change in rates is deemed to be temporary pending resolution of a second phase of the proceeding for the purpose of determining Delmarva Power’s compliance with its Cost Allocation Manual.
• On June 13, 2007, Delmarva Power entered into agreements to sell all of its distribution assets and substantially all of its transmission assets in Virginia for an aggregate sales price of approximately $45 million, subject to closing adjustments. The buyer of the distribution assets is A&N Electric Cooperative and the sale is contingent upon the approval of the Virginia State Corporation Commission. The buyer of the transmission assets is Old Dominion Electric Cooperative and the sale is contingent upon approvals by the Virginia State Corporation Commission and the Federal Energy Regulatory Commission. The transactions are expected to close in the fourth quarter.
• On June 8, 2007, the Virginia State Corporation Commission issued an order stating that the fuel index procedure that was put into place when Delmarva Power sold its generating plants remains applicable on and after July 1, 2007 for purposes of establishing Delmarva Power’s fuel factor. Delmarva Power had asserted that the fuel index procedure would not be effective after June 30, 2007. On July 31, 2007, Delmarva Power appealed the Commission’s decision to the Supreme Court of Virginia.
• On June 8, 2007, the Maryland Public Service Commission issued an order establishing a Pepco/Delmarva Power collaborative on near-term utility sponsored demand-side management initiatives and a state-wide collaborative on advanced metering initiatives and demand-side management programs.
• On April 23, 2007, the District of Columbia Public Service Commission issued an order opening a proceeding to consider Pepco’s “Blueprint for the Future” application which includes plans for demand-side management programs, advanced metering, and distribution automation.
• On June 27, 2007, Conectiv Energy filed its compliance plan as required by the Delaware Multi-Pollutant Regulations. These regulations identified Edge Moor Units 3, 4 and 5 as being subject to its provisions for limiting NOX, SO2, and mercury emissions. The plan filed by Conectiv Energy includes installation of a sodium-based sorbent injection system, Selective Non-Catalytic Reduction (SNCR) systems and carbon injection for Units 3 and 4 and low sulfur oil and a SNCR system at Unit 5. Conectiv Energy believes that with these modifications, it can meet the requirements of the new regulations at an estimated capital cost of $50 million to $80 million, most of which will be spent from 2007 through 2009.
Further details regarding changes in consolidated earnings between 2007 and 2006 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, 2007, as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors.
Special Items
GAAP earnings for the six months ended June 30, 2006, include the following special items:
• 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 $4.2 million, or 2 cents per share, related to an impairment loss on certain Pepco Energy Services' assets associated with its energy services business.
Adobe Acrobat FormCONFERENCE CALL FOR INVESTORS
Pepco Holdings Inc. will host a conference call to discuss second quarter results on Tuesday, Aug. 7th at 10:00 a.m. E.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 1-866-362-5158 before 9:55 a.m. The pass code for the call is 16977892. International callers may access the call by dialing 1-617-597-5397, using the same pass code, 16977892. 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 21618240. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 21618240. 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.
