Pepco Holdings Reports Full-Year and Fourth-Quarter 2008 Earnings; Conference Call Scheduled
Monday, March 02, 2009
Pepco Holdings, Inc. (NYSE: POM) today reported full year 2008 consolidated earnings of $300 million, or $1.47 per share, compared to $334 million, or $1.72 per share, in 2007. Excluding special items (as described below), earnings for the full year 2008 would have been $393 million, or $1.93 per share, compared to $296 million, or $1.53 per share, in 2007. The weighted average number of basic shares outstanding in 2008 was 204 million compared to 194 million in 2007.
The earnings increase, excluding special items, for the full year 2008 as compared to the prior year was driven primarily by the improved performance of both Power Delivery and Conectiv Energy. Higher Power Delivery earnings were due to the impact of the distribution base rate orders in Maryland and the District of Columbia as well as higher transmission rates, partially offset by lower weather-related kWh sales.
Conectiv Energy realized higher earnings as it capitalized on opportunities resulting from its generating units’ operating flexibility and dual-fuel capability and its firm natural gas transportation and storage positions, coupled with short-term power and fuel price volatility. Higher capacity prices and mark-to-market gains related to economic fuel and power hedges also contributed to the increase in earnings, while a reduction in the value of oil inventory due to a lower of cost or market adjustment and lower revenue from sales of emissions allowances were partially offsetting factors. The increase in Pepco Energy Services’ earnings was primarily due to higher volumes in the retail gas supply business. Favorable income tax adjustments impacted each of the operating businesses.
“The year 2008 marks an outstanding year of financial performance for our operating businesses,” said Dennis R. Wraase, Chairman of the Board. “In Power Delivery, we set out to earn a fair return on our infrastructure investments, control costs and start the process of decoupling revenue from kilowatt hour sales. Our results for the year reflect our achievements in these areas as well as the performance of Conectiv Energy and Pepco Energy Services, each of which continued its track record of posting strong results.”
Wraase noted last week’s announcement of his upcoming retirement and the Board’s election of Joseph M. Rigby as President and Chief Executive Officer effective March 1. “I am proud of the progress we have made over the past several years. Pepco Holdings is well positioned to meet the challenges ahead and create value for our customers and shareholders. Joe and I have worked closely over the past six years and I am very confident in his ability to lead this organization,” Wraase added.
“While we expect to face many challenges in 2009, we are optimistic about longer term growth,” said Rigby. “In 2008, we reached key milestones for several significant projects. Incentive rates were approved for the Mid-Atlantic Power Pathway transmission project, the deployment of advanced metering technology in Delaware was approved under our ‘Blueprint for the Future’ program, and construction of Conectiv Energy’s two new generating units is proceeding as scheduled. The $1 billion of financing we completed in the fourth quarter positions us to continue the implementation of our growth strategy in 2009.”
For the fourth quarter of 2008, consolidated earnings were $67 million, or 32 cents per share, compared to $57 million, or 29 cents per share, for the fourth quarter of 2007. There were no special items in either period. The weighted average number of basic shares outstanding for the fourth quarter of 2008 was 211 million compared to 197 million for the same period in the prior year.
The increase in earnings for the fourth quarter of 2008 compared to earnings in the fourth quarter of 2007 was caused by higher Power Delivery earnings resulting from the impact of the District of Columbia distribution base rate order for Pepco issued in January 2008, lower operation and maintenance expenses, and higher transmission rates. Conectiv Energy’s earnings decreased primarily due to lower generation output, lower spark spreads, and a lower of cost or market adjustment to oil inventory. At Pepco Energy Services, higher capacity-related charges led to lower earnings. Favorable income tax adjustments impacted each of the operating businesses.
Full Year Highlights
Regulatory
· On Dec. 31, 2008, the Maryland Public Service Commission (MPSC) approved certain energy efficiency and conservation programs proposed by Pepco and Delmarva Power under the Empower Maryland Act and the companies’ “Blueprint for the Future” initiatives. While the mechanics of cost recovery remain to be determined, the companies expect that proceeds from PJM’s capacity auctions will offset all or part of the costs of the programs, with any balance being recovered through a previously approved demand-side management surcharge.
. On Dec. 18, 2008, the District of Columbia Public Service Commission (DCPSC) approved certain demand response and energy efficiency programs proposed by Pepco in connection with its “Blueprint for the Future” initiatives. Program costs will be recovered through a Sustainable Energy Trust Fund customer surcharge
· On Oct. 31, 2008, the Federal Energy Regulatory Commission (FERC) unanimously approved incentive rates requested by the utilities in connection with the 230-mile, 500-kilovolt Mid-Atlantic Power Pathway (MAPP) Project including rate base treatment of construction work in progress, a return on equity adder of 150 basis points (increasing the return on equity to 12.8%), and the recovery of prudently incurred costs in the event of project cancellation for reasons beyond the control of the utilities.
· On Sept. 16, 2008, the Delaware Public Service Commission (DPSC) approved the concept of a revenue-decoupling rate structure for
· On April 18, 2008, the MPSC approved the demand response programs proposed by Pepco and Delmarva Power in connection with the companies’ “Blueprint for the Future” initiatives. The orders authorize cost recovery through surcharge mechanisms and provide for incentives.
·On Jan. 30, 2008, the DCPSC issued an order in Pepco’s distribution base rate case. The order authorized a $28 million increase in electric distribution base rates annually, effective Feb. 20, 2008, and a 10% return on equity. The DCPSC supported the concept of a Bill Stabilization Adjustment mechanism, which decouples revenues from kilowatt-hour sales. On Jan. 2, 2009, the DCPSC issued an order setting a procedural schedule to address further the issue of decoupling.
· On Jan. 2, 2008, Delmarva Power completed the sale of its Virginia distribution assets and substantially all of its Virginia transmission assets for an aggregate sales price of approximately $54 million. These sales eliminated Delmarva Power’s obligation to provide default service in Virginia.
Operations
· Power Delivery electric sales were 49,967 gigawatt hours (GWhs) in 2008, compared to 51,318 GWhs in 2007. In the electric service territory, heating degree days decreased by 2% and cooling degree days decreased by 10% in 2008, compared to 2007. Weather adjusted electric sales were 49,705 GWhs in 2008, compared to 49,890 in 2007 (excluding the Virginia retail electric distribution assets sold in Jan. 2008).
· On Dec. 4, 2008, PJM Interconnection’s board of managers approved the use of direct current cabling for segments of the MAPP project. The revised estimated construction cost of the line is $1.4 billion, up from the previous estimate of $1.05 billion. The project will be built in stages through 2013.
· Conectiv Energy's gross margin from Merchant Generation and Load Service increased 26% as compared to 2007, despite lower generation output year over year. The increase in gross margin was primarily due to higher capacity prices as well as Conectiv Energy’s ability to capitalize on opportunities resulting from its generating units’ operating flexibility and dual-fuel capability, firm natural gas transportation and storage positions, and fuel hedges, coupled with increasing fuel prices and volatility.
· Pepco Energy Services’ retail electric load served at Dec. 31, 2008 was 4,388 MW, compared to 4,294 MW at Dec. 31, 2007.
Other
·On Sept. 5, 2008, Pepco completed the transfer to Sempra Energy Trading LLC (Sempra) of its power purchase agreement with Panda-Brandywine, L.P. (Panda PPA).In connection with the transaction, Pepco paid to Sempra a portion of the proceeds that Pepco received from Mirant in Aug. 2007 as damages in connection with Mirant’s rejection of its agreement to assume Pepco’s obligations under the Panda PPA as part of Mirant’s purchase of Pepco’s generation assets in 2000. As of Dec. 31, 2008, the balance of the funds received in connection with the Mirant bankruptcy, after giving effect to the Sempra payment and interest earned, was approximately $102 million. The portion of these funds that Pepco ultimately retains will be based on customer sharing arrangements with respect to the funds to be approved by the MPSC and the DCPSC.
Fourth Quarter Operational Highlights
Financing/Liquidity
· On Nov. 12, 2008, Pepco Holdings sold in a registered offering 16.1 million shares of common stock at a price of $16.50 per share, resulting in net proceeds of $255 million. Net proceeds were used to repay short-term debt and for general corporate purposes.
· On Nov. 7, 2008, Pepco Holdings entered into a 364-day credit facility, which has aggregate commitments of $400 million. This credit facility is in addition to the $1.5 billion multi-year credit facility that is in effect until May 2012.
· On Nov. 14, 2008, Atlantic City Electric issued $250 million of 7.75% first mortgage bonds maturing on Nov. 15, 2018. Net proceeds were used to repay short-term debt, including credit facility borrowings, and for general corporate purposes.
· On Nov. 25, 2008, Delmarva Power issued $250 million of 6.40% first mortgage bonds maturing on Dec. 1, 2013. Net proceeds were used to repay short-term debt, including credit facility borrowings, and for general corporate purposes.
· On Dec. 10, 2008, Pepco issued $250 million of 7.90% first mortgage bonds maturing on Dec. 15, 2038. Net proceeds were used to repay credit facility borrowings and for general corporate purposes.
· As of Dec. 31, 2008, Pepco Holdings consolidated cash and credit facility capacity available was $1.5 billion.
Fourth Quarter Financing Highlights
· On Nov. 15, 2007, Pepco Holdings sold in a registered offering 6.5 million shares of common stock at a price of $27.00 per share, resulting in gross proceeds of $175.5 million. The proceeds, net of issuance costs of $0.2 million, are being used for general corporate purposes.
· On Nov. 13, 2007, Pepco issued $250.0 million of 6.5% senior notes due 2037. Proceeds were used to repay short-term debt.
Operations
· Power Delivery electric sales were 11,676 gigawatt hours (GWhs) in the fourth quarter of 2008, compared to 12,027 GWhs for the same period last year. In the electric service territory, heating degree days increased by 18% and cooling degree days decreased by 77% for the three months ended Dec. 31, 2008, compared to the same period in 2007. Weather adjusted electric sales were 11,630 GWhs in the fourth quarter of 2008, compared to 11,734 GWhs for the same period last year (excluding the Virginia retail electric distribution assets sold in Jan. 2008).
· Conectiv Energy’s gross margin on Merchant Generation and Load Service was $41 million in the fourth quarter of 2008, compared to $66 million in the fourth quarter of 2007. The decrease was due to a 53% decrease in generation output, lower energy spark spreads, and a lower of cost or market adjustment to the value of its oil inventory, partially offset by higher capacity prices.
· Pepco Energy Services had retail commercial and industrial electricity sales of 4,912 GWh in the fourth quarter of 2008, compared to sales of 4,903 GWh in the fourth quarter of 2007.
Further details regarding changes in consolidated earnings between 2008 and 2007 can be found in the schedules that follow.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, 2008 as filed with the Securities and Exchange Commission, and which is also available at www.pepcoholdings.com/investors.
Special Items
Management believes the special items shown below are not representative of the company’s ongoing business operations.
Complete press release with selected financial information.
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CONFERENCE CALL FOR INVESTORS
Pepco Holdings, Inc. will host a conference call to discuss fourth quarter results on Tuesday, March 3 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 1-800-901-5213 before 9:55 a.m. The pass code for the call is 72399046. International callers may access the call by dialing 1-617-786-2962, using the same pass code, 72399046. 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 11280875. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 11280875. 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
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, and New Jersey, 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 capital and credit market 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.
