Pepco Holdings Reports First-Quarter 2009 Earnings;Conference Call Scheduled
Thursday, May 07, 2009
Pepco Holdings, Inc. (NYSE: POM) today reported first quarter 2009 consolidated earnings of $45 million, or 21 cents per share, compared to $99 million, or 49 cents per share, in the first quarter of 2008. Excluding a special item (as described below), earnings for the first quarter of 2009 would have been $37 million, or 17 cents per share. There were no special items in the first quarter of 2008. The weighted average number of basic shares outstanding for the first quarter of 2009 was 219 million compared to 201 million for the first quarter of 2008.
The earnings decrease for the first quarter of 2009 as compared to the 2008 quarter was driven by lower Conectiv Energy earnings and higher Power Delivery interest expense and operation and maintenance expense. The higher operation and maintenance expense at Power Delivery was primarily due to increased pension expense, and the higher interest expense was primarily due to the debt financing completed in the fall of 2008. The lower Conectiv Energy earnings were due to significantly fewer opportunities to benefit from generating unit operating flexibility and dual-fuel capability and fewer remarketing activities around firm natural gas transportation and storage positions, due to less favorable energy prices and less price volatility than was experienced during the winter of 2008. Lower generation output and reduced spark spreads were also factors.
“As we expected, our results for the first quarter reflect the impact of the challenging power markets and continued recessionary pressures,” said Joseph M. Rigby, President and Chief Executive Officer. “However, during the quarter we made progress on a number of key initiatives. We completed an innovative credit arrangement that not only returned nearly $300 million of collateral to Pepco Energy Services, but also insulated a considerable portion of our retail energy supply business from the impact of further power price decreases. We made significant progress on our Blueprint for the Future initiative with the selection of the advanced metering technology, positioning us to begin meter deployment in Delaware later this year. We also filed the first of four distribution rate cases planned for this year with Delmarva Power’s recent filing in Maryland.”
First-Quarter Highlights
Operations
· Power Delivery electric sales were 12,337 gigawatt hours (GWhs) in the first quarter of 2009 compared to 12,120 GWhs for the same period last year. Heating degree days (electric service territory) increased by 15% for the three months ended March 31, 2009, compared to the same period in 2008. Weather-adjusted electric sales were 12,116 GWhs in the first quarter of 2009 compared to 12,280 GWhs for the same period last year.
· Conectiv Energy's gross margin from Merchant Generation & Load Service was $43 million in the first quarter of 2009, compared to $115 million in the first quarter of 2008. The lower margin was due to significantly fewer opportunities to benefit from generating unit operating flexibility and dual-fuel capability and remarketing activities around firm natural gas transportation and storage positions, due to less favorable energy prices and less price volatility than was experienced during the winter of 2008. Lower generation output and reduced spark spreads were also factors.
· Conectiv Energy's total generation output was 835 GWhs in the first quarter of 2009 compared to 948 GWhs in the first quarter of 2008. The decrease was driven primarily by lower output at the coal units due to lower natural gas prices that resulted in gas generation displacing some coal generation, and lower demand for electricity related to recessionary pressures.
· Pepco Energy Services' gross margin from Retail Energy Supply was $30 million in the first quarter of 2009, compared to $24 million in the first quarter of 2008. The increase resulted primarily from more favorable congestion costs and lower costs of electric supply.
· Pepco Energy Services had retail electric sales of 4,794 GWhs in the first quarter of 2009, compared to 4,766 GWhs in the first quarter of 2008.
· During the first quarter, vendors were selected in connection with PHI’s Blueprint for the Future initiative. Contracts were entered into for the implementation of a new direct load control system for Maryland customers, the advanced metering infrastructure communication network, and the purchase and installation of smart meters.
Regulatory Matters
· In November 2008, Pepco filed proposals with the District of Columbia Public Service Commission (DCPSC) and the Maryland Public Service Commission (MPSC) to share with customers the remaining balance of the proceeds from the Mirant bankruptcy settlement. On March 5, 2009, the DCPSC approved Pepco’s proposal resulting in the recording of a pre-tax gain of $14 million in the first quarter. On February 17, 2009, Pepco, the Maryland Office of People’s Counsel and the MPSC staff filed a settlement agreement with the MPSC providing that the remaining balance of the Mirant proceeds be shared with customers through a one-time billing credit. If the settlement is approved by the MPSC, Pepco would record a pre-tax gain in the range of $15 million to $25 million when the MPSC issues its final order approving the settlement. A hearing is scheduled for May 14, 2009.
· On April 16, 2009, the New Jersey Board of Public Utilities approved Atlantic City Electric’s acceleration of sixteen infrastructure projects in response to New Jersey’s Economic Assistance and Recovery Plan. Incremental expenditures for the projects are approximately $13 million in 2009 and $15 million in 2010. Cost recovery will be through a surcharge beginning June 1, 2009, until project costs are incorporated in rates set by a base rate case.
· On May 1, 2009, each of PHI’s utilities made filings in its regulatory jurisdictions requesting a deferral of the amount of pension expense charged to operation and maintenance expense that is above the amounts currently included in base distribution rates. In aggregate, these filings request that $35 million of 2009 pension expense be deferred. The accumulated deferred balance would be incorporated into rates in the next base rate proceeding.
· On May 6, 2009, Delmarva Power filed a distribution base rate case in Maryland. The filing seeks approval of an annual rate increase of $14 million, based on a requested return on equity of 11.25%. The filing also proposes the use of a three-year average of pension and uncollectable costs with recovery through a surcharge mechanism. The difference between the three-year rolling average of the costs and the currently incurred amounts would be deferred for future recovery. If approved, this proposal would lower the requested annual rate increase by $4 million. A decision is expected from the MPSC in December 2009.
Financing
· During the first quarter, Pepco Energy Services (PES) entered into a credit intermediation arrangement with an investment bank to reduce its collateral obligations under portions of several wholesale power supply contracts. Under the arrangement, the investment bank agreed to assume PES’s purchase obligations and to supply the power to PES on equivalent terms, but without imposing any associated collateral obligations. The transactions resulted in the return to PES of approximately $294 million of collateral and insulated approximately 39% of PES’s wholesale electricity purchase obligations (measured in megawatt hours) from the impact of further power price decreases. The total fees on these arrangements will be amortized over 2.5 years resulting in an after-tax expense of approximately $10 million in 2009 and $5 million in 2010.
· On March 17, 2009, Pepco resold $110 million of Maryland Pollution Control Revenue Refunding Bonds at a fixed rate of 6.2% and a 2022 maturity. Pepco purchased the bonds during 2008, in response to the disruption in the municipal auction rate securities market that made it difficult for the remarketing agent to successfully remarket the bonds. The proceeds of the sale reimbursed the company for the purchase price of the bonds.
Further details regarding changes in consolidated earnings between 2009 and 2008 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, 2009 as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors.
Special Item
Management believes the special item shown below is 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 first quarter results on Friday, May 8 at 11 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 1-866-713-8307 before 10:55 a.m. The pass code for the call is 38149987. International callers may access the call by dialing 1-617-597-5307, using the same pass code, 38149987. 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 25130052. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 25130052. 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 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 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 understand further the results and prospects of PHI.
