Pepco Holdings Reports Second-Quarter 2009 Earnings;Conference Call Scheduled
Thursday, August 06, 2009
Pepco Holdings, Inc. (NYSE: POM) today reported second quarter 2009 consolidated earnings of $25 million, or 11 cents per share, compared to $15 million, or 7 cents per share, in the second quarter of 2008. There were no special items in the second quarter of 2009. Excluding special items (as described below under the heading “Special Items”) for the second quarter 2008, earnings would have been $108 million, or 53 cents per share. The weighted average number of basic shares outstanding for the second quarter of 2009 was 220 million compared to 201 million for the second quarter of 2008.
The earnings decrease for the second quarter of 2009, as compared to the 2008 quarter, excluding special items, was driven by lower Power Delivery and Conectiv Energy earnings. The lower Power Delivery earnings were due to lower distribution sales caused by mild weather and lower non-weather related customer usage, as well as lower Atlantic City Electric basic generation service revenue relating to unbilled revenue. The decline in Power Delivery earnings also resulted from the recognition of lower benefits from income tax adjustments, higher operation and maintenance expense primarily due to increased pension expense, and higher interest expense primarily due to the debt financing completed late last year. The lower Conectiv Energy earnings were primarily due to significantly lower generation output and reduced spark spreads and dark spreads.
“During the quarter, the demand for power was dampened significantly by recessionary pressures and mild weather, and the energy markets continued to be challenging,” said Joseph M. Rigby, Chairman, President and Chief Executive Officer. “Weather-adjusted regulated kilowatt hour sales were down over four percent and generation output was down 44 percent.” Rigby also noted that despite managing controllable costs, Power Delivery operation and maintenance expense was pressured by higher pension costs.
Rigby also cited progress during the second quarter on several key value creation initiatives that position the company for longer-term growth. “We filed two of the four distribution rate cases we expect to file this year, and the District of Columbia passed legislation approving advanced metering infrastructure, further advancing our ‘Blueprint for the Future’ project. Also, today we filed applications with the Department of Energy seeking $266 million in smart grid related stimulus funds. On the transmission front, the PJM Interconnection confirmed the need for our Mid-Atlantic Power Pathway transmission line, and we expect to begin construction later this year.”
For the six months ended June 30, 2009, consolidated earnings were $70 million, or 32 cents per share, compared to $114 million, or 57 cents per share, for the same period in the prior year. Excluding special items (as described below under the heading “Special Items”), earnings for the six months ended June 30, 2009, would have been $62 million, or 28 cents per share, compared to $207 million, or $1.03 per share, for the first six months of 2008. The weighted average number of basic shares outstanding for the six months ended June 30, 2009 was 220 million compared to 201 million for the same period in the prior year.
The decrease in earnings for the six months ended June 30, 2009, compared to earnings for the same period in the prior year, excluding special items, was driven by lower Power Delivery and Conectiv Energy earnings. The lower Power Delivery earnings were due to the recognition of lower benefits from income tax adjustments, higher operation and maintenance expense primarily due to increased pension expense, and higher interest expense primarily due to the debt financing completed late last year. The decline in Power Delivery earnings also resulted from lower distribution sales caused by lower non-weather related customer usage, and lower Atlantic City Electric basic generation service revenue relating to unbilled revenue. The lower Conectiv Energy earnings were due to significantly lower generation output, reduced spark spreads and dark spreads, 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 were experienced during the first quarter of 2008. The performance of economic fuel hedges was also a factor.
Second-Quarter Highlights
Operations
· Power Delivery electric sales were 11,323 gigawatt hours (GWhs) in the second quarter of 2009 compared to 12,122 GWhs for the same period last year. Heating degree days (electric service territory) increased by 10% for the three months ended June 30, 2009, compared to the same period in 2008. Cooling degree days (electric service territory) decreased by 17% for the three months ended June 30, 2009, compared to the same period in 2008. Weather-adjusted electric sales were 11,439 GWhs in the second quarter of 2009 compared to 11,977 GWhs for the same period last year.
· Conectiv Energy’s gross margin from Merchant Generation and Load Service was $18 million in the second quarter of 2009, compared to $85 million in the second quarter of 2008. The decrease resulted primarily from significantly lower generation output and reduced spark spreads and dark spreads.
· Conectiv Energy’s total generation output was 610 GWhs in the second quarter of 2009 compared to 1,094 GWhs in the second quarter of 2008. The 44% decrease was driven primarily by lower demand for electricity related to the economic recession and mild weather.
· Pepco Energy Services' gross margin from retail energy supply was $41 million in the second quarter of 2009, compared to $36 million in the second quarter of 2008. The increase resulted primarily from favorable electric supply, ancillary, and other electric-related wholesale supply costs, and favorable natural gas supply costs; partially offset by less favorable mark-to-market gains on energy contracts and lower generation output.
· Pepco Energy Services had retail electric sales of 4,594 GWhs in the second quarter of 2009, compared to 4,825 GWhs in the second quarter of 2008.This 5% decrease primarily reflects lower commercial and industrial customer loads.
· In May, PJM Interconnection (PJM) reaffirmed the need for the Mid-Atlantic Power Pathway (MAPP) transmission project, but delayed the in-service date by one year as a result of its recent load forecast PJM also transferred the Indian River to segment of the project from its Regional Transmission Expansion Plan to its “continuing study” list.The revised project total cost is $1.2 billion and the revised in-service date is 2014.Construction of the line will begin later this year.
. On June 18, the District of Columbia adopted legislation that permits Advanced Metering Infrastructure (AMI) deployment in the District, subject to the District of Columbia Public Service Commission (DCPSC) agreeing to the sufficiency of federal grants received for AMI. The legislation allows Pepco to establish a regulatory asset for recovering costs associated with implementing AMI as well as earn a return on its investment.
Regulatory Matters
· On May 22, Pepco filed a distribution base rate case in the District of Columbia. The filing seeks approval of an annual rate increase of $52 million, based on a requested return on equity of 11.50% (if the Bill Stabilization Adjustment mechanism is approved, the requested rate increase would be reduced to $50 million, based on a requested return on equity of 11.25%). The filing also proposes the use of a three-year average of pension, OPEB, and bad debt expense 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 in the case of an under-recovery, or deferred for future refund to customers in the case of an over-recovery. If approved, the surcharge proposal would lower the requested annual rate increase by $3 million. A decision is expected from the DCPSC in early 2010.
· In November 2008, Pepco filed proposals with the 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 for the sharing of the District of Columbia portion of the proceeds. After giving effect to the sharing arrangement, Pepco recorded a pre-tax gain of $14 million in the first quarter. On July 2, 2009, the MPSC approved a settlement agreement providing for the sharing of the Maryland portion of the proceeds. As a result, Pepco expects to record a pre-tax gain of between $26 million and $28 million in the third quarter of 2009.
Other
. On August 6, each of the utilities made filings with the Department of Energy requesting a total of approximately $266 million in smart grid related stimulus funds. A decision is anticipated in October 2009.
Further d etails 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 June 30, 2009 as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors.
Special Item
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 second quarter results on Friday, Aug. 7 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 1-800-901-5213 before 10:55 a.m. The pass code for the call is 11516473. International callers may access the call by dialing 1-617-786-2962, using the same pass code, 11516473. 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 60111073. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 60111073. 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 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.
