Pepco Holdings Reports Third-Quarter 2010 Financial Results; Raises Full-Year 2010 Earnings Guidance
Friday, October 29, 2010
Pepco Holdings, Inc. (NYSE: POM) today reported third quarter 2010 earnings from continuing operations of $21 million, or 9 cents per share, compared to $104 million, or 47 cents per share, in the third quarter of 2009. Excluding special items (as described below under the heading “Special Items”), earnings from continuing operations for the third quarter of 2010, would have been $116 million, or 52 cents per share compared to $77 million, or 35 cents per share, for the third quarter of 2009.
The weighted average number of basic shares outstanding for the third quarter of 2010 was 224 million compared to 221 million for the third quarter of 2009. The increase in earnings from continuing operations in the third quarter of 2010, as compared to the 2009 quarter, excluding special items, was driven by higher distribution revenue (primarily due to higher sales caused by warmer weather as well as higher distribution rates in certain jurisdictions), higher transmission revenue (primarily due to higher transmission rates), lower interest expense (primarily due to the redemption of parent company debt with the proceeds from the sale of the Conectiv Energy wholesale generation business), and favorable income tax adjustments.
“Our earnings from continuing operations for the quarter reflect strong Power Delivery results driven by our infrastructure investments, regulatory outcomes, and the impact of hot summer weather on electric distribution sales. Lower interest expense also contributed to higher earnings,” said Joseph M. Rigby, Chairman, President and Chief Executive Officer. “The pay down of Pepco Holdings debt with the proceeds from the Conectiv Energy transaction lowered interest expense and strengthened our balance sheet.” Rigby added, “During the quarter, we reached key milestones for several significant projects. The PJM Board reaffirmed the need for our Mid-Atlantic Power Pathway transmission project with a new completion date of 2015, and Pepco received approval from the Maryland Public Service Commission to proceed with the deployment of advanced metering infrastructure. We also initiated our enhanced reliability plan in our Pepco region, with our other regions soon to follow. Projects such as these are important components of our strategy to provide value to our customers and investors.”
For the nine months ended September 30, 2010, earnings from continuing operations were $125 million, or 56 cents per share, compared to $184 million, or 84 cents per share, for the same period in the prior year. Excluding special items (as described below under the heading “Special Items”), earnings from continuing operations for the nine months ended September 30, 2010, would have been $220 million, or 99 cents per share, compared to $149 million, or 68 cents per share, for the first nine months of 2009. The weighted average number of basic shares outstanding for the nine months ended September 30, 2010 was 223 million compared to 220 million for the same period in the prior year.
The increase in earnings from continuing operations for the nine months ended September 30, 2010, compared to earnings for the same period in the prior year, excluding special items, was driven by higher distribution revenue (primarily due to higher distribution rates in certain jurisdictions, growth in the number of customers, an increase in customer usage, and higher sales caused by warmer weather), higher transmission revenue (primarily due to higher transmission rates and the accrual of true-ups for the prior rate year), and favorable income tax adjustments.
On April 20, 2010, the Board of Directors of Pepco Holdings approved a plan for the disposition of Conectiv Energy. The plan consists of the sale of the wholesale power generation business, which was completed on July 1, 2010, and the liquidation of all of Conectiv Energy’s remaining assets and businesses. As a result of the plan of disposition, Conectiv Energy’s results of operations for the 2010 and 2009 quarterly and year-to-date periods are reported as discontinued operations.
Year-to-date, Pepco Holdings has incurred an after-tax loss of $126 million from discontinued operations. Upon completion of the liquidation of Conectiv Energy’s remaining contracts and assets, Pepco Holdings currently expects the overall after-tax loss on the Conectiv Energy disposition will be in the range of $110 million to $125 million.
Pepco Holdings is raising its 2010 earnings guidance range to $1.00 to $1.10 per share from $0.80 to $0.95 per share. The revised guidance range represents strong Power Delivery operating performance through the first nine months of 2010, including the impact of hot summer weather on electric distribution revenue in certain jurisdictions, partially offset by the effects of a much higher level of storm activity in 2010, compared to 2009. Pepco Holdings is also reaffirming its 2011 earnings outlook range of $1.10 to $1.30 per share. The guidance and outlook ranges exclude the results of discontinued operations and the impact of any special, unusual, or extraordinary items.
• On October 13, 2010, PJM Interconnection (PJM) reaffirmed the need for the Mid-Atlantic Power Pathway (MAPP) transmission project with a one-year delay in the in-service date. The PJM Board requested that efforts relating to MAPP continue, including permitting and state regulatory proceedings, to meet an in-service date of June 1, 2015. The estimated total cost of the project remains $1.2 billion.
• In October 2010, Pepco began installing advanced meters in the District of Columbia. The 15-month meter exchange program is the first step in building a smart power grid in the District of Columbia that will help customers better manage their energy use and costs and improve customer service and reliability. As approved by the District of Columbia Public Service Commission, a regulatory asset has been established to assure recovery of, and a return on, advanced metering infrastructure (AMI) costs between rate cases.
• Power Delivery electric sales were 14,816 gigawatt hours (GWhs) in the third quarter of 2010 compared to 13,709 GWhs for the same period last year. Cooling degree days (electric service territory) increased by 36% for the three months ended September 30, 2010, compared to the same period in 2009. Weather-adjusted electric sales were 13,956 GWhs in the third quarter of 2010 compared to 13,782 GWhs for the same period last year, an increase of 1%. Due to the adoption of distribution revenue decoupling mechanisms in Maryland and the District of Columbia, approximately 66% of forecasted 2010 electric distribution revenue is not affected by weather.
• On August 13, 2010, the Maryland Public Service Commission (MPSC) authorized Pepco to proceed with the deployment of its AMI proposal and with the development of a dynamic pricing mechanism. AMI deployment is subject to the implementation of an MPSC-approved customer education/communication plan.
• On August 6, 2010, the MPSC approved an $8 million annual increase in Pepco’s electric distribution base rates based on a 9.83% return on equity. The new rates were effective July 29, 2010. On September 2, 2010, Pepco filed with the MPSC a motion for reconsideration of the following issues: (1) denial of inclusion in rate base of certain reliability plant investments, which occurred subsequent to the test period but before the rate effective period; (2) denial of Pepco’s request to increase depreciation rates to reflect a corrected formula relating to the cost of removal expenses; and (3) imposition of imputed cost savings to partially offset the costs of Pepco’s enhanced vegetation management program.
Pepco Energy Services
• On September 2, 2010, Pepco Energy Services signed an energy savings and renewable energy performance contract with the Maryland Aviation Administration. The $21 million project includes the design and implementation of energy conservation measures that will improve the overall energy efficiency of more than 30 airport buildings, including the main terminal at the Baltimore/Washington International Thurgood Marshall Airport. Pepco Energy Services will also install more than one acre of solar power generation equipment on the roof of the daily parking garage. Construction began in September 2010 and is scheduled to be completed in December 2011.
• On October 27, 2010, Pepco Holdings secured two 364-day credit facilities totaling $200 million to replace the $400 million 364-day credit facility that expired in October 2010 and the $50 million 18-month facility that expires in November 2010. The new facilities are $250 million less than the expiring facilities due to lower liquidity and collateral requirements as a result of the continued exit of the retail energy business and the disposal of the Conectiv Energy segment.
• On October 1, 2010, Pepco Holdings issued $250 million of 2.7% notes due October 1, 2015. A portion of the proceeds was used on October 13, 2010 to repurchase $40 million of Pepco Holdings 6.125% notes due 2017. The remaining proceeds will be used in November 2010 to redeem $200 million of Pepco Holdings 6.0% notes due 2019 and $10 million of Pepco Holdings 5.9% notes due 2016.
• On September 17, 2010, Pepco Holdings filed a shelf registration statement with the Securities and Exchange Commission to replace an exiting shelf registration statement that expired in August 2010. In the new filing, Pepco Holdings registered debt and equity securities and each of its utility subsidiaries registered debt securities.
Further details regarding changes in consolidated earnings between 2010 and 2009 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 September 30, 2010 as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors.
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 third quarter results on Friday, Oct. 29 at 10 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 1-888-396-2356 before 9:55 a.m. The pass code for the call is 87208435. International callers may access the call by dialing 1-617-847-8709, using the same pass code, 87208435. 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 32742742. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 32742742. 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. (NYSE: POM) is one of the largest energy delivery companies in the Mid-Atlantic region, serving about 1.9 million customers in Delaware, the District of Columbia, Maryland and New Jersey. PHI subsidiaries Pepco, Delmarva Power and Atlantic City Electric provide regulated electricity service; Delmarva Power also provides natural gas service. PHI also provides retail energy savings and renewable 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.