(Source: Business Wire)
Pepco Holdings, Inc. (NYSE:POM) today reported third quarter 2009
consolidated earnings of $124 million, or 56 cents per share, compared
to $119 million, or 59 cents per share, in the third quarter of 2008.
Excluding special items (as described below), earnings for the third
quarter of 2009 would have been $97 million, or 44 cents per share.
There were no special items in the third quarter of 2008. The weighted
average number of basic shares outstanding for the third quarter of 2009
was 221 million compared to 202 million for the third quarter of 2008.
The earnings decrease for the third 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 higher operation and maintenance expense primarily as the
result of increased pension expense and higher interest expense driven
by the debt financing completed late last year. The lower Conectiv
Energy earnings were primarily due to lower generation output, reduced
spark spreads and dark spreads, and the performance of economic fuel
hedges. Partially offsetting these decreases were higher earnings at
Pepco Energy Services driven by favorable electric supply costs and
lower losses on energy derivative contracts.
"During the quarter, the energy markets continued to be challenging,"
said Joseph M. Rigby, Chairman, President and Chief Executive Officer.
"Generation output was down 16 percent and energy margins were down 57
percent." Rigby also noted that excluding the increase in pension
expense, Power Delivery operation and maintenance expense would have
been relatively flat, demonstrating the continued focus on managing
controllable costs.
Rigby also cited progress during the third quarter on several key value
creation initiatives that the company believes will position it for
growth over the longer-term. "We filed two additional distribution rate
cases, bringing the total number of cases underway to four, and the
District of Columbia Public Service Commission adopted the revenue
decoupling mechanism proposed by Pepco. With the implementation of this
mechanism in the District of Columbia on Nov. 1, approximately 60
percent of our distribution revenue will be decoupled from electric
sales, providing for more predictable utility revenues and aligning the
interests of our utilities with those of our customers in terms of
energy efficiency programs. I am also very pleased with the recently
announced DOE federal stimulus funds award of $168 million, allowing us
to accelerate the delivery of Smart Grid benefits to our customers."
For the nine months ended Sept. 30, 2009, consolidated earnings were
$194 million, or 88 cents per share, compared to $233 million, or $1.16
per share, for the same period in the prior year. Excluding special
items (as described below), earnings for the nine months ended Sept. 30,
2009, would have been $159 million, or 72 cents per share, compared to
$326 million, or $1.62 per share, for the first nine months of 2008. The
weighted average number of basic shares outstanding for the nine months
ended Sept. 30, 2009 was 220 million compared to 201 million for the
same period in the prior year. The decrease in earnings
for the nine months ended Sept. 30, 2009, compared to earnings for the
same period in the prior year, excluding special items, was driven by
essentially the same factors that drove the quarterly results.
Third-Quarter Highlights
Operations
Power Delivery electric sales were 13,709 gigawatt hours (GWh) in the
third quarter of 2009 compared to 14,050 GWh for the same period last
year. Cooling degree days (electric service territory) were 11% lower
for the three months ended Sept. 30, 2009, compared to the same period
in 2008. Weather-adjusted electric sales were 13,782 GWh in the third
quarter of 2009 compared to 13,816 GWh for the same period last year.
Conectiv Energy's gross margin from Merchant Generation and Load
Service was $74 million in the third quarter of 2009, compared to $113
million in the third quarter of 2008. The decrease resulted primarily
from lower generation output, reduced spark spreads and dark spreads,
and the combined performance of economic fuel hedges and default
electricity supply contracts. An offsetting factor was higher capacity
gross margins.
Conectiv Energy's total generation output was 1,549 GWh in the third
quarter of 2009, compared to 1,851 GWh in the third quarter of 2008.
The 16% decrease was due to decreased demand for electricity related
to the economic recession and milder weather.
Pepco Energy Services' gross margin from retail energy supply was $42
million in the third quarter of 2009, compared to $14 million in the
third quarter of 2008. The increase was driven by lower electric and
gas supply costs, lower losses on energy derivative contracts, lower
reliability pricing model (RPM) capacity charges, and higher RPM
capacity revenues.
Pepco Energy Services had retail electric sales of 4,619 GWh in the
third quarter of 2009, compared to 5,614 GWh in the third quarter of
2008. This 18% decrease primarily reflects the continuing expiration
of existing retail contracts.
Regulatory Matters
On Sept. 28, the District of Columbia Public Service Commission
(DCPSC) approved effective Nov. 1 the revenue decoupling rate
structure proposed by Pepco. In connection with the approval, the
DCPSC ordered a reduction of 50 basis points to Pepco's return on
equity, reducing the authorized return on equity to 9.5%. 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 $50 million,
based on a requested return on equity of 11.25%, which assumed the
approval of a revenue decoupling mechanism. A decision is expected
from the DCPSC in early 2010.
On Sept. 18, Delmarva Power filed an electric distribution base rate
case in Delaware. The filing seeks approval of an annual rate increase
of $28 million, based on a requested return on equity of 10.75%. The
proposed rate design incorporates the revenue decoupling rate
structure as approved in concept by the Delaware Public Service
Commission (DPSC). 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 $7 million. Delmarva Power intends
to put an increase of $2.5 million annually into effect on a temporary
basis on Nov. 17, 2009, subject to refund and pending final DPSC
approval, which is expected in April 2010.
On Aug. 14, Atlantic City Electric filed a distribution base rate case
in New Jersey. The filing seeks approval of an annual rate increase of
$54 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 $52 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 $8 million.
In Nov. 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 of 2009. 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 recorded a
pre-tax gain of $26 million in the third quarter of 2009.
Other
On Oct. 27, 2009, the U.S. Department of Energy announced that Pepco
Holdings Inc. was awarded $168 million in federal stimulus funds to
help build Smart Grid projects in the District of Columbia, Maryland
and New Jersey.
On Nov. 7, 2008, Pepco Holdings entered into a 364-day credit
facility, which has aggregate commitments of $400 million and had a
Nov. 6, 2009 termination date. In Oct. 2009, the termination date was
extended to Oct. 15, 2010. This credit facility is in addition to the
$1.5 billion multi-year credit facility that is in effect until May
2012.
As noted in the 10-Q, in the last several years, IRS challenges to
certain cross-border lease transactions have been the subject of
litigation. On October 21, 2009, the U.S. Court of Federal Claims
issued a decision in favor of a taxpayer regarding a lease-in
lease-out cross border lease transaction. The transaction that is the
subject of the ruling is similar in many respects to PHI's cross
border energy lease investments. PHI is currently evaluating the
implications of this decision.
In October 2009, PHI filed a claim with the IRS requesting a Federal
income tax refund of approximately $138 million, a substantial portion
of which is associated with PHI's utility subsidiaries. The refund
results from the carry back of a 2008 net operating loss for tax
reporting purposes that reflected, among other things, significant tax
deductions related to accelerated depreciation, the pension plan
contributions paid in 2009 (which were deductible for 2008) and the
cumulative effect of adopting a new method of tax reporting for
certain repairs. The timing of receipt of the refund is uncertain,
however, after a 45-day period, interest would begin to accrue on the
amount of the refund.
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 Sept. 30, 2009
as filed with the Securities and Exchange Commission, which is available
at www.pepcoholdings.com/investors.
Reconciliation of GAAP Earnings to
Earnings Excluding Special Items
Management believes the special items shown below are not representative
of the company's ongoing business operations.
Net Earnings -- millions of dollars Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2009 2008 2009 2008
Reported (GAAP) Net Earnings $ 124 $ 119 $ 194 $ 233
Special Items:
-- Mirant bankruptcy damage claims settlement (16 ) - (24 ) -
-- Maryland income tax benefit (11 ) - (11 ) -
-- Adjustment to the equity value of the cross-border energy lease investments - - - 86
-- Interest accrued on the income tax obligations from the adjustment to the equity value of the cross-border energy lease investments - - - 7
Net Earnings, Excluding Special Items $ 97 $ 119 $ 159 $ 326
Earnings per Share Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2009 2008 2009 2008
Reported (GAAP) Earnings per Share $ 0.56 $ 0.59 $ 0.88 $ 1.16
Special Items:
-- Mirant bankruptcy damage claims settlement (0.07 ) - (0.11 ) -
-- Maryland income tax benefit (0.05 ) - (0.05 ) -
-- Adjustment to the equity value of the cross-border energy lease investments - - - 0.43
-- Interest accrued on the income tax obligations from the adjustment to the equity value of the cross-border energy lease investments - - - 0.03
Earnings per Share, Excluding Special Items $ 0.44 $ 0.59 $ 0.72 $ 1.62
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CONFERENCE CALL FOR INVESTORS
Pepco Holdings Inc. will host a conference call to discuss third quarter
results on Friday, Oct. 30 at 11:00 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 1-866-700-7441 before 10:55 a.m. The pass code for the
call is 45195428. International callers may access the call by dialing
1-617-213-8839, using the same pass code, 45195428. 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 77223380. International callers
may access the replay by dialing 1-617-801-6888 and entering the same
pass code, 77223380. 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
further understand the results and prospects of PHI.
SELECTED FINANCIAL INFORMATION
Pepco Holdings, Inc.