Pepco Holdings Reports Third-Quarter 2009 Earnings; Conference Call Scheduled
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WASHINGTON--(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 (16 ) - (24 ) -
settlement
-- Maryland income tax benefit (11 ) - (11 ) -
-- Adjustment to the equity value of the - - - 86
cross-border energy lease investments
Interest accrued on the income tax
-- obligations from the adjustment to the - - - 7
equity value of the cross-border
energy lease investments
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 (0.07 ) - (0.11 ) -
settlement
-- Maryland income tax benefit (0.05 ) - (0.05 ) -
-- Adjustment to the equity value of the - - - 0.43
cross-border energy lease investments
Interest accrued on the income tax
-- obligations from the adjustment to the - - - 0.03
equity value of the cross-border
energy lease investments
Earnings per Share, Excluding Special $ 0.44 $ 0.59 $ 0.72 $ 1.62
Items
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.
Earnings Per Share Variance
2009 / 2008
3rdQuarter
Competitive Energy
Pepco
Power Conectiv Energy Other Non Corporate Total
Delivery Energy Services Regulated & Other PHI
2008 Net Income/ $ 0.38 $ 0.24 $ 0.01 $ 0.02 $ (0.06 ) $ 0.59
(Loss) (GAAP) 1/
Change from 2008
Net Income/(Loss)
Regulated
Operations
-- Distribution
Revenue
Weather
- (estimate) (0.01 ) - - - - (0.01 )
2/
Other
Distribution
Revenue
- Margin 0.03 - - - - 0.03
(driven by
customer
sales/rate
mix)
ACE Basic
Generation
-- Service 0.03 - - - - 0.03
(primarily
unbilled
revenue)
-- Network (0.01 ) - - - - (0.01 )
Transmission
Operation &
Maintenance
-- (primarily (0.03 ) - - - - (0.03 )
higher pension
expense)
-- Other, net (0.02 ) - - - - (0.02 )
Conectiv Energy
Margins
(operating
-- revenue less
cost of goods
sold)
Merchant
- Generation & - (0.11 ) - - - (0.11 )
Load Service
- Energy - (0.03 ) - - - (0.03 )
Marketing
-- Operating - 0.01 - - - 0.01
costs, net
Pepco Energy
Services
-- Retail Energy - - 0.08 - - 0.08
Supply
-- Energy - - (0.01 ) - - (0.01 )
Services
Other Non-Regulated - - - - - -
Corporate & Other - - - - - -
Capital Costs (0.02 ) (0.01 ) (0.02 ) 0.01 - (0.04 )
Income Tax - - - - 0.01 0.01
Adjustments
Dilution (0.04 ) (0.01 ) - - - (0.05 )
2009 Net Income/
(Loss) excluding 0.31 0.09 0.06 0.03 (0.05 ) 0.44
Special Items
2009 Special Items
3/
Mirant
Settlement,
-- net of 0.07 - - - - 0.07
customer
sharing - MD
jurisdiction
-- MD Income Tax 0.05 - - - - 0.05
benefit
2009 Net Income/ $ 0.43 $ 0.09 $ 0.06 $ 0.03 $ (0.05 ) $ 0.56
(Loss) (GAAP) 4/
Notes:
1/ The 2008 weighted average number of basic shares outstanding was
201,794,635.
2/ The effect of weather in 2009 compared with the 20 year average weather is
estimated to have no earnings impact.
3/ Management believes the special items are not representative of the
company's ongoing business operations.
4/ The 2009 weighted average number of basic shares outstanding was
220,919,643.
Pepco Holdings, Inc.
Earnings Per Share Variance
2009 / 2008
September Year-to-Date
Competitive Energy
Pepco
Power Conectiv Energy Other Non Corporate Total
Delivery Energy Services Regulated & Other PHI
2008 Net Income/ $ 0.99 $ 0.59 $ 0.14 $ (0.34 ) $ (0.22 ) $ 1.16
(Loss) (GAAP) 1/
2008 Special Items 2/
Cross Border Leases
-- Re-evaluation - - - 0.43 - 0.43
Adjustment
Related Interest
-- on Tax - - - 0.03 - 0.03
Obligation
2008 Net Income/
(Loss) excluding 0.99 0.59 0.14 0.12 (0.22 ) 1.62
Special Items
Change from 2008 Net
Income/(Loss)
excluding Special
Items
Regulated Operations
-- Distribution
Revenue
- Weather (0.01 ) - - - - (0.01 )
(estimate) 3/
Rate Order
- Impact 0.01 - - - - 0.01
(Pepco/DC)
Other
Distribution
- Revenue Margin (0.01 ) - - - - (0.01 )
(primarily
lower customer
usage)
-- Network (0.01 ) - - - - (0.01 )
Transmission
Standard Offer
-- Service Margin (0.02 ) - - - - (0.02 )
(Pepco/Delmarva)
Operation &
Maintenance
-- (primarily (0.09 ) - - - - (0.09 )
higher pension
expense)
-- Depreciation (0.03 ) - - - - (0.03 )
-- Other, net (0.02 ) - - - - (0.02 )
Conectiv Energy
Margins
(operating
-- revenue less
cost of goods
sold)
Merchant
- Generation & - (0.52 ) - - - (0.52 )
Load Service
- Energy - (0.02 ) - - - (0.02 )
Marketing
-- Operating costs, - 0.03 - - - 0.03
net
Pepco Energy Services
-- Retail Energy - - 0.10 - - 0.10
Supply
-- Energy Services - - (0.02 ) - - (0.02 )
Other Non-Regulated
Financial
-- investment - - - (0.03 ) - (0.03 )
portfolio
Corporate & Other - - - - - -
Capital Costs (0.08 ) (0.02 ) (0.06 ) 0.01 0.01 (0.14 )
Income Tax (0.06 ) - - - 0.02 (0.04 )
Adjustments
Dilution (0.07 ) - (0.01 ) (0.01 ) 0.01 (0.08 )
2009 Net Income/
(Loss) excluding 0.60 0.06 0.15 0.09 (0.18 ) 0.72
Special Items
2009 Special Items 2/
Mirant
-- Settlement, net 0.11 - - - - 0.11
of customer
sharing
-- MD Income Tax 0.05 - - - - 0.05
benefit
2009 Net Income/ $ 0.76 $ 0.06 $ 0.15 $ 0.09 $ (0.18 ) $ 0.88
(Loss) (GAAP) 4/
Notes:
1/ The 2008 weighted average number of basic shares outstanding was
201,375,841.
2/ Management believes the special items are not representative of the
company's ongoing business operations.
3/ The effect of weather in 2009 compared with the 20 year average weather is
estimated to have decreased earnings by $.01 per share.
4/ The 2009 weighted average number of basic shares outstanding was
220,066,766.
SEGMENT INFORMATION
Three Months Ended September 30, 2009
(millions of dollars)
Competitive
Energy Segments
Pepco Other
Power Conectiv Energy Non- Corporate PHI
Delivery Energy Services Regulated & Other Cons.
(a)
Operating $ 1,428 $ 581 (b) $ 611 $ 13 $ (94 ) $ 2,539
Revenue
Operating 1,235 (b) 539 584 - (96 ) 2,262
Expense (c) (d)
Operating 193 42 27 13 2 277
Income
Interest -- -- -- 1 (1 ) --
Income
Interest 53 9 6 4 21 93
Expense
Other Income 3 1 -- 1 -- 5
Preferred
Stock -- -- -- 1 (1 ) --
Dividends
Income Tax
Expense 49 13 7 3 (7 ) 65
(Benefit)
Net Income 94 (e) 21 14 7 (12 ) 124
(Loss)
Total Assets 10,181 1,978 699 1,552 1,420 15,830
Construction $ 138 $ 57 $ 2 $ -- $ 10 $ 207
Expenditures
Notes:
Includes unallocated Pepco Holdings' (parent company) capital costs, such
as acquisition financing costs, and the depreciation and amortization
expense related to purchase accounting adjustments for the fair value of
Conectiv assets and liabilities as of the August 1, 2002 acquisition date.
(a) Additionally, the Total Assets line item in this column includes Pepco
Holdings' goodwill balance. Corporate & Other includes intercompany amounts
of $(94) million for Operating Revenue, $(92) million for Operating
Expense, $(17) million for Interest Income, $(17) million for Interest
Expense, and $(1) million of Preferred Stock Dividends.
Power Delivery purchased electric energy and capacity and natural gas from
(b) Conectiv Energy in the amount of $75 million for the three months ended
September 30, 2009.
Includes depreciation and amortization expense of $103 million, consisting
(c) of $84 million for Power Delivery, $10 million for Conectiv Energy, $4
million for Pepco Energy Services, and $5 million for Corporate & Other.
(d) Includes $26 million ($16 million after-tax) gain related to settlement of
Mirant bankruptcy claims.
Includes $11 million after-tax state income tax benefit, net of fees,
(e) related to a change in the tax reporting for the disposition of certain
assets in prior years.
SEGMENT INFORMATION - Continued
Three Months Ended September 30, 2008
(millions of dollars)
Competitive
Energy Segments
Pepco Other
Power Conectiv Energy Non- Corporate PHI
Delivery Energy Services Regulated & Other Cons.
(a)
Operating $ 1,668 $ 783 (b) $ 716 $ 14 $ (121 ) $ 3,060
Revenue
Operating 1,495 (b) 694 713 2 (119 ) 2,785
Expense (c)
Operating 173 89 3 12 (2 ) 275
Income
Interest 2 1 1 1 (1 ) 4
Income
Interest 48 6 1 5 22 82
Expense
Other Income 3 -- -- (1 ) -- 2
(Expense)
Preferred
Stock -- -- -- 1 (1 ) --
Dividends
Income Tax
Expense 53 35 -- 1 (9 ) 80
(Benefit)
Net Income 77 49 3 5 (15 ) 119
(Loss)
Total Assets 9,875 2,047 708 1,465 1,477 15,572
Construction $ 151 $ 31 $ 6 $ -- $ 7 $ 195
Expenditures
Notes:
Includes unallocated Pepco Holdings' (parent company) capital costs, such
as acquisition financing costs, and the depreciation and amortization
expense related to purchase accounting adjustments for the fair value of
Conectiv assets and liabilities as of the August 1, 2002 acquisition date.
(a) Additionally, the Total Assets line item in this column includes Pepco
Holdings' goodwill balance. Corporate & Other includes intercompany amounts
of $(121) million for Operating Revenue, $(120) million for Operating
Expense, $(14) million for Interest Income, $(14) million for Interest
Expense and $(1) million for Preferred Stock Dividends.
Power Delivery purchased electric energy and capacity and natural gas from
(b) Conectiv Energy in the amount of $113 million for the three months ended
September 30, 2008.
Includes depreciation and amortization expense of $99 million, consisting
(c) of $84 million for Power Delivery, $9 million for Conectiv Energy, $4
million for Pepco Energy Services, and $2 million for Corporate & Other.
SEGMENT INFORMATION - Continued
Nine Months Ended September 30, 2009
(millions of dollars)
Competitive
Energy Segments
Pepco Other
Power Conectiv Energy Non- Corporate PHI
Delivery Energy Services Regulated & Other Cons.
(a)
Operating $ 3,895 $ 1,625 (b) $ 1,828 $ 40 $ (264 ) $ 7,124
Revenue
Operating 3,488 (b) 1,587 1,757 2 (269 ) 6,565
Expense (c) (d)
Operating 407 38 71 38 5 559
Income
Interest 2 1 1 3 (4 ) 3
Income
Interest 159 24 22 11 63 279
Expense
Other Income 9 1 1 1 1 13
Preferred
Stock -- -- -- 2 (2 ) --
Dividends
Income Tax
Expense 92 5 19 8 (22 ) 102
(Benefit)
Net Income 167 (e) 11 32 21 (37 ) 194
(Loss)
Total Assets 10,181 1,978 699 1,552 1,420 15,830
Construction $ 419 $ 148 $ 8 $ - $ 20 $ 595
Expenditures
Notes:
Includes unallocated Pepco Holdings' (parent company) capital costs, such
as acquisition financing costs, and the depreciation and amortization
expense related to purchase accounting adjustments for the fair value of
Conectiv assets and liabilities as of the August 1, 2002 acquisition date.
(a) Additionally, the Total Assets line item in this column includes Pepco
Holdings' goodwill balance. Corporate & Other includes intercompany amounts
of $(264) million for Operating Revenue, $(257) million for Operating
Expense, $(61) million for Interest Income, $(59) million for Interest
Expense, and $(2) million for Preferred Stock Dividends.
Power Delivery purchased electric energy and capacity and natural gas from
(b) Conectiv Energy in the amount of $220 million for the nine months ended
September 30, 2009.
Includes depreciation and amortization expense of $294 million, consisting
(c) of $242 million for Power Delivery, $29 million for Conectiv Energy, $13
million for Pepco Energy Services, $1 million for Other Non-Regulated, and
$9 million for Corporate & Other.
(d) Includes $40 million ($24 million after-tax) gain related to settlement of
Mirant bankruptcy claims.
Includes $11 million after-tax state income tax benefit, net of fees,
(e) related to a change in the tax reporting for the disposition of certain
assets in prior years.
SEGMENT INFORMATION - Continued
Nine Months Ended September 30, 2008
(millions of dollars)
Competitive
Energy Segments
Pepco Other
Power Conectiv Energy Non- Corporate PHI
Delivery Energy Services Regulated & Other Cons.
(a)
Operating $ 4,260 $ 2,395 (b) $ 1,968 $ (73 ) (d) $ (331 ) $ 8,219
Revenue
Operating 3,830 (b) 2,178 1,926 4 (331 ) 7,607
Expense (c)
Operating 430 217 42 (77 ) -- 612
Income
Interest 11 2 2 3 (2 ) 16
Income
Interest 142 18 2 14 67 243
Expense
Other Income 10 -- 2 (4 ) 1 9
(Expense)
Preferred
Stock -- -- -- 2 (2 ) --
Dividends
Income Tax
Expense 110 83 16 (25 ) (d) (23 ) 161
(Benefit)
Net Income 199 118 28 (69 ) (d) (43 ) 233
(Loss)
Total Assets 9,875 2,047 708 1,465 1,477 15,572
Construction $ 433 $ 90 $ 23 $ -- $ 15 $ 561
Expenditures
Notes:
Includes unallocated Pepco Holdings' (parent company) capital costs, such
as acquisition financing costs, and the depreciation and amortization
expense related to purchase accounting adjustments for the fair value of
Conectiv assets and liabilities as of the August 1, 2002 acquisition date.
(a) Additionally, the Total Assets line item in this column includes Pepco
Holdings' goodwill balance. Corporate & Other includes intercompany amounts
of $(331) million for Operating Revenue, $(327) million for Operating
Expense, $(43) million for Interest Income, $(40) million for Interest
Expense, and $(2) million for Preferred Stock Dividends.
Power Delivery purchased electric energy and capacity and natural gas from
(b) Conectiv Energy in the amount of $298 million for the nine months ended
September 30, 2008.
Includes depreciation and amortization expense of $283 million, consisting
(c) of $239 million for Power Delivery, $28 million for Conectiv Energy, $9
million for Pepco Energy Services, $1 million for Other Non-Regulated, and
$6 million for Corporate & Other.
Included in operating revenue is a pre-tax charge of $124 million ($86
million after-tax) related to the adjustment to the equity value of
(d) cross-border energy lease investments, and included in income taxes is a $7
million after-tax charge for the additional interest accrued on the related
tax obligations.
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(millions of dollars, except per share data)
Operating Revenue
Power Delivery $ 1,428 $ 1,668 $ 3,895 $ 4,260
Competitive Energy 1,099 1,379 3,196 4,036
Other 12 13 33 (77 )
Total Operating Revenue 2,539 3,060 7,124 8,219
Operating Expenses
Fuel and purchased energy 1,784 2,124 5,162 5,774
Other services cost of sales 92 209 270 569
Other operation and maintenance 240 241 713 691
Depreciation and amortization 103 99 294 283
Other taxes 101 100 282 273
Deferred electric service costs (32 ) 12 (116 ) 20
Effect of settlement of Mirant (26 ) - (40 ) -
bankruptcy claims
Gain on sale of assets - - - (3 )
Total Operating Expenses 2,262 2,785 6,565 7,607
Operating Income 277 275 559 612
Other Income (Expenses)
Interest and dividend income - 4 3 16
Interest expense (93 ) (82 ) (279 ) (243 )
Gain (Loss) from equity 1 (1 ) 2 (3 )
investments
Other income 4 4 12 14
Other expenses - (1 ) (1 ) (2 )
Total Other Expenses (88 ) (76 ) (263 ) (218 )
Income Before Income Tax Expense 189 199 296 394
Income Tax Expense 65 80 102 161
Net Income 124 119 194 233
Retained Earnings at Beginning 1,222 1,198 1,271 1,193
of Period
Dividends Paid on Common Stock (59 ) (54 ) (178 ) (163 )
Retained Earnings at End of $ 1,287 $ 1,263 $ 1,287 $ 1,263
Period
Basic and Diluted Share
Information
Weighted average shares 221 202 220 201
outstanding
Earnings per share of common $ .56 $ .59 $ .88 $ 1.16
stock
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2009 2008
(millions of dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 20 $ 384
Restricted cash equivalents 11 10
Accounts receivable, less allowance for
uncollectible accounts of $46 million and $37 1,184 1,392
million, respectively
Inventories 286 333
Derivative assets 62 98
Prepayments of income taxes 365 294
Prepaid expenses and other 111 87
Total Current Assets 2,039 2,598
INVESTMENTS AND OTHER ASSETS
Goodwill 1,411 1,411
Regulatory assets 1,951 2,088
Investment in finance leases held in trust 1,376 1,335
Income taxes receivable 128 23
Restricted cash equivalents 4 108
Assets and accrued interest related to uncertain 12 32
tax positions
Derivative assets 27 9
Other 208 215
Total Investments and Other Assets 5,117 5,221
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 13,476 12,926
Accumulated depreciation (4,802 ) (4,612 )
Net Property, Plant and Equipment 8,674 8,314
TOTAL ASSETS $ 15,830 $ 16,133
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2009 2008
(millions of dollars, except shares)
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term debt $ 493 $ 465
Current maturities of long-term debt and 534 85
project funding
Accounts payable and accrued liabilities 634 847
Capital lease obligations due within one 7 6
year
Taxes accrued 58 62
Interest accrued 93 71
Liabilities and accrued interest related 1 47
to uncertain tax positions
Derivative liabilities 125 144
Other 289 275
Total Current Liabilities 2,234 2,002
DEFERRED CREDITS
Regulatory liabilities 662 893
Deferred income taxes, net 2,505 2,269
Investment tax credits 37 40
Pension benefit obligation 399 626
Other postretirement benefit obligations 451 461
Income taxes payable 1 8
Liabilities and accrued interest related 110 17
to uncertain tax positions
Derivative liabilities 63 59
Other 155 184
Total Deferred Credits 4,383 4,557
LONG-TERM LIABILITIES
Long-term debt 4,470 4,859
Transition bonds issued by ACE Funding 378 401
Long-term project funding 17 19
Capital lease obligations 96 99
Total Long-Term Liabilities 4,961 5,378
COMMITMENTS AND CONTINGENCIES
EQUITY
Common stock, $.01 par value, 400,000,000
shares authorized, 221,592,782 shares and 2 2
218,906,220 shares outstanding,
respectively
Premium on stock and other capital 3,215 3,179
contributions
Accumulated other comprehensive loss (258 ) (262 )
Retained earnings 1,287 1,271
Total Shareholders' Equity 4,246 4,190
Noncontrolling interest 6 6
Total Equity 4,252 4,196
TOTAL LIABILITIES AND EQUITY $ 15,830 $ 16,133
POWER DELIVERY SALES AND OPERATING REVENUES
Three Months Ended Nine Months Ended
September 30, September 30,
Power Delivery Sales (GWh) 2009 2008 2009 2008
Regulated T&D Electric Sales
Residential 4,997 5,165 13,219 13,324
Commercial and industrial 8,653 8,826 23,965 24,783
Other 59 59 185 185
Total Regulated T&D Electric Sales 13,709 14,050 37,369 38,292
Default Electricity Supply Sales
Residential 4,804 5,005 12,770 12,901
Commercial and industrial 2,144 2,909 6,764 7,854
Other 23 22 71 72
Total Default Electricity Supply Sales 6,971 7,936 19,605 20,827
Three Months Ended Nine Months Ended
September 30, September 30,
Power Delivery Electric Operating
Revenue 2009 2008 2009 2008
(Millions of dollars)
Regulated T&D Electric Revenue
Residential $ 190 $ 193 $ 464 $ 460
Commercial and industrial 229 228 611 598
Other 63 81 188 244
Total Regulated T&D Electric Revenue $ 482 $ 502 $ 1,263 $ 1,302
Default Supply Revenue
Residential $ 619 $ 622 $ 1,519 $ 1,461
Commercial and industrial 247 378 739 928
Other 35 96 121 269
Total Default Supply Revenue $ 901 $ 1,096 $ 2,379 $ 2,658
Other Electric Revenue $ 17 $ 17 $ 54 $ 48
Total Electric Operating Revenue $ 1,400 $ 1,615 $ 3,696 $ 4,008
Three Months Ended Nine Months Ended
September 30, September 30,
Power Delivery Gas Sales and Operating 2009 2008 2009 2008
Revenue
Regulated Gas Sales (Bcf)
Residential 1 - 6 5
Commercial and industrial 1 1 4 4
Transportation and other 1 1 4 5
Total Regulated Gas Sales 3 2 14 14
Regulated Gas Revenue (Millions of
dollars)
Residential $ 11 $ 9 $ 103 $ 86
Commercial and industrial 7 7 60 54
Transportation and other 2 2 6 6
Total Regulated Gas Revenue $ 20 $ 18 $ 169 $ 146
Other Gas Revenue $ 8 $ 35 $ 30 $ 106
Total Gas Operating Revenue $ 28 $ 53 $ 199 $ 252
Total Power Delivery Operating Revenue $ 1,428 $ 1,668 $ 3,895 $ 4,260
WEATHER DATA - CONSOLIDATED ELECTRIC SERVICE TERRITORY
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Heating Degree Days 20 12 2,866 2,498
20 Year Average 33 34 2,728 2,765
Percentage Difference from Average -39% -65% 5% -10%
Percentage Difference from Prior Year 67% 15%
Cooling Degree Days 894 1,009 1,240 1,426
20 Year Average 922 923 1,278 1,271
Percentage Difference from Average -3% 9% -3% 12%
Percentage Difference from Prior Year -11% -13%
CONECTIV ENERGY
Quarter Ended:
September 30, June 30, March December 30, September 30,
31,
2009 2009 2008 2008 2008
Gigawatt Hour
Supply (GWh)
Base-Load (1) 99 107 304 340 437
Mid-Merit
(Combined Cycle) 1,231 374 309 344 1,318
(2)
Mid-Merit (Oil 11 (3 ) 34 9 -
Fired) (3)
Peaking 22 6 2 3 31
Tolled 186 126 180 16 65
Generation
Generation 1,549 610 829 712 1,851
Output
Load Service 1,503 1,485 2,010 2,454 2,907
Volume (4)
Around-the-clock
Market Prices $ 35.89 $ 35.35 $ 54.89 $ 56.45 $ 89.62
($/MWh) PJM -
East (5)
On Peak Market
Prices ($/MWh) $ 43.70 $ 40.68 $ 60.81 $ 65.72 $ 107.66
PJM - East (5)
Gas Price - M3
(Market Area) $ 3.41 $ 4.04 $ 6.28 $ 7.37 $ 9.71
($/MMBtu) (5)
Average Power
Sales Price
($/MWh) (6)
Generation $ 44.21 $ 41.34 $ 71.91 $ 70.93 $ 117.50
Other $ 88.52 $ 83.38 $ 88.60 $ 93.40 $ 101.70
Merchant
Generation and
Load Service
Gross Margin Key
Drivers ($
millions)
Physical Energy
and Ancillary $ 15 $ (9 ) $ 4 $ 7 $ 59
Services
Fuel & Power
Hedges of $ (24 ) $ (6 ) $ 3 $ (5 ) $ 21
Generation
Activities (7)
PJM Capacity
Margin for $ 60 $ 44 $ 35 $ 35 $ 37
Generation
Activities
Load Service and $ 23 $ (11 ) $ 1 $ 4 $ (4 )
Load Hedges
Notes:
(1) Edge Moor Units 3 and 4 and Deepwater Unit 6.
(2) Hay Road and Bethlehem, all units.
Edge Moor Unit 5 and Deepwater Unit 1. Generation output for these units
(3) was negative for the three months ended June 30, 2009 because of station
service consumption.
(4) Includes all default electricity supply sales.
(5) Daily average.
Calculated from data reported in Conectiv Energy's Electric Quarterly
(6) Report filed with the FERC; does not include capacity or ancillary services
revenue. Prices may differ from those originally reported in prior periods
due to normal load true-ups requiring EQR filing amendments.
(7) Financial contracts used to economically hedge fuel inputs and power
output.
CONECTIV ENERGY - (continued)
Operating Summary
(Millions of dollars)
Three Months Ended Six Months Ended
September 30, September 30,
2009 2008 2009 2008
Gigawatt Hour Supply (GWh)
Generation Output 1,549 (3) 1,851 2,988 (3) 3,894
Load Service Volumes 1,503 (4) 2,907 4,997 (4) 8,176
Operating Revenue:
Merchant Generation and Load $ 459 $ 442 $ 1,170 $ 1,436
Service (1)
Energy Marketing (2) 122 341 455 959
Total 581 783 1,625 2,395
Cost of Goods Sold:
Merchant Generation and Load 385 329 1,035 1,123
Service (1)
Energy Marketing (2) 115 324 421 919
Total 500 653 1,456 2,042
Gross Margin:
Merchant Generation and Load 74 (5) 113 135 (5) 313
Service (1)
Energy Marketing (2) 7 (6) 17 34 (6) 40
Total 81 130 169 353
Operating and Maintenance Expenses 28 (7) 30 98 (7) 105
Depreciation 10 10 29 28
Taxes Other Than Income Taxes 1 1 3 3
Other Operating Expenses - - 1 -
Total 39 41 131 136
Operating (Loss) Income $ 42 $ 89 $ 38 $ 217
Notes:
Merchant Generation and Load Service consists primarily of electric power,
capacity, and ancillary services sales from Conectiv Energy's generating
plants; tolling arrangements entered into to sell energy and other products
from Conectiv Energy's generating plants and entered into to purchase
energy and other products from other companies' generating plants; hedges
(1) of power, capacity, fuel and load; the sale of excess fuel (primarily
natural gas) and emission allowances; electric power, capacity, and
ancillary services sales pursuant to competitively bid contracts entered
into with affiliated and non-affiliated companies to fulfill their default
electricity supply obligations; and fuel switching activities made possible
by the multi-fuel capabilities of some of Conectiv Energy's generating
plants.
Energy Marketing consists primarily of power origination, which primarily
represents the fixed margin component of structured power transactions such
(2) as default electricity supply service, wholesale natural gas marketing,
fuel oil marketing, and the activities of the short-term power desk which
generates margin by identifying and capturing price differences between
power pools, and locational and timing differences within a power pool.
Lower generating plant output during 2009 compared to 2008 was primarily
due to decreased demand for electricity related to the economic recession
(3) and mild weather. Coal generation experienced the sharpest decline because
low natural gas prices caused more flexible natural gas units to replace
coal generation in the dispatch order.
Lower load service volumes during 2009 compared to 2008 was primarily due
(4) to the expiration of certain load service contracts and the decreased
demand for electricity related to the economic recession, and mild weather
during the summer of 2009.
Lower Merchant Generation and Load Service gross margins during 2009
compared to 2008 were driven by lower generation output, lower spark
(5) spreads and dark spreads, and decreased mark-to-market and settled gains on
derivative instruments, primarily natural gas and coal; partially offset by
higher capacity prices.
(6) Lower Energy Marketing gross margins during 2009 compared to 2008 were
primarily due to lower power and natural gas sales and margins.
Lower Operating and Maintenance Expenses in 2009 compared to 2008 were
(7) primarily due to postponed plant maintenance projects because of lower
run-time, the elimination of incentive accruals, and other cost-saving
measures.
PEPCO ENERGY SERVICES
Operating Summary
Three Months Ended Nine Months Ended
(millions of dollars) September 30, September 30,
2009 2008 2009 2008
Retail Electric Sales (GWh) 4,619 5,614 14,007 15,205
Operating Revenue $ 611 $ 716 $ 1,828 $ 1,968
Cost of Goods Sold 555 686 1,674 1,852
Gross Margin 56 30 154 116
Gross Margin Detail:
Retail Energy Supply (1) 42 (2) 14 113 (3) 72
Energy Services 14 16 41 44
Total 56 30 154 116
Operation and Maintenance 24 22 68 62
Expenses
Depreciation 4 4 13 10
Other Taxes 1 1 2 2
Operating Expenses 29 27 83 74
Operating Income $ 27 $ 3 $ 71 $ 42
Notes:
(1) Includes power generation.
Retail Energy Supply gross margin increased due to lower electric and gas
(2) supply costs, lower losses on energy derivative contracts, lower RPM
capacity charges, and higher RPM capacity revenues.
(3) Retail Energy Supply gross margin increased due to lower electric supply
costs.
Source: Pepco Holdings, Inc.
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