MANAGING TODAY’S CHALLENGES
Positioning for Tomorrow’s Growth
EEI FINANCE MEETING • NEW YORK, NY • MAY 20, 2009
Some of the statements contained in today’s presentations are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934 and are subject to the safe harbor created by the Private Securities Litigation Reform Act of
1995. These statements include all financial projections and any declarations regarding management’s intents, beliefs or current
expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable
terminology. Any forward-looking statements are not guarantees of future performance, and actual results could differ materially
from those indicated by the forward-looking statements. Forward-looking statements involve estimates, assumptions, known and
unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-
looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no
obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or
otherwise. A number of factors could cause actual results or outcomes to differ materially from those indicated by the forward-
looking statements contained in this presentation. These factors include, but are not limited to, prevailing governmental policies
and regulatory actions affecting the energy industry, including with respect to allowed rates of return, industry and rate structure,
acquisition and disposal of assets and facilities, operation and construction of plant facilities, recovery of purchased power
expenses, and present or prospective wholesale and retail competition; changes in and compliance with environmental and safety
laws and policies; weather conditions; population growth rates and demographic patterns; competition for retail and wholesale
customers; general economic conditions, including potential negative impacts resulting from an economic downturn; growth in
demand, sales and capacity to fulfill demand; changes in tax rates or policies or in rates of inflation; rules and changes in
accounting standards or practices; changes in project costs; unanticipated changes in operating expenses and capital
expenditures; the ability to obtain funding in the capital markets on favorable terms; restrictions imposed by Federal and/or state
regulatory commissions, PJM and other regional transmission organizations (NY ISO, ISO New England), the North American
Electric Reliability Council and other applicable electric reliability organizations; legal and administrative proceedings (whether civil
or criminal) and settlements that affect our business and profitability; pace of entry into new markets; volatility in market demand
and prices for energy, capacity and fuel; interest rate fluctuations and credit market concerns; and effects of geopolitical events,
including the threat of domestic terrorism. Readers are referred to the most recent reports filed with the Securities and Exchange
Commission.
the Securities Exchange Act of 1934 and are subject to the safe harbor created by the Private Securities Litigation Reform Act of
1995. These statements include all financial projections and any declarations regarding management’s intents, beliefs or current
expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable
terminology. Any forward-looking statements are not guarantees of future performance, and actual results could differ materially
from those indicated by the forward-looking statements. Forward-looking statements involve estimates, assumptions, known and
unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-
looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no
obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or
otherwise. A number of factors could cause actual results or outcomes to differ materially from those indicated by the forward-
looking statements contained in this presentation. These factors include, but are not limited to, prevailing governmental policies
and regulatory actions affecting the energy industry, including with respect to allowed rates of return, industry and rate structure,
acquisition and disposal of assets and facilities, operation and construction of plant facilities, recovery of purchased power
expenses, and present or prospective wholesale and retail competition; changes in and compliance with environmental and safety
laws and policies; weather conditions; population growth rates and demographic patterns; competition for retail and wholesale
customers; general economic conditions, including potential negative impacts resulting from an economic downturn; growth in
demand, sales and capacity to fulfill demand; changes in tax rates or policies or in rates of inflation; rules and changes in
accounting standards or practices; changes in project costs; unanticipated changes in operating expenses and capital
expenditures; the ability to obtain funding in the capital markets on favorable terms; restrictions imposed by Federal and/or state
regulatory commissions, PJM and other regional transmission organizations (NY ISO, ISO New England), the North American
Electric Reliability Council and other applicable electric reliability organizations; legal and administrative proceedings (whether civil
or criminal) and settlements that affect our business and profitability; pace of entry into new markets; volatility in market demand
and prices for energy, capacity and fuel; interest rate fluctuations and credit market concerns; and effects of geopolitical events,
including the threat of domestic terrorism. Readers are referred to the most recent reports filed with the Securities and Exchange
Commission.
Safe Harbor Statement
1
Transmission & Distribution
Competitive Energy / Other
2009 - - 2013
Forecast
Business Mix*
70 - - 75%
25 - - 30%
Note: See Safe Harbor Statement at the beginning of today’s presentation.
• Growing regulated
infrastructure platform
infrastructure platform
• Well positioned for
industry transformation
industry transformation
• Complementary
competitive energy
businesses
competitive energy
businesses
• Disciplined growth
strategy
strategy
… offers an
• Attractive total return
Investing in PHI
* Percentages based on projected operating income.
PHI Investments
2
Note: Management believes the special item is not representative of the Company’s ongoing business operations.
First Quarter 2009 Financial Performance
3
First Quarter 2008 Earnings Per Share $0.49
First Quarter 2009 Earnings Per Share (2) $0.17
1) 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.
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.
2) Excluding the special item.
First Quarter 2009
Financial Performance - Drivers
Financial Performance - Drivers
Power Delivery
• Weather 0.02
• Rate Order Impact (DC) 0.01
• Capital Costs (0.03)
• Operation and Maintenance Expense (0.02)
• Income Tax Adjustments (0.02)
• Dilution (0.02)
• Depreciation/Amortization (0.01)
• Other, net (0.02)
Conectiv Energy (1) (0.22)
Pepco Energy Services (0.01)
Other Non-Regulated, Corporate, Other -
4
Recent Events
· December 2008 - PJM Board approved a High
Voltage Direct Current system for the segment from
Calvert Cliffs to Indian River.
Voltage Direct Current system for the segment from
Calvert Cliffs to Indian River.
· February 2009
MD PSC authorized Pepco to start
construction on the Burches Hill to Chalk
Point segment.
construction on the Burches Hill to Chalk
Point segment.
Pepco and Delmarva filed multiple
applications seeking authority to construct
certain segments in Southern MD.
applications seeking authority to construct
certain segments in Southern MD.
Pepco filed a joint environmental permit
application for the Southern MD segment.
application for the Southern MD segment.
· May 2009
PJM reaffirmed the need for the project, but
delayed the in-service date by one year as a
result of the recent load forecast.
delayed the in-service date by one year as a
result of the recent load forecast.
December 2011 - Possum Point to Calvert
Cliffs segment in-service date.
Cliffs segment in-service date.
June 2014 - Calvert Cliffs to Indian River
segment in-service date.
segment in-service date.
Indian River to Salem segment moved from
RTEP approved plan to PJM’s “continuing
study” list.
RTEP approved plan to PJM’s “continuing
study” list.
• Revised project total - $1.2 billion
• Revised in-service date - 2014
Mid-Atlantic Power Pathway (MAPP)
5
Blueprint for the Future Progress to Date
Vendor Selection
• Comverge - selected vendor for Direct Load Control
in Maryland
in Maryland
• Silver Spring Networks - selected vendor for AMI
communication network
communication network
• IBM - system integrator for Delaware deployment to
enable over the air meter read, outage detection, on
demand meter reads and remote disconnect
enable over the air meter read, outage detection, on
demand meter reads and remote disconnect
• GE and Landis + Gyr - - selected as meter
manufacturers
manufacturers
• Scope Services - selected as meter installation
contractor
contractor
Delaware Deployment
• 3Q 2009 Complete field acceptance testing of the
AMI equipment and systems
AMI equipment and systems
• 4Q 2009 Commence deployment of AMI equipment in
Delaware
Delaware
Smart Community Demonstration
• 4Q 2009 deployment potentially begins for ACE and
Pepco Maryland
Pepco Maryland
Maryland - Bethesda (Montgomery County) and Fort
Washington (Prince George’s County)
Washington (Prince George’s County)
New Jersey - Glassboro (Gloucester County) and
Absecon (Atlantic County)
Absecon (Atlantic County)
6
Blueprint for the Future -
Construction Cost and Timing Estimates*
(Dollars in Millions)
* Current total estimated cost of project (2008-2014) is $422 million.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
7
Sales and Customer Growth - Statistics
While the economic downturn has slowed growth, we have confidence
in the long-term growth prospects of our service territory.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
8
(1) As filed with Quarterly Earned Return Reports for the twelve months ended 9-30-08, which is developed in accordance with PSC instructions and,
therefore, does not reflect all costs the companies believe are appropriate to include in their rate case filings.
therefore, does not reflect all costs the companies believe are appropriate to include in their rate case filings.
(2) Estimate as of 9-30-08; does not reflect all costs the Company believes are appropriate to include in its rate case filing.
(3) Adjusted for estimated 2009 pension expense and other known cost increases.
(4) Adjusted for planned plant additions.
Atlantic City
(Dollars in Millions)
Electric
MD
(1)
DC
(1)
DE
(1)
MD
(1)
Gas
(1)
NJ
(2)
Operating Income (Adjusted) (3)
$69
$60
$27
$17
$16
$55
Rate Base (Adjusted) (4)
$910
$1,018
$388
$278
$228
$788
Earned Return on Rate Base
7.55%
5.85%
6.83%
6.26%
7.03%
6.97%
Authorized Return on Rate Base
7.99%
7.96%
7.17%
7.68%
7.73%
8.14%
Most Recent Authorized Return on Equity
10.00%
10.00%
10.00%
10.00%
10.25%
9.75%
Most Recent Test Period
Sep-06
Sep-06
Mar-05
Sep-06
Mar-06
Dec-02
Next Anticipated Filing
Q1-10
Q3-09
Q2-09
Q2-10
Q3-09
Earned ROE (Adjusted) (3)
8.80%
5.40%
8.20%
6.60%
8.60%
6.70%
Revenue Requirement to Achieve Authorized ROE
$9.7
$40.4
$5.8
$7.9
$3.1
$18.7
< 1%
3%
<
1%
1%
<
1%
1%
Revenue Requirement -
Equating to 25 Basis Point Change in ROE
$1.8
$2.0
$0.8
$0.6
$0.5
$1.6
- Total Residential Bill % Change
Q2-09
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Distribution Summary
9
1) Maryland statute requires completion of the case within seven months or rates can be put into effect subject to refund.
2) In the filings, a three year rolling average treatment of pension, OPEB, and bad debt expense was requested. The average of
theses costs would be recovered through a surcharge (updated annually) with the difference between the average and the
actual costs incurred deferred for future recovery.
theses costs would be recovered through a surcharge (updated annually) with the difference between the average and the
actual costs incurred deferred for future recovery.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Distribution Rate Case - Summary
10
Note: See Safe Harbor Statement at the beginning of today’s presentation.
• On May 1st, PHI’s utilities made filings in their regulatory jurisdictions to
mitigate the effect of significantly higher pension expense being incurred as
compared to prior periods.
mitigate the effect of significantly higher pension expense being incurred as
compared to prior periods.
• The filings request a deferral of the amount of pension expense charged to
O&M expense that is above the amounts currently included in base distribution
rates.
O&M expense that is above the amounts currently included in base distribution
rates.
• The filings request a total of $35 million of 2009 pension expense (going back
to Jan. 2009) be deferred for future recovery
to Jan. 2009) be deferred for future recovery
Pepco - DC | $5.4 |
Pepco - MD | $9.3 |
DPL - Electric - DE | $8.2 |
DPL - Gas - DE | $1.9 |
DPL - MD | $5.0 |
ACE - NJ | $5.3 |
Total | $35.1 |
Dollars in Millions
• The accumulated deferred balance
would be incorporated into rates in
the next base rate proceeding
would be incorporated into rates in
the next base rate proceeding
Regulatory Filings -
Deferral of Pension Expense
Deferral of Pension Expense
11
(1) Estimated rate base at 12/31/08 based on FERC-approved Formula. Rates become effective on June 1,
2009.
2009.
(2) Projects with a FERC-approved incentive ROE adder earn 12.8%. Authorized return on equity is 11.3%
for all other transmission.
for all other transmission.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Transmission Summary
12
2008 Capacity (4,283 MW)
(Owned and contracted)
An Eastern PJM, mid-merit focused generator
Financials (as of 12/31/08)
Property, Plant & Equipment $1,225 M
Construction Work in Process $ 249 M
2008 Earnings $ 122 M
Note: Excludes units under development
«Construction projects (649 MW)
Conectiv Energy Generating Facilities
«
Delta
Vineland
«
Existing sites
Cumberland
«
13
$215
$206
$308
$265
$285
$335
$380
$435
$325
$425
$340
$450
$380
$500
$259
$255
$319
$407
Note: See Safe Harbor Statement at the beginning of today’s presentation.
CE historically delivers within forecasted range
14
130
35
325
425
220
270
160
160
90
45
20
Forecast range
% Hedged* 100% ~50% ~50% ~70%
* % Hedged = Hedged value/ Midpoint of forecast range
70% of 2009 forecasted gross margin is already hedged
Note: See Safe Harbor Statement at the beginning of today’s presentation.
15
Delta Project - On time (2Q-11 COD); on budget
545 MW dual fuel combined cycle plant located
in Peach Bottom Township, PA
in Peach Bottom Township, PA
Project Cost: $470 million ($862/kW-installed)
6-year tolling agreement (6/1/2011 - 5/31/2017)
with Constellation Energy provides a stable
and predictable earnings profile
and predictable earnings profile
Projected net income of $24-28 million/year
Project Status
• All major permits acquired
• Site grading/ foundations and underground work in
progress
progress
• Major equipment ordered/delivery confirmed to meet
commercial operation date
commercial operation date
• Commercial operation date - June 2011
Permits and infrastructure allow for expansion
(additional 545 MW block)
(additional 545 MW block)
Note: See Safe Harbor Statement at the beginning of today’s presentation.
16
Cumberland Project - On time (2Q-09 COD);
better than budget
better than budget
Note: See Safe Harbor Statement at the beginning of today’s presentation.
100 MW dual fuel combustion turbine - flexible and
efficient GE LMS 100 technology
efficient GE LMS 100 technology
Project Cost: $75 million budget
$72 million projection ($720/kW-installed)
Projected net income of $4-7 million/ year
• Capacity value contributes 50% of project value
• Included in 2009/10 and 2010/11 PJM capacity auctions
Project Status
• All equipment has been installed
• Gas & Electrical interconnection installation complete
• Cold Commissioning & Testing in progress
• Commercial operation date - 2Q-09 (on schedule)
Existing CT site (Cumberland, NJ)
• Land available for further expansion (additional 100 MW)
• Additional natural gas and oil storage capacity
• Minimal transmission system upgrades (PJM Queue P06)
• Other infrastructure and resources on site
17
Vineland Solar Project - Solar RECs in New Jersey
Note: See Safe Harbor Statement at the beginning of today’s presentation.
4 MW Solar PV project located in Vineland, NJ
Project Cost: $19 million ($4,700/kW-installed)
Projected Net Income of ~$1 million/ year
Project Summary
• Supports initiative to increase renewable energy
portfolio
portfolio
• 25 Year PPA with City of Vineland for capacity,
energy and ancillaries (unit contingent)
energy and ancillaries (unit contingent)
• SREC’s meet approximately 50% of CE’s RPS
requirements
requirements
• Located on 28 acres (City of Vineland)
• Connected to VMEU’s 13-kV System
Project Status
• Land lease and major permits acquired
• Major equipment ordered/delivery confirmed to
meet commercial operation date
meet commercial operation date
• Commercial operation date:
– Phase I: 2 MW 3Q-09
– Phase II: 2 MW 2Q-10
18
Should benefit from RGGI due to predominant gas fired
generation fleet, renewable energy supply and PA plants
Acquired allowances
1.3
1.0
0.8
0.4
2.4
2.2
2.3
1.7
CE RGGI Allowance Balance (3/09)
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Actively managing Regional Greenhouse Gas
Initiative (RGGI) impacts
Initiative (RGGI) impacts
19
Expected 2011 fleet will have 90%
mid-merit and peaking capacity
mid-merit and peaking capacity
Generation Capacity by Type
Natural Gas can fuel 70% of
the 2011 fleet output
the 2011 fleet output
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Renewable/climate legislation favors gas fuel and
mid-merit/peaking units in the PJM region
mid-merit/peaking units in the PJM region
Intermittent renewable (wind and solar) generation necessitates mid-merit and
peaking backup capacity
peaking backup capacity
Weather variability (wind /cloud cover) amplifies regional supply volatility
RGGI and any federal climate legislation advantages efficient gas-fired generation
over coal
over coal
20
PES is shifting its strategic focus from
Energy Supply to Energy Services
Energy Supply to Energy Services
PES earnings contributed 19¢/share in 2008
Energy
Services 8¢
Services 8¢
Energy
Supply 11¢
Supply 11¢
PES Overview
21
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Estimated, as of 3/31/2009
PES’s retail electric and natural gas
business had record profits in 2008
business had record profits in 2008
22
• PES’s energy efficiency business fits well with PHI’s strategic focus
– Does not require capital expenditures or contingent capital
• PES has a successful track record of implementing energy efficiency
projects
projects
– Approximately $750 million of energy efficiency projects installed since
1995
1995
– With over 200 employees, PES has developed this as core competency
• The recently enacted federal stimulus bill may provide PES with
increased opportunities
increased opportunities
– $3.2 billion block grants to States for energy efficiency measures
– $4.5 billion to GSA to invest in “high performance green buildings”
– $3.2 billion to DOD to invest in energy efficiency for its facilities
• In December, PES was selected as an eligible contractor to perform
energy efficiency work for the US DOE
energy efficiency work for the US DOE
– 5-year term with options to extend
– Allows PES to compete for projects at all federally owned facilities
– Includes renewable energy projects
PES is focused on growing its energy
efficiency business
efficiency business
23
PES obtains earnings from construction of energy
efficiency projects and long-term contracts
efficiency projects and long-term contracts
24
• Financial arrangement with an investment bank entered into
March 2009
March 2009
• Certain wholesale power supply contracts were novated
– PES has no obligation to post collateral under these contracts
– Approximately $300 million of collateral was released, thereby
strengthening PHI’s liquidity position
strengthening PHI’s liquidity position
• PES entered into mirror wholesale power trades with no
collateral requirement
collateral requirement
• Fee for transaction to be amortized over 2.5 years; after-tax
earnings impact expected to be approximately $10 million in
2009 and $5 million in 2010
earnings impact expected to be approximately $10 million in
2009 and $5 million in 2010
Credit Intermediation Agreement
25
Liquidity Position
PHI maintains sufficient liquidity to execute the business plan
Millions of Dollars
Note: See Safe Harbor Statement at the beginning of today’s presentation.
26
2009 | 2010 | 2011 | 2012 | 2013 |
$600 - $700 | $700 - $800 | $700 - $800 | $850 - $1,000 | $1,050 - $1,200 |
Projected Net Cash From Operations Range
Millions of Dollars
• Over the planning period, approximately
75% of net cash from operations is
generated by Power Delivery
75% of net cash from operations is
generated by Power Delivery
• The increase in cash is primarily driven by
higher transmission and distribution rates
and higher Conectiv Energy cash flow
higher transmission and distribution rates
and higher Conectiv Energy cash flow
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Projected Net Cash From Operations
27
Millions of Dollars
(1) Midpoint of projected cash from operations range; net of $190 million pension funding, after tax.
(2) Excluding debt maturities related to the Atlantic City Electric securitization bonds.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
2009 Principal Sources & Uses of Cash
28
• Current 2010 business plan calls for external financing
• We have alternatives to mitigate long-term financing
needs
needs
– Reduce/delay capital spending
– Use of short-term debt
• We will continue to assess our options - financing will
be dependent upon market conditions
be dependent upon market conditions
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Financing Current 2010 Business Plan
29
$1,024
$1,070
$1,188
$1,391
$1,211
Construction Expenditures - Projection*
$781
* Projection as of March 31, 2009.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
30
Power Delivery - A Driver of Growth
Total Rate Base
Growth - 71%
Growth - 71%
Electric Distribution Rate
Base Growth - 39%
Base Growth - 39%
Transmission Rate
Base Growth - 183%
Base Growth - 183%
* Estimated 2008 year end rate base, projected 2009 - 2013 year end rate bases. See appendix for projection by utility.
$4,676
$7,973
$4,988
$5,493
$6,171
$3,383
$3,614
$3,854
$4,068
$4,455
$4,708
$231
$233
$243
$250
$259
$263
$1,062
$1,141
$1,396
$1,853
$2,629
$3,002
*
Note: See Safe Harbor Statement at the beginning of today’s presentation.
31
Earnings - 11.3% ROE | $54 | $52 | $54 | $57 | $70 |
Earnings - 12.8% ROE | $7 | $14 | $28 | $54 | $89 |
Projected Earnings | $61 | $66 | $82 | $111 | $159 |
$1,062
$1,141
$1,396
$1,853
$2,629
* Projected earnings based on a simplified computation: projected year end rate base x 50% equity x authorized
returns on equity. Projected earnings are shown for the FERC formula rate year June 1 through May 31.
returns on equity. Projected earnings are shown for the FERC formula rate year June 1 through May 31.
Projected Transmission Rate Base
Note: See Safe Harbor Statement at the beginning of today’s presentation.
32
Directional Impact on Earnings | ||
2009 “Challenging” (1) | 2010 “Improving” (2) | |
Sales | - | á |
Revenues - Transmission Revenues | á | á |
Revenues - Distribution Rate Relief | - | á |
Expenses - Operation & Maintenance | â | - |
Expenses - Interest | â | - |
Expenses - Depreciation & Amortization | â | â |
Tax Adjustments | â | - |
Conectiv Energy Gross Margin | áâ | áâ |
Pepco Energy Services | â | áâ |
PHI Investments - Cross-Border Leases | â | - |
(1) As compared to 2008 actual results.
(2) As compared to 2009 plan.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Major Earnings Drivers
33
POM Investment Case
Note: See Safe Harbor Statement at the beginning of today’s presentation.
• Earnings base derived primarily from regulated utility
business
business
• Long-term earnings growth
• Commitment to dividend
• Investment grade credit quality
• Improved liquidity position
• Focus on lowering business risk