3rd Quarter Earnings Conference Call
October 29, 2010
1
Some of the statements contained in today’s presentation are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995. These statements include declarations regarding Pepco Holdings’ intents, beliefs and 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 PHI’s 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. The forward-looking statements contained herein are qualified in their entirety by reference to the
following important factors, which are difficult to predict, contain uncertainties, are beyond Pepco Holdings’ control and may cause
actual results to differ materially from those contained in forward-looking statements: prevailing governmental policies and
regulatory actions affecting the energy industry, including allowed rates of return, industry and rate structure, acquisition and
disposal of assets and facilities, operation and construction of transmission and distribution facilities, and the recovery of
purchased power expenses; changes in and compliance with environmental and safety laws and policies; weather conditions;
population growth rates and demographic patterns; general economic conditions, including potential negative impacts resulting
from an economic downturn; changes in tax rates or policies or in rates of inflation; 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; rules and regulations imposed by Federal and/or state regulatory commissions, PJM, the
North American Electric Reliability Corporation and other applicable electric reliability organizations; legal and administrative
proceedings (whether civil or criminal) and settlements that influence PHI’s business and profitability; pace of entry into new
markets; volatility in customer demand for electricity and natural gas; interest rate fluctuations and credit and capital market
conditions; and effects of geopolitical events, including the threat of domestic terrorism. Any forward-looking statements speak
only as to the date of this presentation and Pepco Holdings undertakes no obligation to update any forward-looking statements to
reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for Pepco Holdings to predict all such factors, nor can Pepco
Holdings assess the impact of any such factor on Pepco Holdings’ business or the extent to which any factor, or combination of
factors, may cause results to differ materially from those contained in any forward-looking statement. The foregoing review of
factors should not be construed as exhaustive. Readers are referred to the most recent reports filed with the Securities and
Exchange Commission.
the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995. These statements include declarations regarding Pepco Holdings’ intents, beliefs and 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 PHI’s 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. The forward-looking statements contained herein are qualified in their entirety by reference to the
following important factors, which are difficult to predict, contain uncertainties, are beyond Pepco Holdings’ control and may cause
actual results to differ materially from those contained in forward-looking statements: prevailing governmental policies and
regulatory actions affecting the energy industry, including allowed rates of return, industry and rate structure, acquisition and
disposal of assets and facilities, operation and construction of transmission and distribution facilities, and the recovery of
purchased power expenses; changes in and compliance with environmental and safety laws and policies; weather conditions;
population growth rates and demographic patterns; general economic conditions, including potential negative impacts resulting
from an economic downturn; changes in tax rates or policies or in rates of inflation; 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; rules and regulations imposed by Federal and/or state regulatory commissions, PJM, the
North American Electric Reliability Corporation and other applicable electric reliability organizations; legal and administrative
proceedings (whether civil or criminal) and settlements that influence PHI’s business and profitability; pace of entry into new
markets; volatility in customer demand for electricity and natural gas; interest rate fluctuations and credit and capital market
conditions; and effects of geopolitical events, including the threat of domestic terrorism. Any forward-looking statements speak
only as to the date of this presentation and Pepco Holdings undertakes no obligation to update any forward-looking statements to
reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for Pepco Holdings to predict all such factors, nor can Pepco
Holdings assess the impact of any such factor on Pepco Holdings’ business or the extent to which any factor, or combination of
factors, may cause results to differ materially from those contained in any forward-looking statement. The foregoing review of
factors should not be construed as exhaustive. Readers are referred to the most recent reports filed with the Securities and
Exchange Commission.
Safe Harbor Statement
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Distribution Rate Case -
Pepco Maryland Decision
Pepco Maryland Decision
3
Note: See Safe Harbor Statement at the beginning of today’s presentation.
(1) Brief filing position
(2) Recommended return on equity without revenue decoupling is 11.00% for DPL, 9.50% for Hearing
Examiner and Staff and 9.58% for DPA
Examiner and Staff and 9.58% for DPA
(3) Company calculation
(4) Division of Public Advocate
Commission expected to consider case at
meeting scheduled for November 10, 2010
Distribution Rate Cases - Pending
Delmarva Power - Electric
Delmarva Power - Electric
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Note: See Safe Harbor Statement at the beginning of today’s presentation.
(1) Current filed position as of 10/11/10
(2) Division of Public Advocate
(3) Recommended return on equity position without revenue decoupling is 11.25%
• Interim rate increase of $2.5 million
put into effect August 31, 2010,
subject to refund
put into effect August 31, 2010,
subject to refund
• Balance of requested increase may
be put into effect February 2, 2011,
subject to refund
be put into effect February 2, 2011,
subject to refund
Distribution Rate Cases - Pending
Delmarva Power - Gas
Delmarva Power - Gas
5
Distribution Rate Cases -
The Next Cycle
The Next Cycle
Note: See Safe Harbor Statement at the beginning of today’s presentation.
• Preliminary Filing Cycle Tentative Filing Date
– Delmarva Power MD Late 2010/Early 2011
– Pepco MD Spring 2011
– Pepco DC Summer 2011
– Atlantic City Electric NJ Summer 2011
– Delmarva Power DE - Electric Summer 2011
– Delmarva Power DE - Gas Early 2012
• Filing cycle may be altered by financial projections and other
considerations
considerations
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(Millions of Dollars)
(1) Reflects current June 2015 in-service date
(2) Shift of $183 million of construction expenditures from Delmarva Power to Pepco in the current forecast is
based on the final route selected for the Chesapeake Bay crossing
based on the final route selected for the Chesapeake Bay crossing
Note: See Safe Harbor Statement at the beginning of today’s presentation.
MAPP Construction Expenditures -
Revised for 2015 In-Service Date
Revised for 2015 In-Service Date
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Combines smart grid technology with energy efficiency programs to help customers
control their energy use and cost, while providing earnings potential for the Company
control their energy use and cost, while providing earnings potential for the Company
* DPL - DE Gas decoupling to be implemented following base rate case decision expected in April 2011
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Blueprint - Project Status by Jurisdiction
8
BWI Thurgood Marshall Airport Project
• Project
– PES will implement 13 energy conservation
measures
measures
– The scope covers 30 airport buildings, including the
main terminal (9 million square feet)
main terminal (9 million square feet)
– Installation of more than 1 acre of solar power
generation equipment
generation equipment
• Construction schedule
– Construction began in September 2010; estimated
completion is December 2011
completion is December 2011
PES signed a $21 million energy performance contract
with the Maryland Aviation Administration (MAA) for the
BWI Thurgood Marshall Airport in Maryland
with the Maryland Aviation Administration (MAA) for the
BWI Thurgood Marshall Airport in Maryland
The project allows MAA to beat its 15% energy
reduction goal set by the EmPOWER Maryland Initiative
reduction goal set by the EmPOWER Maryland Initiative
Note: See Safe Harbor Statement at the beginning of today’s presentation.
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Net Earnings from Continuing Operations (Millions of dollars) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||
2010 | 2009 | 2010 | 2009 | |||
Reported (GAAP) Net Earnings from Continuing Operations | $21 | $104 | $125 | $184 | ||
Special Items: | ||||||
· | Debt extinguishment costs, including treasury lock hedge | 81 | - | 81 | - | |
· | Restructuring charge | 8 | - | 8 | - | |
· | Effects of Pepco divestiture-related claims | 6 | - | 6 | - | |
· | Mirant bankruptcy settlement (net of customer sharing) | - | (16) | - | (24) | |
· | Maryland income tax benefit, net of fees | - | (11) | - | (11) | |
Net Earnings from Continuing Operations, Excluding Special Items | $116 | $77 | $220 | $149 | ||
Earnings per Share from Continuing Operations | Three Months Ended September 30, | Nine Months Ended September 30, | ||||
2010 | 2009 | 2010 | 2009 | |||
Reported (GAAP) Earnings per Share from Continuing Operations | $0.09 | $0.47 | $0.56 | $0.84 | ||
Special Items: | ||||||
· | Debt extinguishment costs, including treasury lock hedge | 0.36 | - | 0.36 | - | |
· | Restructuring charge | 0.04 | - | 0.04 | - | |
· | Effects of Pepco divestiture-related claims | 0.03 | - | 0.03 | - | |
· | Mirant bankruptcy settlement (net of customer sharing) | - | (0.07) | - | (0.11) | |
· | Maryland income tax benefit, net of fees | - | (0.05) | - | (0.05) | |
Earnings per Share from Continuing Operations, Excluding Special Items | $0.52 | $0.35 | $0.99 | $0.68 | ||
Reconciliation of GAAP Earnings to
Earnings Excluding Special Items
Earnings Excluding Special Items
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* See GAAP reconciliation on slide 9
Financial Performance - Drivers
11
Earnings Guidance and Outlook
Earnings Per Share Ranges
$1.10 - $1.30
$0.80 - $0.95
Original
Guidance
Outlook
Reflects earnings per share from ongoing operations
(GAAP results excluding special, unusual or extraordinary items)
Note: See Safe Harbor Statement at the beginning of today’s presentation.
$1.00 - $1.10
Revised
Guidance
The revised guidance range represents:
• Strong Power Delivery operating
performance through the first nine
months of 2010
performance through the first nine
months of 2010
• The impact of hot summer weather on
electric distribution revenue in certain
jurisdictions
electric distribution revenue in certain
jurisdictions
• Partially offset by the effects of a
much higher level of storm activity in
2010, compared to 2009
much higher level of storm activity in
2010, compared to 2009
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Note: See Safe Harbor Statement at the beginning of today’s presentation.
PHI Debt Refinancing
• On October 1, 2010, PHI issued $250 million of 2.7% notes due October 1, 2015
• A portion of proceeds was used on October 13, 2010 to repurchase $40 million of 6.125% notes due
2017
2017
• Remaining proceeds will be used in November 2010 to redeem $200 million of 6.0% notes due 2019
and $10 million of 5.9% notes due 2016
and $10 million of 5.9% notes due 2016
• Annual earnings impact, beginning in 2011, is lower interest expense of approximately $0.02 per share