4th Quarter Earnings Conference Call
February 25, 2011
2
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
3
* See slide 13 for reconciliation of GAAP earnings to earnings excluding special items.
• 2010 earnings per share excluding special items - $1.24
• 2010 earnings guidance range - $1.00 - $1.10
EPS impact of items not contemplated in guidance range:
• Unbilled revenue related to ACE BGS (assumed reversal) $0.03
• Tax settlement $0.07 $0.11
• Fourth quarter heating degree day impact versus normal $0.01
2010 Actual Results* versus
Earnings Guidance
Earnings Guidance
4
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
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Blueprint - Project Status by Jurisdiction
5
(1) Date of company’s reply brief
Distribution Rate Cases -
Most Recent Decisions
Most Recent Decisions
6
(1) Date of company’s reply brief
(2) On 6/23/10, the Commission issued an order granting in part Pepco’s application for reconsideration.
The impact of the decision is an additional $1.0 million of allowed rate base and an additional increase in
revenues of approximately $0.5 million annually effective 7/21/10.
The impact of the decision is an additional $1.0 million of allowed rate base and an additional increase in
revenues of approximately $0.5 million annually effective 7/21/10.
Distribution Rate Cases -
Most Recent Decisions (continued)
Most Recent Decisions (continued)
7
(1) The settlement is subject to the approval of the Public Service Commission
(2) 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
• Balance of requested increase put into effect February 2, 2011, subject to refund
Distribution Rate Cases - Proposed Settlement
Delmarva Power - Delaware Gas
Delmarva Power - Delaware Gas
8
Regulatory Lag mitigation measures proposed:
(1) Reliability Investment Recovery Mechanism - provides full and timely recovery of future capital investments
related to distribution system reliability
related to distribution system reliability
(2) Annual Rate Review Process - adjusts rates annually using previously authorized ROE
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Distribution Rate Cases - Pending
Delmarva Power - Maryland
Delmarva Power - Maryland
9
Pending Regulatory Approvals
• Filed an updated CPCN in Maryland on
November 12, 2010 (Case No. 9179)
November 12, 2010 (Case No. 9179)
Procedural Schedule:
– Testimony - June 3, 2011
– Rebuttal - July 8, 2011
– Hearings - Sept. 6-8 & 12-15, 2011
– Briefs - Oct. 7, 2011
– Reply briefs - Oct. 28, 2011
– Proposed Order - Nov. 28, 2011
– Final Order - Jan. 31, 2012
• Field reviews with state and federal
environmental agencies completed for
Southern Maryland portion; Public comment
period closes March 1
environmental agencies completed for
Southern Maryland portion; Public comment
period closes March 1
• Plan to file for Maryland State environmental
permit in 2Q2011
permit in 2Q2011
Mid-Atlantic Power Pathway (MAPP) -
Project Update
Project Update
Projected Construction Cost: $1.2 billion
Current In-Service Date: June 2015
FERC Approved ROE: 12.8%
Note: See Safe Harbor Statement at the beginning of today’s presentation.
10
* Reflects anticipated cash reimbursements pursuant to awards from the U.S. Department of Energy under the
American Recovery and Reinvestment Act of 2009.
American Recovery and Reinvestment Act of 2009.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Projected Capital Expenditures - 2011 - 2015
11
Pepco Energy Services
2007
2008
2009
2010
• PES signed $169 million of
energy efficiency contracts in
2010 - a record sales year
energy efficiency contracts in
2010 - a record sales year
• PES’s energy efficiency
construction backlog is $21 million
of gross margin at 12/31/10 with a
10-month weighted average
remaining construction period
construction backlog is $21 million
of gross margin at 12/31/10 with a
10-month weighted average
remaining construction period
• Project development pipeline has
grown to $450 million
grown to $450 million
12
• PES is constructing a 2.2 MW solar electric
generating system in New Jersey; $11 million
contract value
generating system in New Jersey; $11 million
contract value
– Mays Landing campus
– Cape May County campus
• The installation currently ranks as the largest
single community college solar project in the
nation
single community college solar project in the
nation
• The project output will represent almost 50
percent of Atlantic Cape’s total annual electric
consumption for the two campuses
percent of Atlantic Cape’s total annual electric
consumption for the two campuses
• Atlantic Cape will realize savings of $220,000 the
first year, and up to $6.8 million over the 20-year
life of the contract
first year, and up to $6.8 million over the 20-year
life of the contract
• The electricity generated per year will be
equivalent to the amount needed to power
approximately 220 homes and will eliminate up to
2,100 metric tons of CO2 emissions annually
equivalent to the amount needed to power
approximately 220 homes and will eliminate up to
2,100 metric tons of CO2 emissions annually
Pepco Energy Services - Atlantic Cape
Community College Solar Project
Community College Solar Project
13
Net Earnings from Continuing Operations (Millions of dollars) | Three Months Ended December 31, | Twelve Months Ended December 31, | ||||
2010 | 2009 | 2010 | 2009 | |||
Reported (GAAP) Net Earnings from Continuing Operations | $14 | $39 | $139 | $223 | ||
Special Items: | ||||||
· | Debt extinguishment costs | 32 | - | 113 | - | |
· | Restructuring charge | 10 | - | 18 | - | |
· | Effects of Pepco divestiture-related claims | - | - | 6 | - | |
· | Mirant bankruptcy settlement | - | - | - | (24) | |
· | Maryland income tax benefit | - | - | - | (11) | |
Net Earnings from Continuing Operations, Excluding Special Items | $56 | $39 | $276 | $188 |
Earnings per Share from Continuing Operations | Three Months Ended December 31, | Twelve Months Ended December 31, | ||||
2010 | 2009 | 2010 | 2009 | |||
Reported (GAAP) Earnings per Share from Continuing Operations | $0.06 | $0.17 | $0.62 | $1.01 | ||
Special Items: | ||||||
· | Debt extinguishment costs | 0.15 | - | 0.51 | - | |
· | Restructuring charge | 0.04 | - | 0.08 | - | |
· | Effects of Pepco divestiture-related claims | - | - | 0.03 | - | |
· | Mirant bankruptcy settlement | - | - | - | (0.11) | |
· | Maryland income tax benefit | - | - | - | (0.05) | |
Earnings per Share from Continuing Operations, Excluding Special Items | $0.25 | $0.17 | $1.24 | $0.85 |
Reconciliation of GAAP Earnings to
Earnings Excluding Special Items
Earnings Excluding Special Items
14
(1) See GAAP reconciliation on slide 13
(2) Impacts multiple segments - Power Delivery 0.09, Other Non-Regulated (0.01), and Corporate and Other (0.01)
Financial Performance - Drivers
15
Net Pension & OPEB Pre-Tax Expense (O&M)
Pension Cash Contributions
■ 2010A ■ 2011E
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Pension and OPEB Impacts
16
2011 Earnings Guidance
Earnings Per Share
$1.10 - $1.30
$1.24
Guidance
as of Feb 2011
Reflects earnings per share from ongoing operations
(GAAP results excluding special, unusual or extraordinary items)
$1.10 - $1.25
The guidance range excludes:
• The net mark-to-market effects of
economic hedging activities at
Pepco Energy Services
economic hedging activities at
Pepco Energy Services
The guidance range assumes/includes:
• Normal weather
• Estimated incremental storm
expenses incurred in January 2011
expenses incurred in January 2011
Actual*
Outlook
as of Dec 2010
* Excludes special items. See slide 13 for reconciliation of GAAP earnings to earnings excluding special items.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
17
2011 Earnings Guidance (continued)
Earnings Per Share - 2010 Actual vs. 2011 Guidance
* Excludes special items. See slide 13 for reconciliation of GAAP earnings to earnings excluding special items.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
$1.10 - $1.25
2010 Actual*
2011E Guidance