1st Quarter Earnings Conference Call
May 6, 2011
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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.
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.
Safe Harbor Statement
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Improving System Reliability is a Top Priority
Reliability Enhancement Plan
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Note: See Safe Harbor Statement at the beginning of today’s presentation.
Blueprint - Project Status by Jurisdiction
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(1) The settlement is subject to the approval of the Delaware Public Service Commission
(2) Requested return on equity position without revenue decoupling is 11.25%
• Interim rates
– 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
• Decoupling status
– Parties agreed to defer the request to place revenue decoupling into effect until an
implementation plan is developed
implementation plan is developed
Distribution Rate Cases - Proposed Settlement
Delmarva Power - Delaware Gas
Delmarva Power - Delaware Gas
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(1) Current filed position as of 2/28/11, except revenue requirement which remains at the original filed position
(2) Office of People’s Counsel
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Drivers of requested increase:
• Under-earning at current authorized
ROE
ROE
• Reliability investment
Distribution Rate Cases - Pending
Delmarva Power - Maryland
Delmarva Power - Maryland
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• Filing includes:
– Comprehensive discussion of regulatory lag and its negative effects
– Perspective of investors by addition of a new Company witness
• Two regulatory lag mitigation measures proposed in filing:
– Reliability Investment Recovery Mechanism - Provides full and timely
recovery of future capital investments related to distribution system
reliability
recovery of future capital investments related to distribution system
reliability
– Annual Rate Review Process - Adjusts rates annually using actual
financial data and the return on equity approved in the most recent case
to calculate the revenue requirement which is then used as the basis for
rate adjustments
financial data and the return on equity approved in the most recent case
to calculate the revenue requirement which is then used as the basis for
rate adjustments
Distribution Rate Cases - Pending
Delmarva Power - Maryland (continued)
Delmarva Power - Maryland (continued)
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Distribution Rate Cases - The Next Cycle
Note: See Safe Harbor Statement at the beginning of today’s presentation.
• Preliminary Filing Cycle Tentative Filing Date
– Delmarva Power MD Filed December 2010
– Pepco DC 2Q2011
– Atlantic City Electric NJ 3Q2011
– Pepco MD 4Q2011
– Delmarva Power DE - Electric 4Q2011
– Delmarva Power DE - Gas 1Q2013
• Filing cycle may be altered by financial projections and other considerations
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Mid-Atlantic Power Pathway - Project Update
Total 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.
PJM
• DOE Environmental Impact Statement underway:
public comment sessions were held during week
of March 21, 2011
public comment sessions were held during week
of March 21, 2011
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(1) Reflects the remaining anticipated reimbursement pursuant to awards from the U.S. DOE under the ARRA.
(2) Installation of AMI in Delmarva-Maryland and New Jersey is contingent on regulatory approval.
(3) Assumes MAPP in-service date of 2015.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Construction Expenditure Forecast
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Note: Construction expenditures for in-service dates post-2015 not adjusted for inflation or changes in material prices.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
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Pepco Energy Services
• During the 1st quarter:
– Signed $8 million of energy efficiency contracts
– Project Development Pipeline grew by 72% to $775 million
Contracts Signed and Project Development Pipeline
2008
2009
2010
Q12011
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Financial Performance - Drivers
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2011 Earnings Guidance
Earnings Per Share
$1.24
Guidance
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:
assumes/includes:
• Normal weather
• Estimated incremental storm
expenses incurred in January 2011
expenses incurred in January 2011
Actual*
* Excludes special items. See Appendix for reconciliation of GAAP earnings to earnings excluding special items.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
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Recent Financing Activity
• February 25 - Atlantic City Electric redeemed all outstanding cumulative
preferred stock for approximately $6 million
preferred stock for approximately $6 million
– PHI and its subsidiaries now have no preferred stock outstanding
• April 5 - Atlantic City Electric issued $200 million of first mortgage bonds
– Annual fixed rate of 4.35% due April 1, 2021
– Proceeds were used to redeem Atlantic City Electric commercial paper and for
general corporate purposes
general corporate purposes
• May 2 - Delmarva Power repurchased $35 million of 4.9% tax-exempt put
bonds due May 1, 2026
bonds due May 1, 2026
– Bonds purchased pursuant to a mandatory repurchase obligation
– Delmarva Power plans to remarket the bonds during the second quarter of 2011
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Appendix
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Net Earnings from Continuing Operations (Millions of dollars) | Twelve Months Ended December 31, | ||
2010 | |||
Reported (GAAP) Net Earnings from Continuing Operations | $139 | ||
Special Items: | |||
· | Debt extinguishment costs | 113 | |
· | Restructuring charge | 18 | |
· | Effects of Pepco divestiture-related claims | 6 | |
· | Mirant bankruptcy settlement | - | |
· | Maryland income tax benefit | - | |
Net Earnings from Continuing Operations, Excluding Special Items | $276 | ||
Earnings per Share from Continuing Operations | Twelve Months Ended December 31, | |
2010 | ||
Reported (GAAP) Earnings per Share from Continuing Operations | $0.62 | |
Special Items: | ||
· | Debt extinguishment costs | 0.51 |
· | Restructuring charge | 0.08 |
· | Effects of Pepco divestiture-related claims | 0.03 |
· | Mirant bankruptcy settlement | - |
· | Maryland income tax benefit | - |
Earnings per Share from Continuing Operations, Excluding Special Items | $1.24 |
Reconciliation of GAAP Earnings to
Earnings Excluding Special Items
Earnings Excluding Special Items