3rd Quarter Earnings Conference Call
November 4, 2011
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Safe Harbor Statement/Regulation G Information
Some of the statements contained in today’s presentation with respect to Pepco Holdings, Pepco, Delmarva Power and Atlantic City Electric, and each of their respective
subsidiaries, are forward-looking statements within the meaning of the U.S. federal securities laws and are subject to the safe harbor created thereby and by the Private
Securities Litigation Reform Act of 1995. These statements include declarations regarding each reporting company’s intents, beliefs and current expectations. You can
generally identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “could,” “expects,” “intends,” “assumes,” “seeks to,” “plans,”
“anticipates,” “believes,” “projects,” “estimates,” “predicts,” “potential,” “future,” “goal,” “objective,” or “continue”, the negative or other variations of such terms, or
comparable terminology, or by discussions of strategy that involve risks and uncertainties. Forward-looking statements involve estimates, assumptions, known and
unknown risks, uncertainties and other factors that may cause one or more reporting company’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. Therefore, forward-
looking statements are not guarantees or assurances of future performance, and actual results could differ materially from those indicated by the forward-looking
statements. These forward-looking statements are qualified in their entirety by, and should be read together with, the risk factors included in the “Risk Factors” section of
each reporting company’s annual and quarterly reports filed in 2011, and investors should refer to these risk factor sections. The forward-looking statements contained
herein are also qualified in their entirety by reference to, and should be read together with, the following important factors, which are difficult to predict, contain
uncertainties, are beyond each reporting company’s control and may cause actual results to differ materially from those contained in forward-looking statements: changes
in 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; weather conditions
affecting usage and emergency restoration costs; population growth rates and changes in demographic patterns; changes in customer energy demand due to conservation
measures and the use of more energy-efficient products; general economic conditions, including the impact of an economic downturn or recession on energy usage;
changes in and compliance with environmental and safety laws and policies; 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, and decisions of, 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 each reporting company’s
business and profitability; pace of entry into new markets; volatility in customer demand for electricity and natural gas; interest rate fluctuations and the impact of credit and
capital market conditions on the ability of a reporting company to obtain funding on favorable terms; and effects of geopolitical events, including the threat of domestic
terrorism or cyber attacks. Any forward-looking statements speak only as to the date of this presentation and each reporting company 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 a reporting company to predict all such factors, nor can any reporting company assess the impact of any
such factor on such reporting company’s 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 factors should not be construed as exhaustive.
subsidiaries, are forward-looking statements within the meaning of the U.S. federal securities laws and are subject to the safe harbor created thereby and by the Private
Securities Litigation Reform Act of 1995. These statements include declarations regarding each reporting company’s intents, beliefs and current expectations. You can
generally identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “could,” “expects,” “intends,” “assumes,” “seeks to,” “plans,”
“anticipates,” “believes,” “projects,” “estimates,” “predicts,” “potential,” “future,” “goal,” “objective,” or “continue”, the negative or other variations of such terms, or
comparable terminology, or by discussions of strategy that involve risks and uncertainties. Forward-looking statements involve estimates, assumptions, known and
unknown risks, uncertainties and other factors that may cause one or more reporting company’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. Therefore, forward-
looking statements are not guarantees or assurances of future performance, and actual results could differ materially from those indicated by the forward-looking
statements. These forward-looking statements are qualified in their entirety by, and should be read together with, the risk factors included in the “Risk Factors” section of
each reporting company’s annual and quarterly reports filed in 2011, and investors should refer to these risk factor sections. The forward-looking statements contained
herein are also qualified in their entirety by reference to, and should be read together with, the following important factors, which are difficult to predict, contain
uncertainties, are beyond each reporting company’s control and may cause actual results to differ materially from those contained in forward-looking statements: changes
in 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; weather conditions
affecting usage and emergency restoration costs; population growth rates and changes in demographic patterns; changes in customer energy demand due to conservation
measures and the use of more energy-efficient products; general economic conditions, including the impact of an economic downturn or recession on energy usage;
changes in and compliance with environmental and safety laws and policies; 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, and decisions of, 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 each reporting company’s
business and profitability; pace of entry into new markets; volatility in customer demand for electricity and natural gas; interest rate fluctuations and the impact of credit and
capital market conditions on the ability of a reporting company to obtain funding on favorable terms; and effects of geopolitical events, including the threat of domestic
terrorism or cyber attacks. Any forward-looking statements speak only as to the date of this presentation and each reporting company 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 a reporting company to predict all such factors, nor can any reporting company assess the impact of any
such factor on such reporting company’s 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 factors should not be construed as exhaustive.
PHI discloses net income from continuing operations and related per share data (both as historical information and earnings guidance) excluding special items because
management believes that these items are not representative of PHI’s ongoing business operations. Management uses this information, and believes that such information
is useful to investors, in evaluating PHI’s period-over-period performance. The inclusion of this disclosure is intended to complement, and should not be considered as an
alternative to, PHI’s reported net income from continuing operations and related per share data in accordance with accounting principles generally accepted in the United
States (GAAP).
management believes that these items are not representative of PHI’s ongoing business operations. Management uses this information, and believes that such information
is useful to investors, in evaluating PHI’s period-over-period performance. The inclusion of this disclosure is intended to complement, and should not be considered as an
alternative to, PHI’s reported net income from continuing operations and related per share data in accordance with accounting principles generally accepted in the United
States (GAAP).
3
Reliability Enhancement Plan -
Improving System Reliability is a Top Priority
• Our focus in 2011 has been primarily in Pepco’s service territory
• Our progress since last fall*:
– Tree Trimming - Trimmed along more than 2,600 miles of power lines
to remove limbs that threatened our equipment; 73% of 2011 target
complete
to remove limbs that threatened our equipment; 73% of 2011 target
complete
– Cable Replacement - Replaced or upgraded more than 230 miles of
underground cable; 78% of 2011 target complete
underground cable; 78% of 2011 target complete
– Selective Undergrounding - Identified overhead lines for
undergrounding
undergrounding
– Distribution Automation - Added more than 125 automated switches
that will reroute power more effectively during storms; 50% of 2011
target complete
that will reroute power more effectively during storms; 50% of 2011
target complete
– Customer Communications - Added call center staff and more than
doubled phone lines
doubled phone lines
– Technology-Based Improvements - Implemented technology on
mobile devices to view online outage maps and enable customers to
report outages
mobile devices to view online outage maps and enable customers to
report outages
• System reliability has improved over the past year
– Improved outage frequency and duration statistics for Pepco
– Benefits of reliability initiatives demonstrated during Hurricane Irene
* Data as of 9/30/11 - Pepco service territory
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Hurricane Irene - Storm Response
• Hurricane Irene hit our service territory in late August
2011 with high winds and driving rain
2011 with high winds and driving rain
• Approximately 445,000 customers (~25% of total electric
customers) were without power at the height of the storm
customers) were without power at the height of the storm
• 98% of customers were restored within just over two
days after the storm ceased; received positive comments
from customers, elected officials and regulators on
restoration response
days after the storm ceased; received positive comments
from customers, elected officials and regulators on
restoration response
• AMI outage detection proved useful during restoration
efforts in Delaware as data eliminated the need to
dispatch crews to several hundred outage locations
efforts in Delaware as data eliminated the need to
dispatch crews to several hundred outage locations
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Pepco - Maryland
Reliability Case 9240
Reliability Case 9240
• Related to power outages caused by severe weather in Pepco’s
service territory in 2010
service territory in 2010
• Public Service Commission initiated the proceeding for Pepco in
August 2010 to investigate the reliability of the electric distribution
system and the quality of service provided to customers
August 2010 to investigate the reliability of the electric distribution
system and the quality of service provided to customers
• Reliability Enhancement Plan submitted to the Commission in August
2010
2010
• Pepco’s position
– Committed to implementation of the Reliability Enhancement Plan
– No violation of Commission rules or regulations occurred
– Commission’s consultant agreed; storm restoration efforts were better
than industry norm
than industry norm
• Awaiting Commission decision
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Reliability Standards
• Working group met weekly through October 2011
• Staff report with recommendations issued October 27, 2011; benchmarks proposed for:
– Service interruption
– Downed wire response
– Customer communications
– Vegetation management
– Equipment inspection
• Rulemaking sessions to be held December 8 - 9, 2011
• First measurement period begins as soon as the regulations are adopted, which will be no later than
July 1, 2012
July 1, 2012
Maryland (PSC - RM43) - Rulemaking proceeding applying to all electric utilities in the state
• New rules require improvement in reliability performance on an annual basis beginning in 2013 and
continuing through 2020
continuing through 2020
• Regulations in their current form are flawed because they propose an inconsistent method to calculate
reliability
reliability
• Standards may not be realistically achievable at an acceptable level of cost over the longer term
• Pepco filed an application for reconsideration of the regulations with the Commission on August 8, 2011
District of Columbia - New reliability standards adopted in July 2011
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Advanced Metering Infrastructure -
Status by Jurisdiction
Status by Jurisdiction
Note: See Safe Harbor Statement at the beginning of today’s presentation.
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Note: See Safe Harbor Statement at the beginning of today’s presentation.
Distribution Rate Cases - Pending
Atlantic City Electric - New Jersey
Atlantic City Electric - New Jersey
Drivers of requested increase:
• Rate base growth/reliability investment
Regulatory lag mitigation measure proposed in a separate filing made October 18, 2011:
• Request the continuance and expansion of the recently completed Infrastructure Investment Program (IIP)
• Allows recovery of non-revenue generating infrastructure investment through a special rate outside of a base
rate filing
rate filing
• Under the IIP, Atlantic City Electric proposes to recover reliability-related capital expenditures of $69 million,
$94 million and $81 million, in 2012, 2013 and 2014, respectively
$94 million and $81 million, in 2012, 2013 and 2014, respectively
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• Following the settlement of Delmarva Power’s base rate case in July 2011,
the Commission approved the establishment of a Regulatory Lag Working
Group
the Commission approved the establishment of a Regulatory Lag Working
Group
• Charged with examining the need for and design of any regulatory lag
mechanism; meeting over a 100-day period
mechanism; meeting over a 100-day period
• Meetings held among the parties
– Company’s outside expert discussed the issue of regulatory lag and mitigation
mechanisms in place across the United States
mechanisms in place across the United States
– Company management presented analysis demonstrating the impact of regulatory
lag on Delmarva Power
lag on Delmarva Power
• Working group filed a report with the Commission on October 17
– Recap of working group process
– Reported that no consensus was reached
• Delmarva Power and Pepco to pursue regulatory lag mitigation mechanisms
in rate cases to be filed December 2011
in rate cases to be filed December 2011
Delmarva Power - Maryland
Phase II (Regulatory Lag) Case 9249
Phase II (Regulatory Lag) Case 9249
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Distribution Rate Cases - Pending
Pepco - District of Columbia
Pepco - District of Columbia
Note: See Safe Harbor Statement at the beginning of today’s presentation.
Drivers of requested increase:
• Rate base growth/reliability investment
• Under-earning at current authorized ROE
• Investment in Advanced Metering
Infrastructure
Infrastructure
Two regulatory lag mitigation measures
proposed in filing:
proposed in filing:
• Reliability Investment Recovery Mechanism -
provides full and timely recovery of future capital
investments related to distribution system reliability
provides full and timely recovery of future capital
investments related to distribution system reliability
• Fully forecasted test periods
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• Filing Cycle Status
– Pepco DC Pending - Filed July 2011
– Atlantic City Electric NJ Pending - Filed August 2011
– Delmarva Power DE - Electric Filing targeted for December 2011
– Delmarva Power MD Filing targeted for December 2011
– Pepco MD Filing targeted for
December 2011
December 2011
– Delmarva Power DE - Gas Filing targeted for 1Q2013
• Requested distribution rate increases for residential customers with typical
usage are expected to range from 1% - 3% of the total bill
usage are expected to range from 1% - 3% of the total bill
• Targeted filing dates may be altered by financial projections and other
considerations
considerations
• Rate cases will be filed in 2012 if progress to reduce regulatory lag is less
than satisfactory in the current cycle of base rate cases
than satisfactory in the current cycle of base rate cases
Distribution Rate Cases - The Current Cycle
Note: See Safe Harbor Statement at the beginning of today’s presentation.
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• PJM provided notice to PHI on August
18th that the MAPP project in-service
date will be delayed until 2019 - 2021
18th that the MAPP project in-service
date will be delayed until 2019 - 2021
• PHI suspended most permitting,
engineering, and environmental
studies
engineering, and environmental
studies
• Maryland PSC approved our request
to delay the procedural schedule for
one year or until PJM has issued its
2012 Regional Transmission
Expansion Plan
to delay the procedural schedule for
one year or until PJM has issued its
2012 Regional Transmission
Expansion Plan
• PHI plans to spend approximately $5
million in each of 2011 and 2012 to
complete right-of-way acquisition in
Dorchester County and some
permitting and environmental activities
million in each of 2011 and 2012 to
complete right-of-way acquisition in
Dorchester County and some
permitting and environmental activities
Mid-Atlantic Power Pathway - Project Update
FERC Approved ROE: 12.8%
2020 in-service date currently planned
Note: See Safe Harbor Statement at the beginning of today’s presentation.
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Capital Expenditures Forecast -
Updated November 2011
Updated November 2011
Note: See Safe Harbor Statement at the beginning of today’s presentation.
(1) Reflects the remaining anticipated reimbursement pursuant to awards from the U.S. DOE under the ARRA.
(2) Installation of AMI in New Jersey is contingent on regulatory approval ($9 million in 2015, $92 million in
2016).
2016).
(3) Assumes MAPP in-service date of 2020.
Pepco Energy Services
• PES has signed $38 million of new energy efficiency contacts in the third quarter of 2011
• Project development pipeline has grown to $511 million, up 14% since January 1
• PES continues to grow its business development staff
• Economic environment has slowed contract signings with state and local governments in
2011
2011
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Reconciliation of GAAP Earnings to
Earnings Excluding Special Items
Earnings Excluding Special Items
Note: See Regulation G Information at the beginning of today’s presentation.
* See Appendix for pre-tax earnings impact of special items.
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Hurricane Irene - Estimated Incremental Cost
Note: See Safe Harbor Statement at the beginning of today’s presentation.
* Since a large portion of the costs incurred related to services provided by third parties for which the invoices
have not yet been received, the costs have been estimated.
have not yet been received, the costs have been estimated.
Recovery of system restoration expenses that are in excess of the storm restoration expenses currently
embedded in base rates will be pursued during the current cycle of distribution rate cases.
embedded in base rates will be pursued during the current cycle of distribution rate cases.
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Earnings Per Share Variance - Third Quarter
(3) The effect of weather compared to the 20-year average weather is estimated to have increased earnings by $0.02 per
share
share
(4) The 2011 weighted average number of basic and diluted shares outstanding was 226 million
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Earnings Per Share Variance - Year-to-Date
(3) The effect of weather compared to the 20-year average weather is estimated to have increased earnings by $0.02 per share
(4) The 2011 weighted average number of basic and diluted shares outstanding was 226 million
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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)
$1.15 - $1.25
The guidance range excludes:
• Discontinued operations
• The net mark-to-market effects of
economic hedging activities at Pepco
Energy Services
economic hedging activities at Pepco
Energy Services
• The impact of a tax law change to adopt a
unitary tax in DC
unitary tax in DC
The guidance range assumes/includes:
• Normal weather for the remainder of the
year
year
• Updated forecast for Power Delivery
operation and maintenance expenditures
operation and maintenance expenditures
Actual*
* Excludes special items. See Appendix for reconciliation of GAAP earnings to earnings excluding special
items.
items.
Note: See Safe Harbor Statement at the beginning of today’s presentation.
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Appendix
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Reconciliation of GAAP Earnings to
Earnings Excluding Special Items
Earnings Excluding Special Items
Earnings per Share from Continuing Operations | Three Months Ended September 30, 2010 | Nine Months Ended September 30, 2010 | Twelve Months Ended December 31, 2010 | |
Reported (GAAP) Earnings per Share from Continuing Operations | $ 0.09 | $ 0.56 | $ 0.62 | |
Special Items: | ||||
· | Debt extinguishment costs | 0.36 | 0.36 | 0.51 |
· | Restructuring charge | 0.04 | 0.04 | 0.08 |
· | Effects of Pepco divestiture-related claims | 0.03 | 0.03 | 0.03 |
Earnings per Share from Continuing Operations, Excluding Special Items | $ 0.52 | $ 0.99 | $ 1.24 | |
Net Earnings from Continuing Operations - Millions of Dollars | Three Months Ended September 30, 2010 | Nine Months Ended September 30, 2010 | Twelve Months Ended December 31, 2010 | |
Reported (GAAP) Net Earnings from Continuing Operations | $ 21 | $ 125 | $ 139 | |
Special Items: | ||||
· | Debt extinguishment costs | 81 | 81 | 113 |
· | Restructuring charge | 8 | 8 | 18 |
· | Effects of Pepco divestiture-related claims | 6 | 6 | 6 |
Net Earnings from Continuing Operations, Excluding Special Items | $ 116 | $ 220 | $ 276 | |
Note: See Regulation G Information at the beginning of today’s presentation.
Pre-Tax Earnings Impact - Millions of Dollars | Three Months Ended September 30, 2010 | Nine Months Ended September 30, 2010 | Twelve Months Ended December 31, 2010 | |
· | Debt extinguishment costs | $ 135 | $ 135 | $ 189 |
· | Restructuring charge | $ 14 | $ 14 | $ 30 |
· | Effects of Pepco divestiture-related claims | $ 9 | $ 11 | $ 11 |