For Immediate Release |November 6, 2013 Media Contact: Robert Hainey Office 202-872-2680| 24/7 Media Hotline 202-872-2680 |rshainey@pepcoholdings.com Investor Contact:Donna Kinzel Office 302-429-3004|donna.kinzel@pepcoholdings.com | 701 Ninth St., NW Washington, DC 20068 pepcoholdings.com NYSE: POM |
Pepco Holdings Reports Third Quarter 2013 Financial Results;
Narrows 2013 Earnings Guidance Range
Pepco Holdings, Inc. (NYSE: POM) today reported third quarter and nine months ended September 30, 2013 earnings from continuing operations as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Net Income from Continuing Operations (GAAP) | ||||||||||||||||
| Net Income ($ in millions) | $ | 110 | $ | 87 | $ | 52 | $ | 184 | ||||||||
| Earnings Per Share | $ | 0.44 | $ | 0.38 | $ | 0.21 | $ | 0.80 | ||||||||
| Adjusted Net Income from Continuing Operations (Non-GAAP) | ||||||||||||||||
| Adjusted Net Income ($ in millions) | $ | 110 | $ | 88 | $ | 219 | $ | 187 | ||||||||
| Adjusted Earnings Per Share | $ | 0.44 | $ | 0.38 | $ | 0.90 | $ | 0.81 | ||||||||
“Our third quarter results reflect the positive impact of our continued investment in utility infrastructure,” said Joseph M. Rigby, Chairman, President and Chief Executive Officer. “Over the next five years, we expect to spend $5.8 billion on additional investments aimed at replacing aging infrastructure and installing advanced technologies.” Rigby added, “While we remain committed to system reliability and improving the customer experience, we expect timely cost recovery and the opportunity to earn reasonable rates of return on Pepco Holdings’ extensive investments. To that end, we continue to be active in the regulatory arena. Last month, the Delaware Public Service Commission approved a settlement agreement in Delmarva Power’s gas distribution base rate case and initiated a proceeding to consider a unique Forward Looking Rate Plan proposed by Delmarva Power which would establish electric rates over a multi-year period. We are beginning the next cycle of rate cases, and due to the most recent base rate case outcomes for both
Pepco in Maryland and Atlantic City Electric in New Jersey, new rate cases will be filed by the end of 2013 in these jurisdictions.”
The increase in adjusted net income from continuing operations (Non-GAAP) in the third quarter of 2013, as compared to the 2012 quarter, was driven by higher electric distribution revenue (primarily due to higher rates driven by increased infrastructure investment) and lower operation and maintenance expense. Partially offsetting these positive factors was lower weather-related sales in our service territories that do not have revenue decoupled from sales.
The primary drivers of the increase in adjusted net income from continuing operations (Non-GAAP) for the nine months ended September 30, 2013, as compared to the 2012 period, were higher electric distribution revenue (primarily due to higher rates driven by increased infrastructure investment) and lower operation and maintenance expense. Lower default electricity supply margins due to a favorable adjustment in the prior year and higher interest expense partially offset the increase for the period.
Non-GAAP Financial Information
Management believes the adjusted net income (loss) from continuing operations and related per share data (both as historical financial information and earnings guidance) are representative of Pepco Holdings’ ongoing business operations. Management uses this information internally to evaluate Pepco Holdings’ period-over-period financial performance and, therefore, believes that this information is useful to investors. The presentation of adjusted net income from continuing operations and related per share data is intended to complement, and should not be considered as an alternative to, reported earnings and related per share data presented in accordance with generally accepted accounting principles in the United States (GAAP).
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Reconciliation of GAAP Financial Information to Adjusted Financial Information
| Net Income from Continuing Operations – Millions of dollars | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Reported (GAAP) Net Income from Continuing Operations | $ | 110 | $ | 87 | $ | 52 | $ | 184 | ||||||||
| Adjustments (after-tax): | ||||||||||||||||
| · Change in assessment of corporate tax benefits related to the cross-border energy lease investments | – | – | 66 | – | ||||||||||||
| · Potomac Capital Investment Corporation (PCI) valuation allowances related to certain deferred tax assets | – | – | 101 | – | ||||||||||||
| · Impairment charges related to Pepco Energy Services long-lived assets | – | 1 | – | 3 | ||||||||||||
| Adjusted Net Income from Continuing Operations (Non-GAAP) | $ | 110 | $ | 88 | $ | 219 | $ | 187 | ||||||||
| Earnings per Share from Continuing Operations | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Reported (GAAP) Earnings per Share from Continuing Operations | $ | 0.44 | $ | 0.38 | $ | 0.21 | $ | 0.80 | ||||||||
| Adjustments (after-tax): | ||||||||||||||||
| · Change in assessment of corporate tax benefits related to the cross-border energy lease investments | – | – | 0.27 | – | ||||||||||||
| · PCI valuation allowances related to certain deferred tax assets | – | – | 0.42 | – | ||||||||||||
| · Impairment charges related to Pepco Energy Services long-lived assets | – | – | – | 0.01 | ||||||||||||
| Adjusted Earnings per Share from Continuing Operations (Non-GAAP) | $ | 0.44 | $ | 0.38 | $ | 0.90 | $ | 0.81 | ||||||||
The income tax effects with respect to the foregoing adjustments, where applicable, were calculated using a composite income tax rate of 35 percent.
Discontinued Operations
During the third quarter of 2013, Pepco Holdings completed the early termination of its interests in its cross-border energy lease investments. As a result, the cross-border energy lease investments are being accounted for as discontinued operations and are no longer reported as a separate segment for financial reporting purposes.
In December 2009, PHI announced the wind-down of the retail energy supply component of Pepco Energy Services (PES). On March 21, 2013, PES entered into an agreement whereby a third party
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assumed all the rights and obligations of the remaining retail customer contracts, the associated supply obligations, gas inventory and derivative contracts associated with the PES retail natural gas supply business. The transaction was completed on April 1, 2013. In addition, in the second quarter of 2013, PES completed the wind-down of its retail electric supply business by terminating its customer supply and wholesale purchase obligations that extended beyond June 30, 2013. As a result, the operations of PES’ retail electric and natural gas supply businesses are being reported as discontinued operations.
For the nine months ended September 30, 2013, the net loss from discontinued operations was $1.31 per share, compared to net income of $0.26 per share for the same period in 2012.
Earnings Guidance
Pepco Holdings today narrowed its earnings guidance range for 2013 to between $1.08 and $1.18 from $1.05 and $1.20 per share. The guidance range:
| · | excludes the results of discontinued operations and the impact of any special, unusual or extraordinary items, and |
| · | assumes normal weather conditions for the fourth quarter of 2013. |
Recent Events
Operations
| · | Power Delivery electric sales were 13,335 gigawatt hours (GWh) in the third quarter of 2013, compared to 14,371 GWh for the same period in 2012. In the electric service territory, cooling degree days decreased by 17 percent for the three months ended September 30, 2013, compared to the same period in 2012. Weather-adjusted electric sales were 13,439 GWh in the third quarter of 2013, compared to 13,802 GWh for the same period in the prior year. |
| · | Power Delivery electric sales were 36,412 GWh for the nine months ended September 30, 2013 compared to 37,150 GWh for the nine months ended September 30, 2012. In the electric service territory, cooling degree days decreased by 14 percent and heating degree days increased by 32 percent for the nine months ended September 30, 2013 compared to the same period in 2012. Weather-adjusted electric sales were 36,464 GWh for the nine months ended September 30, 2013 compared to 37,086 GWh for the same period in 2012. |
| · | As of September 30, 2013, Delmarva Power’s installation and activation of electric smart meters is underway in its Maryland service territory, and is complete in its Delaware service |
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| territory. Pepco’s installation and activation of electric smart meters is nearly complete in both its District of Columbia and Maryland service territories. As of June 1, 2013, 70 percent of Delmarva Power Delaware’s costs related to smart meters were included in electric distribution base rates, with the remainder expected to be reflected in base rates by June 2014. Regulatory assets associated with smart meter installation and activation in the District of Columbia and Maryland have been created. |
| · | A Peak Energy Savings program was launched in the Pepco Maryland and Delmarva Power Delaware service areas in June 2013. The program’s first request for energy conservation occurred in July for Delaware and in August for Pepco Maryland, followed by requests in both jurisdictions in September. Over 600,000 customers participated, earning credits on their bills while reducing electric usage by over 1,980,000 kilowatt hours (kWh) during the events. |
| · | In October 2013, Power Delivery established a forecast of capital expenditures for 2014 through 2018. Total Power Delivery capital expenditures for the five-year period are forecast to be $5.8 billion, with $4.4 billion planned for distribution capital expenditures and $1.4 billion planned for transmission capital expenditures. |
| · | In the nine months ended September 30, 2013, Pepco Energy Services signed $38 million in energy efficiency contracts as compared to $7 million for the same period in 2012. W.A. Chester signed $41 million in underground transmission construction contracts in 2013 as compared to $31 million for the nine months ended September 30, 2012. |
Regulatory Matters
| · | On October 22, 2013, the Delaware Public Service Commission (DPSC) issued a final order approving a settlement in Delmarva Power’s natural gas distribution base rate case, which provides for a $7 million annual revenue increase and a 9.75 percent return on equity for purposes of calculating the allowance for funds used during construction and regulatory asset carrying costs. As permitted by Delaware law, Delmarva Power implemented interim rate increases of $2.5 million on February 5, 2013 and $8 million on July 7, 2013. The excess amount collected will be returned to customers. The agreement allows a phased-in recovery of the assets associated with remote reading of gas meters through base rates with 50 percent effective May 1, 2014 and the remainder of assets in rates effective March 1, 2015. The new rates became effective on November 1, 2013. |
| · | On October 2, 2013, Delmarva Power filed a Forward Looking Rate Plan (FLRP) with the DPSC. The FLRP establishes annual rate increases for a four-year period and provides the |
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| opportunity to achieve the currently authorized rate of return in year three of the plan. The plan also provides for stricter minimum reliability performance standards, compared to existing regulatory requirements. The DPSC opened a docket to review the details of the FLRP on October 22, 2013. However, the DPSC determined that the currently pending electric distribution base rate case had progressed to a point where it should be concluded before the FLRP is addressed. The FLRP will be updated and re-filed at the completion of the base rate case. A decision on the pending electric distribution base rate case is expected in the first quarter of 2014. |
| · | On August 30, 2013, the Maryland Public Service Commission (MPSC) issued a final order approving a settlement agreement whichprovides for a $15 million annual increase in Delmarva Power’s electric distribution base rates and a 9.81 percent return on equity for purposes of calculating the allowance for funds used during construction and regulatory asset carrying costs. In addition, the $4 million accelerated priority feeders project was approved, subject to certain conditions. Costs associated with the project will be recovered through a Grid Resiliency Charge, implemented as a rider that is separate from base rates and includes a return on investment. The new rates became effective September 15, 2013. |
Further details regarding changes in consolidated earnings between 2013 and 2012 are provided in the schedules that follow. Additional information regarding financial results and recent regulatory events can be found in the Pepco Holdings, Inc. Form 10-Q for the quarter ended September 30, 2013, as filed with the Securities and Exchange Commission, and which is also available atwww.pepcoholdings.com/investors. Pepco Holdings, Inc. routinely makes available this and other important information on its website, which is a key channel of distribution for Pepco Holdings, Inc. to reach its public investors and to disclose material, non-public information. Information on the website is not part of this news release.
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Conference Call for Investors
Pepco Holdings, Inc. will host a conference call to discuss third quarter results on Wednesday, November 6 at 10 a.m. E.T. Investors, members of the media and other interested persons may access the conference call on the Internet athttp://www.pepcoholdings.com/investors or by calling 1.800.299.8538 before 9:55 a.m. The pass code for the call is 16961105. International callers may access the call by dialing 1.617.786.2902, using the same pass code, 16961105. An on-demand replay will be available for seven days following the call. To hear the replay, dial 1.888.286.8010 and enter pass code 13019333. International callers may access the replay by dialing 1.617.801.6888 and entering the same pass code 13019333. An audio archive will be available at PHI's website,http://www.pepcoholdings.com/investors.
Note: If any non-GAAP financial information (as defined by the Securities and Exchange Commission in Regulation G) is used during the quarterly earnings conference call, a presentation of the most directly comparable GAAP measure and a reconciliation of the differences will be available athttp://www.pepcoholdings.com/investors promptly after the conclusion of the conference call.
About PHI: Pepco Holdings, Inc. (NYSE: POM) is one of the largest energy delivery companies in the Mid-Atlantic region, serving about 2 million customers in Delaware, the District of Columbia, Maryland and New Jersey. PHI subsidiaries Pepco, Delmarva Power and Atlantic City Electric provide regulated electricity service; Delmarva Power also provides natural gas service. PHI also provides energy efficiency and renewable energy services through Pepco Energy Services.
Forward-Looking Statements:Some of the statements contained in this news release with respect to Pepco Holdings, Pepco, Delmarva Power and Atlantic City Electric, including each of their respective subsidiaries (each, a Reporting Company), are forward-looking statements within the meaning of the U.S. federal securities laws, and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995. You can 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” or the negative of such terms or other variations thereof 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 or their subsidiaries’ 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 factors should be read together with the risk factors included in the “Risk Factors” section and other statements contained in each Reporting Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 1, 2013, and in each Reporting Company’s Quarterly Reports on Form 10-Q filed in 2013, and investors should refer to these risk factor sections and other statements. All of such factors and forward-looking statements 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 any forward-looking statements. Any forward-looking statements speak only as to the date this news release was issued, and none of the Reporting Companies undertakes any 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. Furthermore, it may not be possible to assess the impact of any such factor on such Reporting Company’s or its subsidiaries’ business (viewed independently or together with the business or businesses of some or all of the other Reporting Companies or their subsidiaries) 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. Any specific factors that may be provided should not be construed as exhaustive.
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Pepco Holdings, Inc.
Earnings Per Share Variance
2013 / 2012
| Three Months Ended September 30, | ||||||||||||||||
| Power | Pepco Energy | Corporate | Total | |||||||||||||
| Delivery | Services | and Other | PHI | |||||||||||||
| 2012 Earnings (loss) per share from Continuing Operations (GAAP) (1) | $ | 0.40 | $ | (0.01 | ) | $ | (0.01 | ) | $ | 0.38 | ||||||
| Change from 2012 GAAP earnings (loss) per share from Continuing Operations | ||||||||||||||||
| Regulated Operations | ||||||||||||||||
| · Distribution Revenue | ||||||||||||||||
| - Weather (estimate)(2) | (0.02 | ) | - | - | (0.02 | ) | ||||||||||
| - Rate Increases | 0.11 | - | - | 0.11 | ||||||||||||
| - Other Distribution Revenue | (0.01 | ) | - | - | (0.01 | ) | ||||||||||
| · Network Transmission Revenue | 0.01 | - | - | 0.01 | ||||||||||||
| · Standard Offer Service Margin | (0.01 | ) | - | - | (0.01 | ) | ||||||||||
| · Operation & Maintenance | 0.03 | - | - | 0.03 | ||||||||||||
| · Depreciation & Amortization | (0.02 | ) | - | - | (0.02 | ) | ||||||||||
| Pepco Energy Services | - | 0.01 | - | 0.01 | ||||||||||||
| Corporate and Other | - | - | - | - | ||||||||||||
| Net Interest Expense | - | - | - | - | ||||||||||||
| Income Tax Adjustments | 0.01 | - | (0.01 | ) | - | |||||||||||
| Dilution | (0.04 | ) | - | - | (0.04 | ) | ||||||||||
| 2013 Earnings (loss) per share from Continuing Operations (GAAP) (3) | $ | 0.46 | $ | - | $ | (0.02 | ) | $ | 0.44 | |||||||
| (1) | The 2012 weighted average number of diluted shares outstanding was 231 million. |
| (2) | The effect of weather compared to the 20-year average weather is estimated to have decreased earnings by $0.02 per share. |
| (3) | The 2013 weighted average number of diluted shares outstanding was 249 million. |
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Pepco Holdings, Inc.
Earnings Per Share Variance
2013 / 2012
| Nine Months Ended September 30, | ||||||||||||||||
| Power | Pepco Energy | Corporate | Total | |||||||||||||
| Delivery | Services | and Other | PHI | |||||||||||||
| 2012 Earnings (loss) per share from Continuing Operations (GAAP) (1) | $ | 0.84 | $ | (0.01 | ) | $ | (0.03 | ) | $ | 0.80 | ||||||
| 2012 Adjustment (2) | ||||||||||||||||
| · Pepco Energy Services impairment charges | - | 0.01 | - | 0.01 | ||||||||||||
| 2012 Adjusted earnings (loss) per share from Continuing Operations (Non-GAAP) | 0.84 | - | (0.03 | ) | 0.81 | |||||||||||
| Change from 2012 Adjusted earnings (loss) per share from Continuing Operations | ||||||||||||||||
| Regulated Operations | ||||||||||||||||
| · Distribution Revenue | ||||||||||||||||
| - Weather (estimate)(3) | 0.01 | - | - | 0.01 | ||||||||||||
| - Rate Increases | 0.23 | - | - | 0.23 | ||||||||||||
| - Other Distribution Revenue | (0.01 | ) | - | - | (0.01 | ) | ||||||||||
| · ACE Basic Generation Service (primarily unbilled revenue) | (0.01 | ) | - | - | (0.01 | ) | ||||||||||
| · Standard Offer Service Margin | (0.03 | ) | - | - | (0.03 | ) | ||||||||||
| · Operation & Maintenance | 0.02 | - | - | 0.02 | ||||||||||||
| · Other, net | (0.01 | ) | - | - | (0.01 | ) | ||||||||||
| · Depreciation & Amortization | (0.02 | ) | - | - | (0.02 | ) | ||||||||||
| Pepco Energy Services | - | 0.01 | - | 0.01 | ||||||||||||
| Corporate and Other | - | - | - | - | ||||||||||||
| Net Interest Expense | (0.03 | ) | - | (0.02 | ) | (0.05 | ) | |||||||||
| Income Tax Adjustments | - | - | 0.01 | 0.01 | ||||||||||||
| Dilution | (0.06 | ) | - | - | (0.06 | ) | ||||||||||
| 2013 Adjusted earnings (loss) per share from Continuing Operations (Non-GAAP) | 0.93 | 0.01 | (0.04 | ) | 0.90 | |||||||||||
| 2013 Adjustments (2) | ||||||||||||||||
| · Change in assessment of corporate tax benefits related to the cross-border energy lease investments | - | - | (0.27 | ) | (0.27 | ) | ||||||||||
| · PCI valuation allowances related to certain deferred tax assets | - | - | (0.42 | ) | (0.42 | ) | ||||||||||
| 2013 Earnings (loss) per share from Continuing Operations (GAAP) (4) | $ | 0.93 | $ | 0.01 | $ | (0.73 | ) | $ | 0.21 | |||||||
| (1) | The 2012 weighted average number of diluted shares outstanding was 229 million. |
| (2) | Management believes the adjusted items are not representative of the Company's ongoing business operations. The presentation of this Non-GAAP financial information is intended to complement, and should not be considered an alternative to, the GAAP information. |
| (3) | The effect of weather compared to the 20-year average weather is estimated to have increased earnings by $0.01 per share. |
| (4) | The 2013 weighted average number of diluted shares outstanding was 245 million. |
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SEGMENT INFORMATION
| Three Months Ended September 30, 2013 | ||||||||||||||||
| (millions of dollars) | ||||||||||||||||
| Power Delivery | Pepco Energy Services | Corporate and | PHI Consolidated | |||||||||||||
| Operating Revenue | $ | 1,298 | $ | 48 | $ | (2 | ) | $ | 1,344 | |||||||
| Operating Expenses(b) | 1,067 | 50 | (8 | ) | 1,109 | |||||||||||
| Operating Income (Loss) | 231 | (2 | ) | 6 | 235 | |||||||||||
| Interest Expense | 58 | 1 | 9 | 68 | ||||||||||||
| Other Income (Loss) | 8 | 1 | (1 | ) | 8 | |||||||||||
| Income Tax Expense (Benefit) | 67 | (1 | ) | (1 | ) | 65 | ||||||||||
| Net Income (Loss) from Continuing Operations | 114 | (1 | ) | (3 | ) | 110 | ||||||||||
| Total Assets (excluding Assets Held for Disposition) | 12,790 | 341 | 1,779 | 14,910 | ||||||||||||
| Construction Expenditures | $ | 293 | $ | 1 | $ | 33 | $ | 327 | ||||||||
| (a) | Total Assets in this column includes Pepco Holdings’ goodwill balance of $1.4 billion, all of which is allocated to Power Delivery for purposes of assessing impairment. Total assets also include capital expenditures related to certain hardware and software expenditures which primarily benefit Power Delivery. These expenditures are recorded as incurred in Corporate and Other and are allocated to Power Delivery once the assets are placed in service. Corporate and Other includes intercompany amounts of $(2) million for Operating Revenue, $(1) million for Operating Expenses, $(2) million for Interest Income and $(2) million for Interest Expense. |
| (b) | Includes depreciation and amortization expense of $124 million, consisting of $116 million for Power Delivery and $8 million for Corporate and Other. |
| Three Months Ended September 30, 2012 | ||||||||||||||||
| (millions of dollars) | ||||||||||||||||
| Power Delivery | Pepco Energy Services | Corporate and | PHI Consolidated | |||||||||||||
| Operating Revenue | $ | 1,335 | $ | 57 | $ | (3 | ) | $ | 1,389 | |||||||
| Operating Expenses(b) | 1,136 | 64 | (c) | (12 | ) | 1,188 | ||||||||||
| Operating Income (Loss) | 199 | (7 | ) | 9 | 201 | |||||||||||
| Interest Income | - | 1 | (1 | ) | - | |||||||||||
| Interest Expense | 56 | 1 | 9 | 66 | ||||||||||||
| Other Income | 8 | 1 | - | 9 | ||||||||||||
| Income Tax Expense (Benefit) | 59 | (3 | ) | 1 | 57 | |||||||||||
| Net Income (Loss) from Continuing Operations | 92 | (3 | ) | (2 | ) | 87 | ||||||||||
| Total Assets (excluding Assets Held for Disposition) | 12,039 | 426 | 1,915 | 14,380 | ||||||||||||
| Construction Expenditures | $ | 289 | $ | 1 | $ | 9 | $ | 299 | ||||||||
| (a) | Total Assets in this column includes Pepco Holdings’ goodwill balance of $1.4 billion, all of which is allocated to Power Delivery for purposes of assessing impairment. Total assets also include capital expenditures related to certain hardware and software expenditures which primarily benefit Power Delivery. These expenditures are recorded as incurred in Corporate and Other and are allocated to Power Delivery once the assets are placed in service. Corporate and Other includes intercompany amounts of $(3) million for Operating Revenue, $(4) million for Operating Expenses, $(7) million for Interest Income and $(5) million for Interest Expense. |
| (b) | Includes depreciation and amortization expense of $122 million, consisting of $114 million for Power Delivery, $2 million for Pepco Energy Services and $6 million for Corporate and Other. |
| (c) | Includes impairment losses of $2 million pre-tax ($1 million after-tax) at Pepco Energy Services associated with the combustion turbines at Buzzard Point. |
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SEGMENT INFORMATION – continued
Nine Months Ended September 30, 2013 | ||||||||||||||||
| (millions of dollars) | ||||||||||||||||
| Power Delivery | Pepco Energy Services | Corporate and | PHI Consolidated | |||||||||||||
| Operating Revenue | $ | 3,428 | $ | 154 | $ | (7 | ) | $ | 3,575 | |||||||
| Operating Expenses(b) | 2,934 | 151 | (23 | ) | 3,062 | |||||||||||
| Operating Income | 494 | 3 | 16 | 513 | ||||||||||||
| Interest Expense | 172 | 1 | 32 | 205 | ||||||||||||
| Other Income | 21 | 2 | 1 | 24 | ||||||||||||
| Income Tax Expense(c) | 115 | 1 | 164 | (d) | 280 | |||||||||||
| Net Income (Loss) from Continuing Operations | 228 | 3 | (179 | ) | 52 | |||||||||||
| Total Assets (excluding Assets Held for Disposition) | 12,790 | 341 | 1,779 | 14,910 | ||||||||||||
| Construction Expenditures | $ | 856 | $ | 2 | $ | 85 | $ | 943 | ||||||||
| (a) | Total Assets in this column includes Pepco Holdings’ goodwill balance of $1.4 billion, all of which is allocated to Power Delivery for purposes of assessing impairment. Total assets also include capital expenditures related to certain hardware and software expenditures which primarily benefit Power Delivery. These expenditures are recorded as incurred in Corporate and Other and are allocated to Power Delivery once the assets are placed in service. Corporate and Other includes intercompany amounts of $(8) million for Operating Revenue, $(7) million for Operating Expenses, $(7) million for Interest Income and $(6) million for Interest Expense. |
| (b) | Includes depreciation and amortization expense of $352 million, consisting of $327 million for Power Delivery, $4 million for Pepco Energy Services and $21 million for Corporate and Other. |
| (c) | Includes after-tax interest associated with uncertain and effectively settled tax positions allocated to each member of the consolidated group, including a $12 million interest benefit for Power Delivery and interest expense of $66 million for Corporate and Other. |
| (d) | Includes non-cash charges of $101 million representing the establishment of valuation allowances against certain deferred tax assets of PCI included in Corporate and Other. |
| Nine Months Ended September 30, 2012 | ||||||||||||||||
| (millions of dollars) | ||||||||||||||||
| Power Delivery | Pepco Energy Services | Corporate and | PHI Consolidated | |||||||||||||
| Operating Revenue | $ | 3,374 | $ | 205 | $ | (10 | ) | $ | 3,569 | |||||||
| Operating Expenses(b) | 2,950 | 209 | (c) | (29 | ) | 3,130 | ||||||||||
| Operating Income (Loss) | 424 | (4 | ) | 19 | 439 | |||||||||||
| Interest Income | – | 1 | (1 | ) | – | |||||||||||
| Interest Expense | 162 | 2 | 26 | 190 | ||||||||||||
| Other Income | 24 | 1 | 2 | 27 | ||||||||||||
| Income Tax Expense (Benefit) | 93 | (2 | ) | 1 | 92 | |||||||||||
| Net Income (Loss) from Continuing Operations | 193 | (2 | ) | (7 | ) | 184 | ||||||||||
| Total Assets (excluding Assets Held for Disposition) | 12,039 | 426 | 1,915 | 14,380 | ||||||||||||
| Construction Expenditures | $ | 854 | $ | 11 | $ | 23 | $ | 888 | ||||||||
| (a) | Total Assets in this column includes Pepco Holdings’ goodwill balance of $1.4 billion, all of which is allocated to Power Delivery for purposes of assessing impairment. Total assets also include capital expenditures related to certain hardware and software expenditures which primarily benefit Power Delivery. These expenditures are recorded as incurred in Corporate and Other and are allocated to Power Delivery once the assets are placed in service. Corporate and Other includes intercompany amounts of $(11) million for Operating Revenue, $(11) million for Operating Expenses, $(18) million for Interest Income and $(15) million for Interest Expense. |
| (b) | Includes depreciation and amortization expense of $343 million, consisting of $313 million for Power Delivery, $12 million for Pepco Energy Services and $18 million for Corporate and Other. |
| (c) | Includes impairment losses of $5 million pre-tax ($3 million after-tax) at Pepco Energy Services associated primarily with an investment in a landfill gas-fired electric generation facility and the combustion turbines at Buzzard Point. |
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PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (millions of dollars, except per share data) | ||||||||||||||||
| Operating Revenue | $ | 1,344 | $ | 1,389 | $ | 3,575 | $ | 3,569 | ||||||||
| Operating Expenses | ||||||||||||||||
| Fuel and purchased energy | 579 | 648 | 1,587 | 1,658 | ||||||||||||
| Other services cost of sales | 37 | 38 | 112 | 132 | ||||||||||||
| Other operation and maintenance | 208 | 228 | 647 | 668 | ||||||||||||
| Depreciation and amortization | 124 | 122 | 352 | 343 | ||||||||||||
| Other taxes | 119 | 121 | 325 | 330 | ||||||||||||
| Deferred electric service costs | 42 | 29 | 39 | (6 | ) | |||||||||||
| Impairment losses | – | 2 | – | 5 | ||||||||||||
| Total Operating Expenses | 1,109 | 1,188 | 3,062 | 3,130 | ||||||||||||
| Operating Income | 235 | 201 | 513 | 439 | ||||||||||||
| Other Income (Expenses) | ||||||||||||||||
| Interest expense | (68 | ) | (66 | ) | (205 | ) | (190 | ) | ||||||||
| Other income | 8 | 9 | 24 | 27 | ||||||||||||
| Total Other Expenses | (60 | ) | (57 | ) | (181 | ) | (163 | ) | ||||||||
| Income from Continuing Operations Before Income Tax Expense | 175 | 144 | 332 | 276 | ||||||||||||
| Income Tax Expense Related to Continuing Operations | 65 | 57 | 280 | 92 | ||||||||||||
| Net Income from Continuing Operations | 110 | 87 | 52 | 184 | ||||||||||||
| Income (Loss) from Discontinued Operations, Net of Income Taxes | 8 | 25 | (322 | ) | 58 | |||||||||||
| Net Income (Loss) | $ | 118 | $ | 112 | $ | (270 | ) | $ | 242 | |||||||
| Basic and Diluted Share Information | ||||||||||||||||
| Weighted average shares outstanding – Basic (millions) | 249 | 229 | 245 | 228 | ||||||||||||
| Weighted average shares outstanding – Diluted (millions) | 249 | 231 | 245 | 229 | ||||||||||||
| Earnings per share of common stock from Continuing Operations – Basic and Diluted | $ | 0.44 | $ | 0.38 | $ | 0.21 | $ | 0.80 | ||||||||
| Earnings (Loss) per share of common stock from Discontinued Operations – Basic and Diluted | 0.04 | 0.11 | (1.31 | ) | 0.26 | |||||||||||
| Basic and Diluted earnings (loss) per share | $ | 0.48 | $ | 0.49 | $ | (1.10 | ) | $ | 1.06 | |||||||
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PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2013 | December 31, 2012 | |||||||
| (millions of dollars) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 58 | $ | 25 | ||||
| Restricted cash equivalents | 15 | 10 | ||||||
| Accounts receivable, less allowance for uncollectible accounts of $41 million and $34 million, respectively | 844 | 804 | ||||||
| Inventories | 169 | 153 | ||||||
| Prepayments of income taxes | 41 | 59 | ||||||
| Deferred income tax assets, net | 37 | 28 | ||||||
| Income taxes receivable | 225 | 69 | ||||||
| Prepaid expenses and other | 74 | 81 | ||||||
| Assets held for disposition | 2 | 38 | ||||||
| Total Current Assets | 1,465 | 1,267 | ||||||
| INVESTMENTS AND OTHER ASSETS | ||||||||
| Goodwill | 1,407 | 1,407 | ||||||
| Regulatory assets | 2,316 | 2,614 | ||||||
| Income taxes receivable | 64 | 217 | ||||||
| Restricted cash equivalents | 14 | 17 | ||||||
| Assets and accrued interest related to uncertain tax positions | 9 | 18 | ||||||
| Derivative assets | 4 | 8 | ||||||
| Other | 158 | 163 | ||||||
| Assets held for disposition | – | 1,237 | ||||||
| Total Investments and Other Assets | 3,972 | 5,681 | ||||||
| PROPERTY, PLANT AND EQUIPMENT | ||||||||
| Property, plant and equipment | 14,277 | 13,625 | ||||||
| Accumulated depreciation | (4,802 | ) | (4,779 | ) | ||||
| Net Property, Plant and Equipment | 9,475 | 8,846 | ||||||
| TOTAL ASSETS | $ | 14,912 | $ | 15,794 | ||||
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PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2013 | December 31, 2012 | |||||||
| (millions of dollars, except shares) | ||||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term debt | $ | 404 | $ | 965 | ||||
| Current portion of long-term debt and project funding | 695 | 569 | ||||||
| Accounts payable and accrued liabilities | 492 | 553 | ||||||
| Capital lease obligations due within one year | 9 | 8 | ||||||
| Taxes accrued | 50 | 75 | ||||||
| Interest accrued | 83 | 47 | ||||||
| Liabilities and accrued interest related to uncertain tax positions | 378 | 9 | ||||||
| Derivative liabilities | – | 4 | ||||||
| Other | 263 | 272 | ||||||
| Liabilities associated with assets held for disposition | 4 | 41 | ||||||
| Total Current Liabilities | 2,378 | 2,543 | ||||||
| DEFERRED CREDITS | ||||||||
| Regulatory liabilities | 461 | 501 | ||||||
| Deferred income tax liabilities, net | 2,847 | 3,208 | ||||||
| Investment tax credits | 18 | 20 | ||||||
| Pension benefit obligation | 310 | 449 | ||||||
| Other postretirement benefit obligations | 255 | 454 | ||||||
| Liabilities and accrued interest related to uncertain tax positions | 29 | 15 | ||||||
| Derivative liabilities | 14 | 11 | ||||||
| Other | 192 | 191 | ||||||
| Liabilities associated with assets held for disposition | – | 2 | ||||||
| Total Deferred Credits | 4,126 | 4,851 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term debt | 3,805 | 3,648 | ||||||
| Transition bonds issued by ACE Funding | 226 | 256 | ||||||
| Long-term project funding | 10 | 12 | ||||||
| Capital lease obligations | 65 | 70 | ||||||
| Total Long-Term Liabilities | 4,106 | 3,986 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY | ||||||||
| Common stock, $.01 par value, 400,000,000 shares authorized, 249,713,980 and 230,015,427 shares outstanding, respectively | 2 | 2 | ||||||
| Premium on stock and other capital contributions | 3,734 | 3,383 | ||||||
| Accumulated other comprehensive loss | (40 | ) | (48 | ) | ||||
| Retained earnings | 606 | 1,077 | ||||||
| Total Equity | 4,302 | 4,414 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 14,912 | $ | 15,794 | ||||
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POWER DELIVERY SALES AND REVENUES
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Power Delivery Sales (Gigawatt Hours) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
| Regulated T&D Electric Sales | ||||||||||||||||
| Residential | 5,060 | 5,708 | 13,342 | 13,474 | ||||||||||||
| Commercial and industrial | 8,214 | 8,605 | 22,887 | 23,493 | ||||||||||||
| Transmission and other | 61 | 58 | 183 | 183 | ||||||||||||
| Total Regulated T&D Electric Sales | 13,335 | 14,371 | 36,412 | 37,150 | ||||||||||||
| Default Electricity Supply Sales | ||||||||||||||||
| Residential | 4,031 | 4,696 | 10,696 | 11,256 | ||||||||||||
| Commercial and industrial | 1,430 | 1,547 | 3,909 | 4,342 | ||||||||||||
| Other | 11 | 12 | 42 | 41 | ||||||||||||
| Total Default Electricity Supply Sales | 5,472 | 6,255 | 14,647 | 15,639 | ||||||||||||
| Power Delivery Electric Revenue (Millions of dollars) | ||||||||||||||||
| Regulated T&D Electric Revenue | ||||||||||||||||
| Residential | $ | 247 | $ | 239 | $ | 601 | $ | 555 | ||||||||
| Commercial and industrial | 276 | 268 | 733 | 699 | ||||||||||||
| Transmission and other | 103 | 92 | 291 | 269 | ||||||||||||
| Total Regulated T&D Electric Revenue | $ | 626 | $ | 599 | $ | 1,625 | $ | 1,523 | ||||||||
| Default Electricity Supply Revenue | ||||||||||||||||
| Residential | $ | 426 | $ | 499 | $ | 1,087 | $ | 1,171 | ||||||||
| Commercial and industrial | 165 | 160 | 418 | 425 | ||||||||||||
| Other | 45 | 36 | 115 | 85 | ||||||||||||
| Total Default Electricity Supply Revenue | $ | 636 | $ | 695 | $ | 1,620 | $ | 1,681 | ||||||||
| Other Electric Revenue | $ | 13 | $ | 15 | $ | 46 | $ | 46 | ||||||||
| Total Electric Operating Revenue | $ | 1,275 | $ | 1,309 | $ | 3,291 | $ | 3,250 | ||||||||
| Power Delivery Gas Sales and Revenue | ||||||||||||||||
| Regulated Gas Sales (Mcf) | ||||||||||||||||
| Residential | 406 | 410 | 5,365 | 4,052 | ||||||||||||
| Commercial and industrial | 563 | 389 | 3,232 | 2,310 | ||||||||||||
| Transportation and other | 1,255 | 1,290 | 5,141 | 4,877 | ||||||||||||
| Total Regulated Gas Sales | 2,224 | 2,089 | 13,738 | 11,239 | ||||||||||||
| Regulated Gas Revenue (Millions of dollars) | ||||||||||||||||
| Residential | $ | 9 | $ | 10 | $ | 71 | $ | 63 | ||||||||
| Commercial and industrial | 6 | 6 | 35 | 32 | ||||||||||||
| Transportation and other | 2 | 2 | 8 | 7 | ||||||||||||
| Total Regulated Gas Revenue | $ | 17 | $ | 18 | $ | 114 | $ | 102 | ||||||||
| Other Gas Revenue | $ | 6 | $ | 8 | $ | 23 | $ | 22 | ||||||||
| Total Gas Operating Revenue | $ | 23 | $ | 26 | $ | 137 | $ | 124 | ||||||||
| Total Power Delivery Operating Revenue | $ | 1,298 | $ | 1,335 | $ | 3,428 | $ | 3,374 | ||||||||
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POWER DELIVERY – CUSTOMERS
| September 30, 2013 | September 30, 2012 | |||||||
| Regulated T&D Electric Customers (in thousands) | ||||||||
| Residential | 1,643 | 1,639 | ||||||
| Commercial and industrial | 199 | 198 | ||||||
| Transmission and other | 2 | 2 | ||||||
| Total Regulated T&D Electric Customers | 1,844 | 1,839 | ||||||
| Regulated Gas Customers (in thousands) | ||||||||
| Residential | 116 | 115 | ||||||
| Commercial and industrial | 9 | 9 | ||||||
| Transportation and other | – | – | ||||||
| Total Regulated Gas Customers | 125 | 124 | ||||||
WEATHER DATA - CONSOLIDATED ELECTRIC SERVICE TERRITORY
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Heating Degree Days | 43 | 21 | 2,770 | 2,094 | ||||||||||||
| 20 Year Average | 27 | 28 | 2,750 | 2,794 | ||||||||||||
| Percentage Difference from Average | 59 | % | (25 | %) | 1 | % | (25 | %) | ||||||||
| Percentage Difference from Prior Year | 105 | % | 32 | % | ||||||||||||
| Cooling Degree Days | 946 | 1,135 | 1,386 | 1,610 | ||||||||||||
| 20 Year Average | 977 | 962 | 1,364 | 1,337 | ||||||||||||
| Percentage Difference from Average | (3 | %) | 18 | % | 2 | % | 20 | % | ||||||||
| Percentage Difference from Prior Year | (17 | %) | (14 | %) | ||||||||||||
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PEPCO ENERGY SERVICES
| Adjusted Net (Loss) Income - Continuing Operations (Non-GAAP) (Millions of dollars) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Energy Services | ||||||||||||||||
| Operating Revenue | $ | 48 | $ | 55 | $ | 154 | $ | 186 | ||||||||
| Cost of Goods Sold | 39 | 42 | 114 | 139 | ||||||||||||
| Gross Margin | 9 | 13 | 40 | 47 | ||||||||||||
| Other Operation and Maintenance Expenses | 10 | 15 | 31 | 40 | ||||||||||||
| Depreciation | 2 | 2 | 6 | 6 | ||||||||||||
| Operating Expense (Non-GAAP) | 12 | 17 | 37 | 46 | (1) | |||||||||||
| Energy Services - Operating (Loss) Income (Non-GAAP) | (3 | ) | (4 | ) | 3 | 1 | (1) | |||||||||
| Power Plants - Operating Income (Loss) (Non-GAAP) | 2 | (1 | )(2) | – | – | (2) | ||||||||||
| Other Income | – | 1 | 1 | – | ||||||||||||
| Income Tax (Benefit) Expense (Non-GAAP) | – | (2 | )(3) | 1 | – | (4) | ||||||||||
| Adjusted Net (Loss) Income-Continuing Operations (Non-GAAP) | $ | (1 | ) | $ | (2 | )(2) | $ | 3 | $ | 1 | (1)(2) | |||||
Notes:
| (1) | Excludes impairment losses of $3 million, pre-tax ($2 million after-tax). |
| (2) | Excludes impairment losses of $2 million, pre-tax ($1 million, after-tax). |
| (3) | Excludes $1 million of income tax benefit associated with power plant impairment losses. |
| (4) | Excludes $2 million of income tax benefit associated with energy services and power plant impairment losses. |
Non-GAAP Financial Information
Management believes the adjusted financial information above is representative of Pepco Energy Services’ ongoing business operations. Management uses this information internally to evaluate Pepco Energy Services’ period-over-period financial performance and therefore, believes that this information is useful to investors. The presentation of this adjusted financial information is intended to complement, and should not be considered as an alternative to, Pepco Energy Services’ financial information presented in accordance with GAAP.
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