WASHINGTON, Aug. 4 /PRNewswire-FirstCall/ -- Pepco Holdings, Inc. today reported second quarter 2006 consolidated earnings of $51.2 million, or 27 cents per share, compared to $66.4 million, or 35 cents per share, in the second quarter of 2005. There were no special items for the second quarter of 2006 or the second quarter of 2005. The weighted average shares outstanding for the second quarter of 2006 were 190.4 million compared to 188.8 million for the second quarter of 2005.
The earnings decrease for the second quarter of 2006 as compared to the 2005 quarter was due primarily to lower generating output at Conectiv Energy reflecting milder weather and higher fuel oil prices, lower kWh sales at Power Delivery driven by milder weather, an average customer rate variance at Power Delivery driven by lower residential sales and higher commercial sales, and higher operation and maintenance expenses at Conectiv Energy and Power Delivery. The impact of these decreases was partially offset by the effect of an unfavorable unbilled revenue adjustment in the second quarter of 2005, higher Full Requirements Load Service earnings at Conectiv Energy as a result of new, higher margin contracts, and higher earnings from Conectiv Energy's other power, oil and gas marketing services.
"The second quarter was eventful on several fronts. We finalized a settlement with Mirant, which is subject to court approval, announced a major transmission project, and implemented rate increase phase-in programs that represent a balanced approach to the issue of rising standard offer service costs," said Dennis R. Wraase, Chairman, President and Chief Executive Officer. "On the earnings front, we were negatively impacted by mild weather resulting in lower electric sales at Power Delivery and less generation output for Conectiv Energy's units. Higher fuel oil prices also impacted the run time for Conectiv Energy's units, providing less opportunity to capture margins during peak periods." He added, "It's important to balance this near term impact with the continued strength of our service territory, the improving PJM wholesale market, and our ability to capture commercial and industrial load in our retail business. We are focused on the execution of our strategic plan, and I remain confident in our ability to deliver increasing value to our customers and our shareholders."
For the six months ended June 30, 2006, consolidated earnings were $108.0 million, or 56 cents per share, compared to $121.1 million, or 64 cents per share, for the same period in the prior year. Excluding special items, earnings for the six months ended June 30, 2006, would have been $104.2 million, or 54 cents per share, compared to $116.0 million, or 61 cents per share, for the first six months of 2005. The weighted average shares outstanding for the six months ended June 30, 2006 were 190.2 million compared to 188.6 million for the same period in the prior year.
The decrease in earnings, excluding special items, for the six months ended June 30, 2006, compared to the same period in the prior year was driven primarily by lower kWh sales at Power Delivery due to milder weather and higher operation and maintenance expenses at Power Delivery and Conectiv Energy. The impact of these decreases was partially offset by an unfavorable unbilled revenue adjustment in the second quarter of 2005 and higher earnings at Pepco Energy Services driven by its retail commodity and energy services businesses.
Second-Quarter Highlights
Mirant
* On May 30, 2006, Pepco and Mirant entered into a settlement
agreement which, subject to court approval, resolves all pending
litigation. Under the settlement, Pepco will allow Mirant to reject
the back-to-back agreement relating to Pepco's power purchase
agreement with Panda-Brandywine in exchange for a payment of $450
million. Pepco will also receive $70 million from Mirant for other
disputes, pre-petition claims and as reimbursement for legal fees,
bringing the total payment to $520 million. On July 5, 2006, the
Bankruptcy Court held a hearing on the settlement agreement. The
Bankruptcy Court has not yet issued an order.
* While the approval of the settlement agreement discussed above is
pending, litigation continues. On July 19, 2006, the Court of
Appeals for the Fifth Circuit issued an opinion affirming the
District Court's orders which had been appealed by Mirant. The
District Court's orders had denied Mirant's attempt to reject the
back-to-back agreement and had directed Mirant to resume making
payments to Pepco.
Operations
* Power Delivery electric sales were 11,670 gigawatt hours (Gwhs) in
the second quarter of 2006 compared to 11,602 Gwhs for the same
period last year. The 2005 period included a reduction of 197 Gwhs
resulting from the revision of the estimated unbilled revenue
balance. Heating degree days decreased by 31% for the three months
ended June 30, 2006, as compared to the same period in 2005.
Cooling degree days increased by 3% for the three months ended June
30, 2006, compared to the same period in 2005.
* Conectiv Energy's total generating output was 827 Gwhs in the
reduced second quarter of 2006 compared to 971 Gwhs in the second
quarter dispatch of 2005. The decrease resulted primarily from
milder weather and reduced dispatch of units due to higher
fuel oil prices.
* Conectiv Energy's gross margin (defined as revenue less cost of
goods sold) on merchant generation was $37.9 million in the second
quarter of 2006, compared to $55.7 million in the second quarter of
2005. The decrease resulted primarily from the lower generation
output.
* Conectiv Energy's gross margin on Full Requirements Load Service
was $14.3 million in the second quarter of 2006, compared to $8.9
million in the second quarter of 2005. The increase was driven
primarily by new, higher margin contracts, which more than offset
lower sales.
* Pepco Energy Services entered into contracts in the second quarter
of 2006 for the future delivery of 10,900 Gwhs of electricity. This
brings Pepco Energy Services' total electric contract backlog to
almost 29,000 Gwhs, an increase of 40% from the end of the first
quarter of 2006.
* Pepco Energy Services had commercial and industrial retail
electricity sales of 2,957 Gwhs in the second quarter of 2006,
compared to 3,274 Gwhs in the second quarter of 2005. This decrease
primarily reflects the return of customers to Standard Offer
Service supply in late 2005 in light of the rising energy price
environment.
Regulatory Matters
* On July 19, 2006, the New Jersey Board of Public Utilities
approved the sale of Atlantic City Electric's interests in the
Keystone and Conemaugh generating stations to Duquesne Light
Holdings Inc. for $173.1 million. This approval was the last
regulatory approval required to complete the transaction, which
ACE expects to close in early September. Approximately $80 million
of the net gain from the sale will be used to offset the remaining
deferred balance, which ACE has been recovering in rates, and the
approximately $54.2 million balance of the net gain will be
returned to ratepayers over a 33-month period as a credit on their
bills.
* On June 19, 2006, the Virginia State Corporation Commission
approved a rate increase of $11.5 million for Delmarva Power.
Delmarva Power had requested a rate increase of $20 million to
recover its higher cost of energy resulting from the competitive
bid procedure for default supply. The Commission's authorized
increase was based on a fuel index procedure that was put into
place when Delmarva Power sold its generating plants. The
estimated after-tax earnings and cash flow impacts are
anticipated reductions of approximately $3.6 million in 2006 ($1.0
million of this impact occurred in the second quarter) and $2.0
million in 2007.
* On April 25, 2006, the Delaware Public Service Commission issued an
order in Delmarva Power's base rate case. The order decreases
distribution rates by $11.1 million annually and authorizes a 10%
return on equity. The order also assigns $4.9 million of annual
costs from distribution rates to the supply component of SOS rates,
modifies plant depreciation rates and adopts certain tariff
modifications. The after-tax annual earnings and cash flow impacts
are reductions of approximately $1.6 million and $3.5 million,
respectively.
* On April 21, 2006, the Maryland Public Service Commission approved
the settlement that provides for a three-step phase-in of the new
Standard Offer Service rates that took effect on June 1, 2006.
Approximately 2% of Pepco's eligible Maryland customers and 1% of
Delmarva Power's eligible Maryland customers have elected to
participate in the deferral program. Based on these results, the
estimated deferral balance would build up to approximately $1.6
million for Pepco and Delmarva Power combined.
* On April 6, 2006, the Governor of Delaware signed into law
legislation that provides for a three-step phase-in of the new
Standard Offer Service rates that took effect on May 1, 2006. As
of Aug. 2, 2006, 53% of Delaware customers have "opted-out" of the
deferral program. At the current participation rate, the estimated
deferral balance would build up to approximately $51.4 million and
the after-tax interest expense to fund the deferral over the 37-
month rate deferral and recovery period would be approximately
$3.0 million.
Financing Activities
* On April 13, 2006, Pepco issued $109.5 million of auction rate
pollution control refunding revenue bonds through the Maryland
Economic Development Corporation due 2022. The initial auction rate
was 3.30%. Proceeds were used to refund $109.5 million of fixed
rate (5.375% - 6.375%) tax exempt securities on May 15, 2006.
Further details regarding changes in consolidated earnings between 2006 and 2005 can be found in the following schedules. Additional information regarding financial results and recent regulatory events can be found in the Pepco Holdings, Inc. Form 10-Q for the quarter ended June 30, 2006, as filed with the Securities and Exchange Commission, which is available at http://www.pepcoholdings.com/investors.
Special Items
GAAP earnings for the six months ended June 30, 2006, include the following special items, which management believes are not representative of the company's core business operations:
* After-tax earnings of $7.9 million, or 4 cents per share, related
to a gain on Conectiv Energy's disposition of its interest in a co-
generation facility and
* After-tax charges of $4.1 million, or 2 cents per share, related to
an impairment loss on certain Pepco Energy Services' assets
associated with its energy services business.
GAAP earnings for the six months ended June 30, 2005, include the following special item:
* After-tax earnings of $5.1 million, or 3 cents per share, related
to the Atlantic City Electric base rate case proceedings
settlement.
Reconciliation of GAAP Earnings to Earnings Excluding Special Items
Three Months Six Months
Ended Ended
Net Earnings - Millions of dollars June 30, June 30,
(Restated) (Restated)
2006 2005 2006 2005
Reported (GAAP) Net Earnings $51.2 $66.4 $108.0 $121.1
Special Items:
Gain on disposition of interest in
a co-generation facility - - (7.9) -
Impairment loss on energy
services assets - - 4.1 -
New Jersey base rate case
settlement - - - (5.1)
Net Earnings, Excluding
Special Items $51.2 $66.4 $104.2 $116.0
Three Months Six Months
Ended Ended
Earnings per Share June 30, June 30,
(Restated) (Restated)
2006 2005 2006 2005
Reported (GAAP) Earnings per Share $0.27 $0.35 $0.56 $0.64
Special Items:
Gain on disposition of interest
in a co-generation facility - - (0.04) -
Impairment loss on energy
services assets - - 0.02 -
New Jersey base rate case
settlement - - - (0.03)
Earnings per Share, Excluding
Special Items $0.27 $0.35 $0.54 $0.61
CONFERENCE CALL FOR INVESTORS
Pepco Holdings Inc. will host a conference call to discuss second quarter results on Monday, Aug. 7th at 10:00 a.m. E.D.T. Investors, members of the media and other interested persons may access the conference call on the Internet at http://www.pepcoholdings.com/investors or by calling 1-866-700-5192 before 9:55 a.m. The pass code for the call is 99858628. International callers may access the call by dialing 1-617-213-8833, using the same pass code, 99858628. 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 35096123. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 35096123. An audio archive will be available at PHI's Web site, 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 at http://www.pepcoholdings.com/investors.
About PHI: Pepco Holdings, Inc., headquartered in Washington, D.C., delivers electricity and natural gas to about 1.9 million customers in Delaware, the District of Columbia, Maryland, New Jersey and Virginia, through its subsidiaries Pepco, Delmarva Power and Atlantic City Electric. PHI also provides competitive wholesale generation services through Conectiv Energy and retail energy products and services through Pepco Energy Services.
Forward-Looking Statements: Except for historical statements and discussions, the statements in this news release constitute "forward-looking statements" within the meaning of federal securities law. These statements contain management's beliefs based on information currently available to management and on various assumptions concerning future events. Forward- looking statements are not a guarantee of future performance or events. They are subject to a number of uncertainties and other factors, many of which are outside the company's control. Factors that could cause actual results to differ materially from those in the forward-looking statements herein include general economic, business and financing conditions; availability and cost of capital; changes in laws, regulations or regulatory policies; weather conditions; competition; governmental actions; and other presently unknown or unforeseen factors. These uncertainties and factors could cause actual results to differ materially from such statements. PHI disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This information is presented solely to provide additional information to further understand the results and prospects of PHI.
SELECTED FINANCIAL INFORMATION
Pepco Holdings, Inc.
Earnings Per Share Variance
2006 / 2005
2nd Quarter
Competitive Energy
Pepco
Power Conectiv Energy Other Non Corporate Total
Delivery Energy Services Regulated & Other PHI
2005 Net Income/(Loss)
(GAAP) (Restated) 1/ $0.27 $0.06 $0.05 $0.04 $(0.07) $0.35
Change from 2005 Net
Income/(Loss)
Regulated Operations
* Revenue - Average
rate
variance
due to a
change in
usage by
customer
class (0.02) - - - - (0.02)
- Weather
(estimate)
2/ (0.02) - - - - (0.02)
- 2005
Unbilled
Revenue
Adjustment 0.04 - - - - 0.04
- Standard
Offer
Service
Margin (0.01) - - - - (0.01)
* Operation &
Maintenance (0.02) - - - - (0.02)
* Other, net (0.01) - - - - (0.01)
Conectiv Energy
* Margins (operating
revenue less cost
of goods sold)
- Merchant
Generation - (0.05) - - - (0.05)
- Full
Requirements
Load Service - 0.02 - - - 0.02
- Other
Power, Oil,
and Gas - 0.01 - - - 0.01
Marketing
* Operating costs,
net - (0.03) - - - (0.03)
Pepco Energy Services
* Other, net - - (0.01) - - (0.01)
Other Non-Regulated
* Financial
investment
portfolio - - - 0.02 - 0.02
Corporate & Other
* Tax audit true-ups,
partially
eliminated in
consolidation 0.02 - - 0.03 (0.06) (0.01)
Capital Costs - - - 0.01 - 0.01
2006 Net Income/(Loss)
(GAAP) 3/ $0.25 $0.01 $0.04 $0.10 $ (0.13) $0.27
1/ 2005 Average Shares Outstanding for the 2nd Quarter were 188,812,888.
2/ The effect of weather in 2006 compared with the 20 year average
weather is estimated to have decreased earnings by $.02 per share.
3/ 2006 Average Shares Outstanding for the 2nd Quarter were 190,382,001.
SELECTED FINANCIAL INFORMATION (Continued)
Pepco Holdings, Inc.
Earnings Per Share Variance
2006 / 2005
Year to Date - June 30
Competitive Energy
Pepco
Power Conectiv Energy Other Non Corporate Total
Delivery Energy Services Regulated & Other PHI
2005 Net Income/(Loss)
(GAAP) (Restated) 1/ $0.54 $0.09 $0.06 $0.10 $ (0.15) $0.64
2005 Special Items 2/
* ACE - New Jersey
Base Rate Case
Settlement (0.03) - - - - (0.03)
2005 Net Income/(Loss)
excluding Special
Items (Restated) 0.51 0.09 0.06 0.10 (0.15) 0.61
Change from 2005 Net
Income/(Loss) excluding
Special Items
Regulated Operations
* Revenue - Weather
(estimate)
3/ (0.07) - - - - (0.07)
- 2005
Unbilled
Revenue
Adjustment 0.04 - - - - 0.04
- Standard
Offer
Service
Margin 0.02 - - - - 0.02
* Operation &
Maintenance (0.04) - - - - (0.04)
* Other, net (0.03) - - - - (0.03)
Conectiv Energy
* Margins (operating
revenue less cost
of goods sold)
- Merchant
Generation - (0.01) - - - (0.01)
- Full
Requirements
Load
Service - (0.03) - - - (0.03)
- Other
Power, Oil,
and Gas
Marketing - 0.04 - - - 0.04
* Operating costs, - (0.03) - - - (0.03)
net
Pepco Energy Services
* Retail commodity - - 0.03 - - 0.03
* Energy services - - 0.02 - - 0.02
* Other, net - - (0.02) - - (0.02)
Other Non-Regulated
* 2005 gain on sale
of energy
investment - - - (0.02) - (0.02)
* Financial
investment
portfolio - - - 0.03 - 0.03
Corporate & Other
* Tax audit
true-ups,
partially
eliminated
in consolidation 0.02 - - 0.03 (0.06) (0.01)
* Other, net - - - - (0.01) (0.01)
Capital Costs - - - 0.01 0.01 0.02
2006 Net Income/(Loss)
excluding Special
Items 0.45 0.06 0.09 0.15 (0.21) 0.54
2006 Special Items 2/
* Gain on disposition
of assets
associated with
Burney co-
generation facility - 0.04 - - - 0.04
* Impairment loss
on certain energy
services business
assets - - (0.02) - - (0.02)
2006 Net Income/(Loss)
(GAAP) 4/ $0.45 $0.10 $0.07 $0.15 $(0.21) $0.56
1/ 2005 Average Shares Outstanding at Year to Date were 188,593,947.
2/ Management believes the special items are not representative of the
company's core business operations.
3/ The effect of weather in 2006 compared with the 20 year average
weather is estimated to have decreased earnings by $.05 per share.
4/ 2006 Average Shares Outstanding at Year to Date were 190,161,338.
Three Months Ended June 30, 2006
(Millions of dollars)
Competitive
Energy Segments
Pepco Other
Power Conectiv Energy Non- Corp. & PHI
Delivery Energy Services Regulated Other(a) Cons.
Operating
Revenue $1,179.4 $514.2(b) $347.5 $28.3 $(152.8) $1,916.6
Operating
Expense(c) 1,065.7(b) 504.2 333.8 1.7 (152.0) 1,753.4
Operating Income 113.7 10.0 13.7 26.6 (.8) 163.2
Interest Income 2.5 9.0 .6 49.5 (57.4) 4.2
Interest Expense 45.3 15.8 .9 57.3 (34.1) 85.2
Other Income 6.8 (.3) .4 1.3 .3 8.5
Preferred Stock
Dividends .2 - - .6 (.5) .3
Income Taxes 29.5(d) 1.3 5.6 .9(d) 1.9(d) 39.2
Net Income (Loss) 48.0 1.6 8.2 18.6 (25.2) 51.2
Total Assets 8,729.1 1,886.7 513.3 1,500.6 1,058.7 13,688.4
Construction
Expenditures 120.6 2.6 1.2 - 3.7 128.1
Note:
(a) Includes unallocated Pepco Holdings' (parent company) capital costs,
such as acquisition financing costs, and the depreciation and
amortization related to purchase accounting adjustments for the fair
value of Conectiv assets and liabilities as of the August 1, 2002
acquisition date. Additionally, the Total Assets line item in this
column includes Pepco Holdings' goodwill balance. Included in Corp. &
Other are intercompany amounts of $(152.8) million for Operating
Revenue, $(151.5) million for Operating Expense, $(75.3) million for
Interest Income, $(74.7) million for Interest Expense, and $(.6)
million for Preferred Stock Dividends.
(b) Power Delivery purchased electric energy and capacity and natural gas
from Conectiv Energy in the amount of $103.6 million for the three
months ended June 30 2006.
(c) Includes depreciation and amortization of $103.0 million, consisting
of $89.6 million for Power Delivery, $9.1 million for Conectiv Energy,
$2.9 million for Pepco Energy Services, and $1.4 million for Corp. &
Other.
(d) Includes the total favorable impact of $6.3 million related to tax
matters that were resolved during the second quarter of 2006 ($2.5
million for Power Delivery and $5.4 million for Other Non-Regulated,
partially offset by an unfavorable $1.6 million in Corp. & Other).
Additionally, Corp. & Other includes the elimination (against the
goodwill generated by the merger) of the tax benefits recorded by the
Lines of Business in the amount of $9.1 million ($3.1 million related
to Power Delivery and $6.0 million related to Other Non-Regulated).
Three Months Ended June 30, 2005 (As Restated)
(Millions of dollars)
Competitive
Energy Segments
Pepco Other
Power Conectiv Energy Non- Corp. & PHI
Delivery Energy Services Regulated Other(a) Cons.
Operating
Revenue $981.6 $584.2(b) $320.9 $21.2 $(187.7) $1,720.2
Operating
Expense (c) 856.2(b) 556.5 306.5 1.8 (185.2) 1,535.8
Operating Income 125.4 27.7 14.4 19.4 (2.5) 184.4
Interest Income .8 7.6 .3 25.7 (33.0) 1.4
Interest Expense 44.2 14.4 .8 35.1 (9.2) 85.3
Other Income 7.4 (.5) .5 (1.5) 3.2 9.1
Preferred Stock
Dividends .7 - - .6 (.6) .7
Income Taxes 37.1 8.0 5.2 .8 (8.6) 42.5
Net Income
(Loss) 51.6 12.4 9.2 7.1 (13.9) 66.4
Total Assets 8,784.4 1,939.3 503.3 1,321.5 1,173.6 13,722.1
Construction
Expenditures 122.1 2.8 3.3 - 1.7 129.9
Note:
(a) Includes unallocated Pepco Holdings' (parent company) capital costs,
such as acquisition financing costs, and the depreciation and
amortization related to purchase accounting adjustments for the fair
value of Conectiv assets and liabilities as of the August 1, 2002
acquisition date. Additionally, the Total Assets line item in this
column includes Pepco Holdings' goodwill balance. Included in Corp. &
Other are intercompany amounts of $(188.5) million for Operating
Revenue, $(187.0) million for Operating Expense, $(49.5) million for
Interest Income, $(49.0) million for Interest Expense, and $(.6)
million for Preferred Stock Dividends.
(b) Power Delivery purchased electric energy and capacity and natural gas
from Conectiv Energy in the amount of $128.9 million for the three
months ended June 30, 2005.
(c) Includes depreciation and amortization of $101.8 million, consisting
of $85.1 million for Power Delivery, $11.5 million for Conectiv
Energy, $3.2 million for Pepco Energy Services, and $2.0 million for
Corp. & Other.
Six Months Ended June 30, 2006
(Millions of dollars)
Competitive
Energy Segments
Pepco Other
Power Conectiv Energy Non- Corp. & PHI
Delivery Energy Services Regulated Other(a) Cons.
Operating
Revenue $2,354.2 $1,065.5(b) $717.2 $49.2 $(317.6) $3,868.5
Operating
Expense(c) 2,136.6(b) 1,032.3 694.2(e) 3.3 (315.0) 3,551.4
Operating
Income 217.6 33.2 23.0 45.9 (2.6) 317.1
Interest Income 4.8 17.6 1.0 84.3 (100.0) 7.7
Interest
Expense 88.7 30.9 1.7 100.1 (54.6) 166.8
Other Income 9.3 11.7(d) .6 2.6 .9 25.1
Preferred Stock
Dividends 1.5 - - 1.2 (2.0) .7
Income Taxes 55.9 12.9 9.2 3.3 (6.9) 74.4
Net Income
(Loss) 85.6(f) 18.7 13.7 28.2(f) (38.2)(f) 108.0
Total Assets 8,729.1 1,886.7 513.3 1,500.6 1,058.7 13,688.4
Construction
Expenditures 233.5 5.0 3.9 - 5.9 248.3
Note:
(a) Includes unallocated Pepco Holdings' (parent company) capital costs,
such as acquisition financing costs, and the depreciation and
amortization related to purchase accounting adjustments for the fair
value of Conectiv assets and liabilities as of the August 1, 2002
acquisition date. Additionally, the Total Assets line item in this
column includes Pepco Holdings' goodwill balance. Included in Corp. &
Other are intercompany amounts of $(319.1) million for Operating
Revenue, $(316.4) million for Operating Expense, $(136.9) million for
Interest Income, $(135.7) million for Interest Expense, and $(1.2)
million for Preferred Stock Dividends.
(b) Power Delivery purchased electric energy and capacity and natural gas
from Conectiv Energy in the amount of $226.3 million for the six
months ended June 30 2006.
(c) Includes depreciation and amortization of $206.1 million, consisting
of $179.6 million for Power Delivery, $18.2 million for Conectiv
Energy, $5.8 million for Pepco Energy Services, and $2.5 million for
Corp. & Other.
(d) Includes $12.3 million gain ($7.9 million after tax) on the sale of
its equity interest in a joint venture which owns a wood burning
cogeneration facility in California.
(e) Includes $6.5 million impairment loss ($4.1 million after tax) on
certain energy services business assets.
(f) Includes the total favorable impact of $6.3 million related to tax
matters that were resolved during the second quarter of 2006 ($2.5
million for Power Delivery and $5.4 million for Other Non-Regulated,
partially offset by an unfavorable $1.6 million in Corp. & Other).
Additionally, Corp. & Other includes the elimination (against the
goodwill generated by the merger) of the tax benefits recorded by the
Lines of Business in the amount of $9.1 million ($3.1 million related
to Power Delivery and $6.0 million related to Other Non-Regulated).
Six Months Ended June 30, 2005 (As Restated)
(Millions of dollars)
Competitive
Energy Segments
Pepco Other
Power Conectiv Energy Non- Corp. & PHI
Delivery Energy Services Regulated Other(a) Cons.
Operating
Revenue $2,080.0 $1,093.6(b) $673.8 $42.3 $(370.7) $3,519.0
Operating
Expense(c) 1,846.1(b) 1,051.5 655.0 2.8 (365.5) 3,189.9
Operating
Income 233.9 42.1 18.8 39.5 (5.2) 329.1
Interest Income 1.8 14.7 .7 47.1 (61.2) 3.1
Interest Expense 86.4 28.3 1.7 65.7 (13.4) 168.7
Other Income 11.5 .2 1.0 5.0 5.3 23.0
Preferred Stock
Dividends 1.3 - - 1.2 (1.2) 1.3
Income Taxes 66.9 11.8 7.0 5.0 (17.6) 73.1
Extraordinary
Item (net of
income tax of
$6.2 million) 9.0(d) - - - - 9.0
Net Income
(Loss) 101.6 16.9 11.8 19.7 (28.9) 121.1
Total Assets 8,784.4 1,939.3 503.3 1,321.5 1,173.6 13,722.1
Construction
Expenditures 207.1 4.4 4.2 - 2.5 218.2
Note:
(a) Includes unallocated Pepco Holdings' (parent company) capital costs,
such as acquisition financing costs, and the depreciation and
amortization related to purchase accounting adjustments for the fair
value of Conectiv assets and liabilities as of the August 1, 2002
acquisition date. Additionally, the Total Assets line item in this
column includes Pepco Holdings' goodwill balance. Included in Corp. &
Other are intercompany amounts of $(373.1) million for Operating
Revenue, $(370.2) million for Operating Expense, $(93.8) million for
Interest Income, $(92.7) million for Interest Expense, and $(1.2)
million for Preferred Stock Dividends.
(b) Power Delivery purchased electric energy and capacity and natural gas
from Conectiv Energy in the amount of $250.7 million for the six
months ended June 30, 2005.
(c) Includes depreciation and amortization of $207.5 million, consisting
of $173.9 million for Power Delivery, $22.8 million for Conectiv
Energy, $6.7 million for Pepco Energy Services, and $4.1 million for
Corp. & Other.
(d) Relates to ACE's electric distribution rate case settlement that was
accounted for in the first quarter of 2005. This resulted in ACE's
reversal of $9.0 million in after tax accruals related to certain
deferred costs that are now deemed recoverable. This amount is
classified as extraordinary since the original accrual was part of an
extraordinary charge in conjunction with the accounting for
competitive restructuring in 1999.
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(Restated) (Restated)
2006 2005 2006 2005
(In millions, except earnings per share)
Operating Revenue
Power Delivery $1,179.4 $981.6 $2,354.2 $2,080.0
Competitive Energy 711.0 718.6 1,467.7 1,397.8
Other 26.2 20.0 46.6 41.2
Total Operating Revenue 1,916.6 1,720.2 3,868.5 3,519.0
Operating Expenses
Fuel and purchased energy 1,220.0 1,007.6 2,447.8 2,095.9
Other services cost of sales 168.2 182.5 325.1 353.1
Other operation and
maintenance 209.5 189.0 413.9 379.1
Depreciation and amortization 103.0 101.8 206.1 207.5
Other taxes 82.6 77.0 164.0 157.8
Deferred electric service
costs (29.6) (18.2) (10.2) .8
Impairment loss .2 - 6.5 -
Gain on sale of assets (.5) (3.9) (1.8) (4.3)
Total Operating Expenses 1,753.4 1,535.8 3,551.4 3,189.9
Operating Income 163.2 184.4 317.1 329.1
Other Income (Expenses)
Interest and dividend income 4.2 1.4 7.7 3.1
Interest expense (85.2) (85.3) (166.8) (168.7)
(Loss) income from equity
investments (.2) (1.9) .5 (3.0)
Other income 11.6 13.7 32.5 29.4
Other expenses (2.9) (2.7) (7.9) (3.4)
Total Other Expenses (72.5) (74.8) (134.0) (142.6)
Preferred Stock Dividend
Requirements of Subsidiaries .3 .7 .7 1.3
Income Before Income Tax Expense
and Extraordinary Item 90.4 108.9 182.4 185.2
Income Tax Expense 39.2 42.5 74.4 73.1
Income Before Extraordinary
Item 51.2 66.4 108.0 112.1
Extraordinary Item (net of tax
of $6.2 million) - - - 9.0
Net Income 51.2 66.4 108.0 121.1
Retained Earnings at Beginning
of Period 1,026.1 844.0 1,018.7 836.4
Dividends on Common Stock (49.4) (47.2) (98.8) (94.3)
Retained Earnings at End of
Period $1,027.9 $863.2 $1,027.9 $ 863.2
Basic and Diluted Share
Information
Weighted average shares
outstanding 190.4 188.8 190.2 188.6
Earnings per share of
common stock
Before extraordinary item $.27 $.35 $.56 $.59
Extraordinary item - - .05
Total $.27 $.35 $.56 $.64
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
ASSETS 2006 2005
(Millions of dollars)
CURRENT ASSETS
Cash and cash equivalents $32.9 $121.5
Restricted cash 13.0 23.0
Accounts receivable, less allowance for
uncollectible accounts of $39.1 million and
$40.6 million, respectively 1,185.6 1,363.1
Fuel, materials and supplies-at average cost 349.5 340.1
Unrealized gains - derivative contracts 72.9 185.7
Prepaid expenses and other 124.6 118.3
Total Current Assets 1,778.5 2,151.7
INVESTMENTS AND OTHER ASSETS
Goodwill 1,415.0 1,431.3
Regulatory assets 1,174.6 1,202.0
Investment in finance leases held in trust 1,312.0 1,297.9
Prepaid pension expense 198.0 208.9
Other 379.1 414.0
Total Investments and Other Assets 4,478.7 4,554.1
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 11,644.4 11,384.2
Accumulated depreciation (4,213.2) (4,072.2)
Net Property, Plant and Equipment 7,431.2 7,312.0
TOTAL ASSETS $13,688.4 $14,017.8
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2006 2005
(Millions of dollars,
except shares)
CURRENT LIABILITIES
Short-term debt $776.1 $156.4
Current maturities of long-term debt 252.2 469.5
Accounts payable and accrued liabilities 746.6 1,002.2
Capital lease obligations due within one year 5.4 5.3
Taxes accrued 4.9 322.9
Interest accrued 79.5 84.6
Other 389.6 358.4
Total Current Liabilities 2,254.3 2,399.3
DEFERRED CREDITS
Regulatory liabilities 626.2 594.1
Income taxes 1,892.8 1,935.0
Investment tax credits 48.6 51.0
Other postretirement benefit obligations 292.4 284.2
Other 257.0 284.9
Total Deferred Credits 3,117.0 3,149.2
LONG-TERM LIABILITIES
Long-term debt 4,142.8 4,202.9
Transition Bonds issued by ACE Funding 480.1 494.3
Long-term project funding 27.9 25.5
Capital lease obligations 113.9 116.6
Total Long-Term Liabilities 4,764.7 4,839.3
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK OF SUBSIDIARIES
Serial preferred stock - 21.5
Redeemable serial preferred stock 24.4 24.4
Total Preferred Stock of Subsidiaries 24.4 45.9
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, authorized
400,000,000 shares, 190,694,006 shares and
189,817,723 shares outstanding, respectively 1.9 1.9
Premium on stock and other capital
contributions 2,603.9 2,586.3
Accumulated other comprehensive loss (105.7) (22.8)
Retained earnings 1,027.9 1,018.7
Total Shareholders' Equity 3,528.0 3,584.1
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,688.4 $14,017.8
POWER DELIVERY SALES AND REVENUES
Three Months Ended Six Months Ended
Power Delivery Sales June 30, June 30,
(Gigawatt Hours) (Restated) (Restated)
2006 2005 2006 2005
Regulated T&D Electric Sales
Residential 3,434 3,618 7,922 8,413
Commercial 7,116 6,824 13,590 13,517
Industrial 1,063 1,103 2,044 2,123
Other 57 57 126 126
Total Regulated T&D Electric
Sales 11,670 11,602 23,682 24,179
Default Electricity Supply Sales
Residential 3,339 3,506 7,718 8,096
Commercial 4,293 3,110 8,448 7,075
Industrial 449 497 951 979
Other 39 44 76 96
Total Default Electricity Supply
Sales 8,120 7,157 17,193 16,246
Three Months Ended Six Months Ended
Power Delivery Electric Revenue June 30, June 30,
(Millions of dollars) (Restated) (Restated)
2006 2005 2006 2005
Regulated T&D Electric Revenue
Residential $122.1 $134.0 $260.5 $280.1
Commercial 180.0 170.7 336.0 331.0
Industrial 7.8 8.8 16.2 18.2
Other (Includes PJM) 60.4 60.5 127.8 120.0
Total Regulated T&D Electric
Revenue $370.3 $374.0 $740.5 $749.3
Default Supply Revenue
Residential $277.9 $228.4 $553.4 $492.1
Commercial 362.9 208.6 642.6 425.3
Industrial 30.3 31.5 61.8 60.4
Other (Includes PJM) 74.4 78.8 167.7 166.1
Total Default Supply Revenue $745.5 $547.3 $1,425.5 $1,143.9
Other Electric Revenue $14.1 $12.8 $28.3 $28.3
Total Electric Operating
Revenue $1,129.9 $934.1 $2,194.3 $1,921.5
Three Months Ended Six Months Ended
Power Delivery Gas Sales and June 30, June 30,
Revenue (Millions of dollars) (Restated) (Restated)
2006 2005 2006 2005
Regulated Gas Sales (Bcf)
Residential .8 1.0 4.2 5.4
Commercial .5 .7 2.6 3.4
Industrial .2 .2 .4 .5
Transportation and Other 1.4 1.2 3.1 3.1
Total Regulated Gas Sales 2.9 3.1 10.3 12.4
Regulated Gas Revenue
Residential $19.4 $21.2 $79.3 $77.3
Commercial 12.4 10.5 47.9 41.9
Industrial 2.6 2.4 5.8 5.6
Transportation and
Other 1.3 1.1 2.6 2.4
Total Regulated Gas Revenue $35.7 $35.2 $135.6 $127.2
Other Gas Revenue $13.8 $12.3 $24.3 $31.3
Total Gas Operating Revenue $49.5 $47.5 $159.9 $158.5
Total Power Delivery
Operating Revenue $1,179.4 $981.6 $2,354.2 $2,080.0
WEATHER DATA - CONSOLIDATED ELECTRIC SERVICE TERRITORY
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Heating Degree Days 326 472 2,378 2,889
20 Year Average 433 423 2,703 2,693
Percentage Difference from
Average -24.7% 11.6% -12.0% 7.3%
Percentage Difference from Prior
Year -30.9% -17.7%
Cooling Degree Days 348 338 351 338
20 Year Average 362 363 365 366
Percentage Difference from
Average -3.9% -6.9% -3.8% -7.7%
Percentage Difference from Prior
Year 3.0% 3.8%
CONECTIV ENERGY
Three Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30,
2006 2006 2005 2005 2005
Gigawatt Hour Supply (Gwh)
Merchant Generation
output sold into market 827 803 967 2,382 971
Full Requirements Load
Service 1,885 3,440 3,369 4,275 3,308
Total Sales 2,712 4,243 4,336 6,657 4,279
Around-the-clock Market
Prices ($/Mwh) PJM -
East (1) $48.02 $58.28 $77.33 $83.24 $49.27
On Peak Market
Prices ($/Mwh) PJM -
East (1) $61.01 $63.42 $98.20 $108.62 $63.82
Gas Price - M3 (Market
Area)($/Mmbtu) (1) $7.04 $8.46 $12.95 $10.43 $7.44
Merchant Generation
Margin per Mwh
(Revenue Less Cost of
Goods Sold $/Mwh) $45.8 $86.7 $46.6 $42.0 $57.4
Merchant Generation
Margin Key Drivers:
(Percentage of
Total) (2)
West to East Hub
Congestion 0% 2% 5% 26% 2%
Power & Fuel Hedges 17% 54% -52% -64% 8%
Ancillary Services &
Hourly Flexibility
Premium 14% 19% 22% 10% 27%
Fuel Switching 0% 2% 11% 7% 3%
PJM Capacity (ICAP) 7% 5% 9% 8% 9%
Energy Spark Spreads 62% 18% 105% 113% 51%
Note:
(1) Daily average.
(2) Estimate.
CONECTIV ENERGY - (continued)
Operating Summary Three Months Ended Six Months Ended
(Millions of dollars) June 30, June 30,
2006 2005 2006 2005
Restated Restated
Gigawatt Hour Supply (Gwh)
Merchant Generation output
sold into market 827 (1) 971 1,631 (2) 2,246
Full Requirements Load
Service 1,885 (3) 3,308 5,325 (3) 6,589
Total Sales 2,712 4,279 6,956 8,835
Operating Revenue:
Merchant Generation $241.6 $230.2 $535.9 $477.9
Full Requirements Load
Service 76.3 92.3 149.6 146.7
Other Power, Oil, and
Gas Marketing 196.3 261.7 380.0 469.0
Total 514.2 584.2 1,065.5 1,093.6
Cost of Goods Sold:
Merchant Generation 203.7 174.5 428.3 367.2
Full Requirements Load
Service 62.0 83.4 155.8 145.5
Other Power, Oil, and
Gas Marketing 194.8 261.3 370.3 469.0
Total 460.5 519.2 954.4 981.7
Gross Margin Detail:
Merchant Generation 37.9 (1) 55.7 107.6 (2) 110.7
Full Requirements Load
Service 14.3 (4) 8.9 (6.2)(4) 1.2
Other Power, Oil, and
Gas Marketing 1.5 (5) 0.4 9.7 (5) -
Total 53.7 65.0 111.1 111.9
Operating and Maintenance
Expenses 33.3 (6) 24.9 57.6 (6) 45.6
Depreciation 9.1 (7) 11.5 18.2 (7) 22.8
Taxes Other Than
Income Taxes 0.9 0.9 1.7 1.4
Loss on Disposal of
Property 0.4 - 0.4 -
Other Operating Expenses 43.7 37.3 77.9 69.8
Operating Income $10.0 $27.7 $33.2 $42.1
Note:
(1) Lower Merchant Generation output during the second quarter of 2006
compared to the 2005 quarter was due to milder weather and reduced
dispatch of the Mid-Merit units, especially oil units, due to higher
fuel oil prices and continued high natural gas prices. The impact of
milder weather and higher fuel costs resulted in both lower run time
and lower operating margins from the Mid-Merit fleet. In addition,
the milder weather did not allow the opportunity to capture any fuel
switching benefits and there was almost no west to east hub congestion
in the 2006 quarter.
(2) Lower Merchant Generation output during the first half of 2006
compared to the 2005 period was due primarily to milder winter weather
and reduced dispatch of the Mid-Merit units due to higher fuel oil
prices. Lower Merchant Generation margins in 2006 resulted from lower
run time and lower operating margins from the Mid-Merit fleet,
partially offset by favorable hedge results due primarily to falling
power prices during the first quarter of 2006.
(3) Lower Full Requirements Load Service sales during the second quarter
of 2006 compared to the 2005 quarter resulted from the termination of
the Delaware POLR load contract in April 2006, which was partially
offset with new Standard Offer Service (SOS) contracts. For the first
half of 2006, Full Requirements Load Service sales were lower compared
to the 2005 period due to the termination of the Delaware POLR load
contract, partially offset by a net increase in SOS and municipal load
contracts.
(4) Higher Full Requirements Load Service margins in the second quarter
resulted primarily from increased margins associated with new SOS
contracts, partially offset by the expiration of the Delaware POLR
load contract. For the first half of 2006, the lower Full
Requirements Load Service margins primarily resulted from the
expiration of favorable hedge contracts, partially offset by increased
margins from new SOS contracts. Full Requirements Load Service is
hedged by both contract purchases with third parties and by Conectiv
Energy generation. Conectiv Energy generation is transfer priced at
either an agreed upon fixed transfer price for defined quantities
established at the time the SOS contract is entered into or at the PJM
price for each hour, multiplied by the Mwhs required by the Full
Requirements Load (after reducing the load by the contract purchases,
including fixed priced purchases from Conectiv Generation). This
transfer pricing mechanism subjects the Full Requirements Load Service
to some energy price volatility but does provide a partial hedge for
the Merchant Generation output.
(5) Higher Other Power, Oil and Gas Marketing margins during the second
quarter of 2006 compared to the 2005 quarter resulted primarily from
achieving reasonable operating margins from marketing activities in
2006 compared to the 2005 results. Higher Other Power, Oil and Gas
Marketing margins during the first half of 2006 compared to the 2005
period resulted primarily from the sale of lower cost supply from
inventory which was purchased prior to the escalation of gas and oil
prices.
(6) Higher operating and maintenance expenses were experienced during the
second quarter of 2006 compared to the 2005 quarter and during the
first half of 2006 compared to the 2005 period primarily due to higher
maintenance expenses at power plants, higher pension and benefits
costs and a software rights dispute settlement.
(7) Lower depreciation expense in the second quarter of 2006 and for the
first half of 2006 compared to the 2005 periods is due to an
adjustment to reflect the results of an asset life study which
increased the estimated remaining life of the power plants.
PEPCO ENERGY SERVICES Three Months Ended Six Months Ended
June 30, June 30,
(Millions of dollars) 2006 2005 2006 2005
Operating Revenue $347.5 $320.9 $717.2 $673.8
Cost of Goods Sold 315.2 287.5 647.6 613.1
Gross Margin 32.3 33.4 69.6 60.7
Gross Margin Detail:
Electric and Natural Gas 18.4 (1) 22.9 39.1 (2) 36.5
Energy Services 13.9 (3) 10.5 30.5 (3) 24.2
Total 32.3 33.4 69.6 60.7
Operation and Maintenance 40.8 35.2
Expenses 15.7 15.8
Depreciation 2.9 3.2 5.8 6.7
Operating Expenses 18.6 19.0 46.6 41.9
Operating Income $13.7 $14.4 $23.0 $18.8
Note:
(1) Commodity gross margin decreased quarter-over-quarter primarily due to
lower generation output due to higher fuel oil prices and milder
weather and lower natural gas volumes sold due to milder weather,
partially offset by more favorable electric supply costs in the retail
commodity business.
(2) Commodity gross margin for the year-to-date 2006 improved as compared
to the 2005 period primarily due to more favorable electric supply
costs and gains on the sale of excess energy supply in the retail
commodity business, partially offset by lower generation output due to
higher fuel oil prices and milder weather and lower natural gas
volumes sold due to milder weather.
(3) Energy Services gross margins improved for the quarter and year to
date compared to the 2005 periods due to higher construction activity
and higher sales from district heating and cooling.
