WASHINGTON, Nov. 2 /PRNewswire-FirstCall/ -- Pepco Holdings, Inc. today reported third quarter 2006 consolidated earnings of $104.0 million, or 54 cents per share, compared to $168.0 million, or 89 cents per share, in the third quarter of 2005. Excluding the special items described below, earnings for the 2006 quarter would have been $111.9 million, or 58 cents per share, compared to $135.6 million, or 72 cents per share, for the 2005 quarter. The weighted average number of shares outstanding for the third quarter of 2006 was 190.8 million compared to 189.2 million for the third quarter of 2005.
The earnings decrease, excluding special items, for the third quarter of 2006 as compared to the 2005 quarter was due primarily to lower kWh sales at Power Delivery driven by milder weather, lower network transmission revenue primarily due to a true-up in the 2006 transmission rates for rates in effect in 2005, and lower generating output at Conectiv Energy reflecting milder weather, higher fuel oil prices and an unplanned outage at the Hay Road generating facility. The impact of these decreases was partially offset by higher Full Requirements Load Service earnings at Conectiv Energy as a result of new, higher margin supply contracts and a mark-to-market gain on a supply contract, and higher earnings from Conectiv Energy's Other Power, Oil and Gas Marketing Services.
"Earnings for the quarter clearly were negatively impacted by the weather relative to last year, driven by a 15% decrease in cooling degree days," said Dennis R. Wraase, Chairman, President and Chief Executive Officer. "And, while year-to-date we experienced customer growth of 1.2% in our service territory, weather adjusted kWh sales increased by just 0.2%. Sales were impacted by lower customer usage due to, we believe, customer conservation efforts in light of rising energy prices." He added, "We continue to make progress in the execution of our regulatory plan. In August, we filed for a distribution rate increase for our gas delivery business, and we still anticipate filing three electric distribution cases prior to year-end. Conectiv Energy and Pepco Energy Services both continue to make good progress in executing their strategies. We are pleased with the recent Reliability Pricing Model settlement now in front of the FERC, and our retail business continues to provide solid financial results as they focus on the commercial and industrial market."
For the nine months ended Sept. 30, 2006, consolidated earnings were $212.0 million, or $1.11 per share, compared to $289.1 million, or $1.53 per share, for the same period in the prior year. Excluding the special items described below, earnings for the nine months ended Sept. 30, 2006 would have been $216.2 million, or $1.13 per share, compared to $251.6 million, or $1.33 per share, for the first nine months of 2005. The weighted average number of shares outstanding for the nine months ended Sept. 30, 2006 was 190.4 million compared to 188.8 million for the same period in the prior year.
The decrease in earnings, excluding special items, for the nine months ended Sept. 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, lower network transmission revenue primarily due to a true-up in the 2006 transmission rates for rates in effect in 2005, lower generating output at Conectiv Energy reflecting milder weather, higher fuel oil prices and an unplanned outage at Hay Road, and higher operation and maintenance expenses at Power Delivery and Conectiv Energy. The impact of these decreases was partially offset by higher Full Requirements Load Service earnings at Conectiv Energy as a result of new, higher margin supply contracts and a mark-to-market gain on a supply contract, higher earnings from Conectiv Energy's Other Power, Oil and Gas Marketing Services, higher earnings at Pepco Energy Services driven by its retail commodity and energy services businesses and an unfavorable unbilled revenue adjustment at Power Delivery in the second quarter of 2005.
Third-Quarter Highlights
Mirant
* On Aug. 9, 2006, the Bankruptcy Court approved the settlement agreement
entered into by Pepco and Mirant. 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. On Aug. 18, 2006, certain creditors of Mirant appealed
the approval order to the District Court. Pursuant to the settlement
agreement, upon approval of the settlement agreement by the Bankruptcy
Court, Pepco received a payment of $70 million from Mirant to settle
other disputes and pre-petition claims and as reimbursement for legal
fees. The $70 million payment must be repaid by Pepco if the Bankruptcy
Court approval of the settlement agreement is not upheld on appeal.
Therefore, no impact has been recorded to income relating to the receipt
of this $70 million payment.
* While the appeal of the Bankruptcy Court approval of the settlement
agreement 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 14,732 gigawatt hours (GWhs) in the
third quarter of 2006 compared to 15,305 GWhs for the same period last
year. Cooling degree days decreased by 15% for the three months ended
Sept. 30, 2006, compared to the same period in 2005. Weather adjusted
electric sales were 14,426 GWhs in the third quarter of 2006 compared to
14,288 GWhs for the same period last year.
* Conectiv Energy's gross margin (defined as revenue less cost of goods
sold) on Merchant Generation was $67.2 million in the third quarter of
2006, compared to $100.0 million in the third quarter of 2005. The
decrease resulted primarily from lower generation output reflecting
milder weather, reduced dispatch of units due to higher oil prices, and
an unplanned outage at Hay Road. It is estimated that the Hay Road
outage in the third quarter of 2006 reduced Merchant Generation gross
margins by approximately $7 million.
* Conectiv Energy's gross margin on Full Requirements Load Service was
$10.1 million in the third quarter of 2006, compared to $(11.1) million
in the third quarter of 2005. The increase was driven primarily by new,
higher margin supply contracts and a mark-to-market gain on a supply
contract, which more than offset lower sales.
* Pepco Energy Services had record high commercial and industrial retail
electricity sales of 4,232 GWhs in the third quarter of 2006, compared
to 3,743 GWhs in the third quarter of 2005. This increase primarily
reflects the acquisition of additional commercial and industrial
customer loads.
* Pepco Energy Services' electric load served at Sept. 30, 2006 was 2,955
MW, compared to 2,528 MW at Sept. 30, 2005. This increase primarily
reflects the acquisition of additional commercial and industrial load in
both existing and new markets.
Regulatory Matters
* On Aug. 17, 2006, Atlantic City Electric entered into an agreement to
sell the B.L. England Generating Station to RC Cape May Holdings, LLC
for $12.2 million. The sale, which is subject to the receipt of certain
regulatory approvals, is expected to close during the first quarter of
2007.
* On Aug. 31, 2006, Delmarva Power filed a gas base rate case in Delaware
seeking approval of an annual rate increase of approximately $15.0
million. A decision is expected by March 31, 2007.
* On Sept. 1, 2006, Atlantic City Electric completed the sale of its
interests in the Keystone and Conemaugh generating stations to Duquesne
Light Holdings Inc. for $177.0 million. Approximately $81.3 million of
the net gain from the sale was used to fully offset the remaining
deferred balance, which ACE had been recovering in rates, and
approximately $51.7 million of the net gain will be returned to
ratepayers over a 33-month period as a credit on their bills.
Further details regarding changes in consolidated earnings between 2006 and 2005 can be found in the following schedules.
Special Items
GAAP earnings for the third quarter 2006 include the following special item, which management believes is not representative of the company's ongoing business operations:
* After-tax charges of $7.9 million, or 4 cents per share, related to an
impairment loss on certain Pepco Energy Services' assets associated with
its energy services business.
GAAP earnings for the third quarter 2005, include the following special items:
* After-tax earnings of $40.7 million, or 22 cents per share, related to
the gain associated with the sale by Pepco of the Buzzard Point non-
utility land and
* After-tax charges of $8.3 million, or 5 cents per share, related to the
increase in income tax expense for the interest accrued on the potential
impact of the IRS Revenue Ruling on mixed service costs (IRS Revenue
Ruling 2005-53).
GAAP earnings for the nine months ended Sept. 30, 2006, include the following special items:
* 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 $12.1 million, or 6 cents per share, related to an
impairment loss on certain Pepco Energy Services' assets associated with
its energy services business.
GAAP earnings for the nine months ended Sept. 30, 2005, include the following special items:
* After-tax earnings of $40.7 million, or 22 cents per share, related to
the gain associated with the sale by Pepco of the Buzzard Point non-
utility land;
* After-tax charges of $8.3 million, or 5 cents per share, related to the
increase in income tax expense for the interest accrued on the potential
impact of the IRS Revenue Ruling on mixed service costs (IRS Revenue
Ruling 2005-53) and
* 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
Net Earnings - Millions of Three Months Ended Nine Months Ended
dollars Sept. 30, Sept. 30,
(Restated) (Restated)
2006 2005 2006 2005
Reported (GAAP) Net Earnings $104.0 $168.0 $212.0 $289.1
Special Items:
Impairment loss on energy
services assets 7.9 - 12.1 -
Gain on disposition of interest
in a co-generation facility - - (7.9) -
Accrual related to potential
impact of IRS Revenue
Ruling 2005-53 - 8.3 - 8.3
New Jersey base rate case
settlement - - - (5.1)
Gain on sale of Buzzard Point
non-utility land - (40.7) - (40.7)
Net Earnings, Excluding Special
Items $111.9 $135.6 $216.2 $251.6
Three Months Ended Nine Months Ended
Earnings per Share Sept. 30, Sept. 30,
(Restated) (Restated)
2006 2005 2006 2005
Reported (GAAP) Earnings per
Share $0.54 $0.89 $1.11 $1.53
Special Items:
Impairment loss on energy
services assets 0.04 - 0.06 -
Gain on disposition of interest
in a co-generation facility - - (0.04) -
Accrual related to potential
impact of IRS Revenue
Ruling 2005-53 - 0.05 - 0.05
New Jersey base rate case
settlement - - - (0.03)
Gain on sale of Buzzard Point
non-utility land - (0.22) - (0.22)
Earnings per Share, Excluding
Special Items $0.58 $0.72 $1.13 $1.33
Pepco Holdings Inc. will host a conference call to discuss third quarter results on Friday, Nov. 3rd at 10:00 a.m. E.S.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 1-866-761-0749 before 9:55 a.m. The pass code for the call is 47229843. International callers may access the call by dialing 1-617-614-2707, using the same pass code, 47229843. 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 76609518. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 76609518. 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
3rd Quarter
Competitive Energy
Pepco
Power Conectiv Energy Other Non Corporate Total
Delivery Energy Services Regulated & Other PHI
2005 Net Income/
(Loss) (GAAP)
(Restated) 1/ $0.73 $0.15 $0.03 $0.04 $(0.06) $0.89
2005 Special Items 2/
* Gain on sale of
Buzzard Point
land (0.22) - - - - (0.22)
* IRS Revenue
ruling 2005-53
(Mixed Service
Costs) 0.05 - - - - 0.05
2005 Net Income/
(Loss) excluding
Special Items
(Restated) 0.56 0.15 0.03 0.04 (0.06) 0.72
Change from 2005 Net
Income/(Loss)
excluding
Special Items
Regulated Operations
* Revenue
- Weather
(estimate) 3/ (0.06) - - - - (0.06)
- Network
Transmission (0.04) - - - - (0.04)
- Other
Distribution
Revenue (0.01) - - - - (0.01)
* Other, net (0.01) - - - - (0.01)
Conectiv Energy
* Margins(operating
revenue less cost
of goods sold)
- Merchant
Generation - (0.10) - - - (0.10)
- Full
Requirements
Load Service - 0.07 - - - 0.07
- Other Power,
Oil, and Gas
Marketing - 0.03 - - - 0.03
* Operating costs,
net - (0.03) - - - (0.03)
Pepco Energy Services
* Retail commodity - - 0.02 - - 0.02
* Energy services - - 0.01 - - 0.01
* Other, net
(primarily power
plant generation
activity) - - (0.02) - - (0.02)
Other Non-Regulated
* Financial
investment
portfolio - - - 0.01 - 0.01
Corporate & Other
* Other, net - - - - - -
Capital Costs - - - - (0.01) (0.01)
2006 Net Income/
(Loss) excluding
Special Items 0.44 0.12 0.04 0.05 (0.07) 0.58
2006 Special Items 2/
* Impairment loss
on certain
energy services
business assets - - (0.04) - - (0.04)
2006 Net Income/(Loss)
(GAAP) 4/ $0.44 $0.12 $0.00 $0.05 $(0.07) $0.54
1/ 2005 weighted average shares outstanding for the 3rd quarter was
189,216,577.
2/ Management believes the special items are not representative of the
company's ongoing business operations.
3/ The effect of weather in 2006 compared with the 20 year average
weather is estimated to have increased earnings by $.03 per share.
4/ 2006 weighted average shares outstanding for the 3rd quarter was
190,839,111.
SELECTED FINANCIAL INFORMATION (Continued)
Pepco Holdings, Inc.
Earnings Per Share Variance
2006 / 2005
September Year-to-Date
Competitive Energy
Pepco
Power Conectiv Energy Other Non Corporate Total
Delivery Energy Services Regulated & Other PHI
2005 Net Income/
(Loss) (GAAP)
(Restated) 1/ $1.27 $0.24 $0.10 $0.14 $(0.22) $1.53
2005 Special Items 2/
* Gain on sale of
Buzzard Point
land (0.22) - - - - (0.22)
* IRS Revenue
ruling 2005-53
(Mixed Service
Costs) 0.05 - - - - 0.05
* ACE - New Jersey
Base Rate Case
Settlement (0.03) - - - - (0.03)
2005 Net Income/(Loss)
excluding Special
Items (Restated) 1.07 0.24 0.10 0.14 (0.22) 1.33
Change from 2005 Net
Income/(Loss)
excluding
Special Items
Regulated Operations
* Revenue
- Weather
(estimate)3/ (0.13) - - - - (0.13)
- Network
Transmission (0.03) - - - - (0.03)
- Other
Distribution
Revenue (0.03) - - - - (0.03)
- 2005 Unbilled
Revenue
Adjustment 0.04 - - - - 0.04
- Standard Offer
Service Margin 0.02 - - - - 0.02
* Operation &
Maintenance (0.04) - - - - (0.04)
* Other, net (0.02) - - - - (0.02)
Conectiv Energy
* Margins (operating
revenue less cost
of goods sold)
- Merchant
Generation - (0.11) - - - (0.11)
- Full
Requirements
Load Service - 0.04 - - - 0.04
- Other Power,
Oil, and Gas
Marketing - 0.07 - - - 0.07
* Operating costs,
net - (0.06) - - - (0.06)
Pepco Energy Services
* Retail commodity - - 0.05 - - 0.05
* Energy services - - 0.02 - - 0.02
* Other, net
(primarily power
plant generation
activity) - - (0.05) - - (0.05)
Other Non-Regulated
* 2005 gain on sale
of energy
investment - - - (0.03) - (0.03)
* Financial
investment
portfolio - - - 0.04 - 0.04
Corporate & Other
* Tax audit true-
ups primarily
eliminated in
consolidation 0.01 - - 0.03 (0.05) (0.01)
* Other, net - - - - (0.01) (0.01)
Capital Costs - - 0.01 0.02 0.01 0.04
2006 Net Income/
(Loss) excluding
Special Items 0.89 0.18 0.13 0.20 (0.27) 1.13
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 - - (0.06) - - (0.06)
2006 Net
Income/(Loss)
(GAAP) 4/ $0.89 $0.22 $0.07 $0.20 $(0.27) $1.11
1/ 2005 weighted average shares outstanding at year-to-date was
188,803,771.
2/ Management believes the special items are not representative of the
company's ongoing business operations.
3/ The effect of weather in 2006 compared with the 20 year average
weather is estimated to have decreased earnings by $.02 per share.
4/ 2006 weighted average shares outstanding at year-to-date was
190,389,745.
SEGMENT INFORMATION
Three Months Ended September 30, 2006
(Millions of dollars)
Competitive
Energy Segments
Pepco Other Corp. &
Power Conectiv Energy Non- Other PHI
Delivery Energy Services Regulated (a) Cons.
Operating
Revenue $1,660.7 $633.6(b) $488.3 $21.4 $(214.1) $2,589.9
Operating
Expense (c) 1,488.3(b) 587.3 488.8(d) 1.9 (219.2) 2,347.1
Operating Income 172.4 46.3 (.5) 19.5 5.1 242.8
Interest Income 3.4 8.9 1.0 42.6 (51.6) 4.3
Interest Expense 46.3 16.6 1.5 50.5 (27.9) 87.0
Other Income 4.7 .1 .9 .7 .1 6.5
Preferred Stock
Dividends .3 - - .6 (.6) .3
Income Taxes 50.4 16.2 .2 1.9 (6.4) 62.3
Net Income (Loss) 83.5 22.5 (.3) 9.8 (11.5) 104.0
Total Assets 8,964.2 1,837.6 666.8 1,515.6 965.7 13,949.9
Construction
Expenditures 102.4 2.5 1.8 - 1.3 108.0
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 $(214.4) million for Operating
Revenue, $(212.7) million for Operating Expense, $(72.8) million for
Interest Income, $(72.2) 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 $144.1 million for the three
months ended September 30, 2006.
(c) Includes depreciation and amortization of $109.3 million, consisting
of $95.9 million for Power Delivery, $9.0 million for Conectiv Energy,
$3.0 million for Pepco Energy Services, and $1.4 million for Other.
(d) Includes $12.6 million impairment losses ($7.9 million after-tax) on
certain energy services business assets.
SEGMENT INFORMATION (Continued)
Three Months Ended September 30, 2005 (As Restated)
(Millions of dollars)
Competitive
Energy Segments
Pepco Other Corp. &
Power Conectiv Energy Non- Other PHI
Delivery Energy Services Regulated (a) Cons.
Operating
Revenue $1,501.6 $820.0(b) $425.8 $21.4 $(285.2) $2,483.6
Operating
Expense (c) 1,214.6(b) 770.0 414.8 1.7 (285.8) 2,115.3
Operating Income 287.0 50.0 11.0 19.7 .6 368.3
Interest Income 3.1 8.4 .8 30.0 (38.4) 3.9
Interest Expense 44.9 15.2 2.7 39.7 (16.8) 85.7
Other Income 4.1 4.9 .5 (.6) .5 9.4
Preferred Stock
Dividends .6 - - .6 (.6) .6
Income Taxes 110.6 19.4 3.4 1.9 (8.0) 127.3
Net Income (Loss) 138.1(d) 28.7 6.2 6.9 (11.9) 168.0
Total Assets 8,792.4 2,224.9 639.0 1,390.4 1,137.0 14,183.7
Construction
Expenditures 115.5 2.7 3.1 - 1.9 123.2
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 $(285.3) million for Operating
Revenue, $(283.9) million for Operating Expense, $(58.0) million for
Interest Income, $(57.2) 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 $192.7 million for the three
months ended September 30, 2005.
(c) Includes depreciation and amortization of $109.1 million, consisting
of $95.7 million for Power Delivery, $8.7 million for Conectiv Energy,
$3.4 million for Pepco Energy Services, and $1.3 million for Other.
(d) Includes after-tax gain of $40.7 million from sale of non-utility land
owned by Pepco at Buzzard Point.
SEGMENT INFORMATION (Continued)
Nine Months Ended September 30, 2006
(Millions of dollars)
Competitive
Energy Segments
Pepco Other Corp. &
Power Conectiv Energy Non- Other PHI
Delivery Energy Services Regulated (a) Cons.
Operating
Revenue $4,014.9 $1,699.1(b) $1,205.5 $70.6 $(531.7) $6,458.4
Operating
Expense (c) 3,624.9(b) 1,619.6 1,183.0(e) 5.2 (534.2) 5,898.5
Operating Income 390.0 79.5 22.5 65.4 2.5 559.9
Interest Income 8.2 26.5 2.0 126.9 (151.6) 12.0
Interest Expense 135.0 47.5 3.2 150.6 (82.5) 253.8
Other Income 14.0 11.8(d) 1.5 3.3 1.0 31.6
Preferred Stock
Dividends 1.8 - - 1.8 (2.6) 1.0
Income Taxes 106.3 29.1 9.4 5.2 (13.3) 136.7
Net Income
(Loss) 169.1(f) 41.2 13.4 38.0(f) (49.7)(f) 212.0
Total Assets 8,964.2 1,837.6 666.8 1,515.6 965.7 13,949.9
Construction
Expenditures 335.9 7.5 5.7 - 7.2 356.3
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 $(533.5) million for Operating
Revenue, $(529.0) million for Operating Expense, $(209.8) million for
Interest Income, $(208.0) million for Interest Expense, and $(1.8)
million for Preferred Stock Dividends.
(b) Power Delivery purchased electric energy and capacity and natural gas
from Conectiv Energy in the amount of $370.3 million for the nine
months ended September 30, 2006.
(c) Includes depreciation and amortization of $315.4 million, consisting
of $275.4 million for Power Delivery, $27.2 million for Conectiv
Energy, $8.8 million for Pepco Energy Services, and $4.0 million for
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 $19.1 million impairment losses ($12.1 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
segments in the amount of $9.1 million ($3.1 million related to Power
Delivery and $6.0 million related to Other Non- Regulated).
Additionally, during the third quarter of 2006 Pepco Holdings recorded
a total increase of $.6 million in goodwill that resulted from a
change in estimate related to pre-merger tax liabilities.
SEGMENT INFORMATION (Continued)
Nine Months Ended September 30, 2005 (As Restated)
(Millions of dollars)
Competitive
Energy Segments
Pepco Other Corp. &
Power Conectiv Energy Non- Other PHI
Delivery Energy Services Regulated (a) Cons.
Operating
Revenue $3,581.6 $1,913.6(b) $1,099.6 $63.7 $(655.9) $6,002.6
Operating
Expense (c) 3,060.7(b) 1,821.5 1,069.8 4.5 (651.3) 5,305.2
Operating
Income 520.9 92.1 29.8 59.2 (4.6) 697.4
Interest Income 4.9 23.1 1.5 77.1 (99.6) 7.0
Interest
Expense 131.3 43.5 4.4 105.4 (30.2) 254.4
Other Income 15.6 5.1 1.5 4.4 5.8 32.4
Preferred Stock
Dividends 1.9 - - 1.8 (1.8) 1.9
Income Taxes 177.5 31.2 10.4 6.9 (25.6) 200.4
Extraordinary
Item (net of
income tax of
$6.2 million) 9.0(d) - - - - 9.0
Net Income
(Loss) 239.7(e) 45.6 18.0 26.6 (40.8) 289.1
Total Assets 8,792.4 2,224.9 639.0 1,390.4 1,137.0 14,183.7
Construction
Expenditures 322.6 7.1 7.3 - 4.4 341.4
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 $(658.4) million for Operating
Revenue, $(654.1) million for Operating Expense, $(151.8) million for
Interest Income, $(149.9) million for Interest Expense, and $(1.8)
million for Preferred Stock Dividends.
(b) Power Delivery purchased electric energy and capacity and natural gas
from Conectiv Energy in the amount of $443.3 million for the nine
months ended September 30, 2005.
(c) Includes depreciation and amortization of $316.6 million, consisting
of $269.6 million for Power Delivery, $31.5 million for Conectiv
Energy, $10.1 million for Pepco Energy Services, and $5.4 million for
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.
(e) Includes after-tax gain of $40.7 million from sale of non-utility land
owned by Pepco at Buzzard Point.
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(Restated) (Restated)
2006 2005 2006 2005
(In millions, except earnings per share)
Operating Revenue
Power Delivery $1,660.7 $1,501.6 $4,014.9 $3,581.6
Competitive Energy 910.0 964.6 2,377.7 2,362.4
Other 19.2 17.4 65.8 58.6
Total Operating
Revenue 2,589.9 2,483.6 6,458.4 6,002.6
Operating Expenses
Fuel and purchased energy 1,721.9 1,539.7 4,169.7 3,635.6
Other services cost of
sales 177.0 169.7 502.1 522.8
Other operation and
maintenance 200.1 207.8 614.0 586.9
Depreciation and
amortization 109.3 109.1 315.4 316.6
Other taxes 95.9 98.2 259.9 256.0
Deferred electric service
costs 30.7 63.1 20.5 63.9
Impairment losses 12.6 - 19.1 -
Gain on sale of assets (.4) (72.3) (2.2) (76.6)
Total Operating
Expenses 2,347.1 2,115.3 5,898.5 5,305.2
Operating Income 242.8 368.3 559.9 697.4
Other Income (Expenses)
Interest and dividend
income 4.3 3.9 12.0 7.0
Interest expense (87.0) (85.7) (253.8) (254.4)
(Loss) income from equity
investments (.4) (.2) .1 (3.2)
Other income 9.0 11.5 41.5 40.9
Other expenses (2.1) (1.9) (10.0) (5.3)
Total Other Expenses (76.2) (72.4) (210.2) (215.0)
Preferred Stock Dividend
Requirements of Subsidiaries .3 .6 1.0 1.9
Income Before Income Tax
Expense and Extraordinary
Item 166.3 295.3 348.7 480.5
Income Tax Expense 62.3 127.3 136.7 200.4
Income Before Extraordinary
Item 104.0 168.0 212.0 280.1
Extraordinary Item (net of
tax of $6.2 million) - - - 9.0
Net Income 104.0 168.0 212.0 289.1
Retained Earnings at
Beginning of Period 1,027.9 863.2 1,018.7 836.4
Dividends on Common Stock (49.7) (47.2) (148.5) (141.5)
Retained Earnings at End
of Period $1,082.2 $984.0 $1,082.2 $984.0
Basic and Diluted Share
Information
Weighted average shares
outstanding 190.8 189.2 190.4 188.8
Earnings per share of
common stock
Before extraordinary
item $.54 $.89 $1.11 $1.48
Extraordinary item - - - .05
Total $.54 $.89 $1.11 $1.53
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS September 30, December 31,
2006 2005
(Millions of dollars)
CURRENT ASSETS
Cash and cash equivalents $43.2 $121.5
Restricted cash 17.1 23.0
Accounts receivable, less allowance for
uncollectible accounts of $38.3 million
and $40.6 million, respectively 1,394.7 1,363.1
Fuel, materials and supplies-at average cost 334.3 340.1
Unrealized gains - derivative contracts 50.6 185.7
Taxes receivable 4.5 -
Prepaid expenses and other 102.1 118.3
Total Current Assets 1,946.5 2,151.7
INVESTMENTS AND OTHER ASSETS
Goodwill 1,409.2 1,431.3
Regulatory assets 1,203.2 1,202.0
Investment in finance leases held in trust 1,332.7 1,297.9
Prepaid pension expense 192.5 208.9
Other 373.0 414.0
Total Investments and Other Assets 4,510.6 4,554.1
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 11,699.7 11,384.2
Accumulated depreciation (4,206.9) (4,072.2)
Net Property, Plant and Equipment 7,492.8 7,312.0
TOTAL ASSETS $13,949.9 $14,017.8
PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2006 2005
(Millions of dollars,
except shares)
CURRENT LIABILITIES
Short-term debt $667.3 $156.4
Current maturities of long-term debt 752.1 469.5
Accounts payable and accrued liabilities 721.2 1,002.2
Capital lease obligations due within one year 5.3 5.3
Taxes accrued - 322.9
Interest accrued 65.5 84.6
Other 408.5 358.4
Total Current Liabilities 2,619.9 2,399.3
DEFERRED CREDITS
Regulatory liabilities 859.0 594.1
Income taxes 1,958.5 1,935.0
Investment tax credits 47.3 51.0
Other postretirement benefit obligations 296.9 284.2
Other 283.2 284.9
Total Deferred Credits 3,444.9 3,149.2
LONG-TERM LIABILITIES
Long-term debt 3,643.0 4,202.9
Transition Bonds issued by ACE Funding 473.5 494.3
Long-term project funding 23.8 25.5
Capital lease obligations 113.7 116.6
Total Long-Term Liabilities 4,254.0 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, 191,341,342 shares and
189,817,723 shares outstanding, respectively 1.9 1.9
Premium on stock and other capital
contributions 2,630.6 2,586.3
Accumulated other comprehensive loss (108.0) (22.8)
Retained earnings 1,082.2 1,018.7
Total Shareholders' Equity 3,606.7 3,584.1
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,949.9 14,017.8
POWER DELIVERY SALES AND REVENUES
Three Months Ended Nine Months Ended
September 30, September 30,
Power Delivery Sales (Restated) (Restated)
(Gigawatt Hours) 2006 2005 2006 2005
Regulated T&D Electric Sales
Residential 5,571 5,746 13,493 14,159
Commercial 8,035 8,349 21,624 21,864
Industrial 1,068 1,151 3,113 3,273
Other 58 59 185 186
Total Regulated T&D Electric
Sales 14,732 15,305 38,415 39,482
Default Electricity Supply Sales
Residential 5,427 5,602 13,145 13,698
Commercial 3,668 4,222 12,114 11,297
Industrial 196 556 1,150 1,536
Other 23 31 100 128
Total Default Electricity
Supply Sales 9,314 10,411 26,509 26,659
Three Months Ended Nine Months Ended
September 30, September 30,
Power Delivery Electric (Restated) (Restated)
Revenue (Millions of dollars) 2006 2005 2006 2005
Regulated T&D Electric Revenue
Residential $196.8 $ 207.2 $ 457.4 $487.1
Commercial 199.1 223.0 535.2 552.6
Industrial 7.2 9.8 23.5 28.1
Other (Includes PJM) 51.0 63.6 178.8 184.9
Total Regulated T&D Electric
Revenue $454.1 $ 503.6 $1,194.9 $1,252.7
Default Supply Revenue
Residential $586.8 $426.0 $1,140.2 $919.9
Commercial 436.7 316.5 1,079.3 739.6
Industrial 25.8 39.0 87.6 99.9
Other (Includes PJM) 108.0 163.7 275.9 329.8
Total Default Supply Revenue $1,157.3 $945.2 $2,583.0 $2,089.2
Other Electric Revenue $15.3 $16.7 $43.1 $45.1
Total Electric Operating
Revenue $1,626.7 $1,465.5 $3,821.0 $3,387.0
Three Months Ended Nine Months Ended
September 30, September 30,
Power Delivery Gas Sales and (Restated) (Restated)
Revenue (Millions of dollars) 2006 2005 2006 2005
Regulated Gas Sales (Bcf)
Residential .4 .5 4.6 5.9
Commercial .4 .5 3.1 3.9
Industrial .2 .2 .5 .7
Transportation and Other 1.4 1.0 4.5 4.1
Total Regulated Gas Sales 2.4 2.2 12.7 14.6
Regulated Gas Revenue
Residential $8.9 $8.7 $88.3 $86.0
Commercial 7.6 6.4 55.4 48.3
Industrial 2.1 1.7 7.9 7.3
Transportation and Other 1.2 1.0 3.8 3.4
Total Regulated Gas Revenue $19.8 $17.8 $155.4 $145.0
Other Gas Revenue $14.2 $18.3 $38.5 $49.6
Total Gas Operating Revenue $34.0 $36.1 $193.9 $194.6
Total Power Delivery
Operating Revenue $1,660.7 $1,501.6 $4,014.9 $3,581.6
WEATHER DATA - CONSOLIDATED ELECTRIC SERVICE TERRITORY
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Heating Degree Days 32 7 2,410 2,895
20 Year Average 30 32 2,733 2,723
Percentage Difference from Average 6.7% -78.1% -11.8% 6.3%
Percentage Difference from Prior
Year 357.1% -16.8%
Cooling Degree Days 1,014 1,192 1,365 1,530
20 Year Average 941 923 1,306 1,289
Percentage Difference from Average 7.8% 29.1% 4.5% 18.7%
Percentage Difference from Prior
Year -14.9% -10.8%
CONECTIV ENERGY
Three Months Ended
September June 30, March 31, December September
30, 2006 2006 2006 31, 2005 30, 2005
Gigawatt Hour Supply (GWh)
Merchant Generation
output sold into market 1,753 827 803 967 2,382
Full Requirements Load
Service 1,831 1,885 3,440 3,369 4,275
Total Sales 3,584 2,712 4,243 4,336 6,657
Around-the-clock Market
Prices ($/MWh) PJM - East
(1) $61.33 $48.02 $58.28 $77.33 $83.24
On Peak Market Prices
($/MWh) PJM - East (1) $80.66 $61.01 $63.42 $98.20 $108.62
Gas Price - M3 (Market Area)
($/MMBtu) (1) $6.66 $7.04 $8.46 $12.95 $10.43
Merchant Generation Margin
per MWh (Revenue Less Cost
of Goods Sold $/MWh) $38.3 $45.8 $86.7 $46.6 $42.0
Merchant Generation Margin
Key Drivers: (Percentage of
Total) (2)
West to East Hub Congestion 11% 0% 2% 5% 26%
Power & Fuel Hedges -32% 17% 54% -52% -64%
Ancillary Services & Hourly
Flexibility Premium 9% 14% 19% 22% 10%
Fuel Switching 2% 0% 2% 11% 7%
PJM Capacity (ICAP) 8% 7% 5% 9% 8%
Energy Spark Spreads 102% 62% 18% 105% 113%
Note:
(1) Daily average.
(2) Estimate.
CONECTIV ENERGY - (continued)
Operating Summary Three Months Ended Nine Months Ended
September 30, September 30,
(Millions of dollars) 2006 2005 2006 2005
Restated Restated
Gigawatt Hour Supply (GWh)
Merchant Generation output
sold into market 1,753 (1) 2,382 3,383 (2) 4,628
Full Requirements Load Service 1,831 (3) 4,275 7,156 (3) 10,864
Total Sales 3,584 6,657 10,539 15,492
Operating Revenue:
Merchant Generation $353.7 $426.3 $889.6 $904.2
Full Requirements Load
Service 36.2 93.6 185.8 240.3
Other Power, Oil, and Gas
Marketing 243.7 300.1 623.7 769.1
Total 633.6 820.0 1,699.1 1,913.6
Cost of Goods Sold:
Merchant Generation 286.5 326.3 714.9 693.6
Full Requirements Load 26.1 104.7 182.0 250.2
Service
Other Power, Oil, and Gas
Marketing 235.4 300.8 605.5 769.7
Total 548.0 731.8 1,502.4 1.713.5
Gross Margin Detail:
Merchant Generation 67.2 (1) 100.0 174.7 (2) 210.6
Full Requirements Load
Service 10.1 (4) (11.1) 3.8 (4) (9.9)
Other Power, Oil, and Gas
Marketing 8.3 (5) (0.7) 18.2 (5) (0.6)
Total 85.6 88.2 196.7 200.1
Operating and Maintenance
Expenses 29.0 (6) 25.4 86.6 (6) 71.1
Depreciation 9.0 8.7 27.2 (7) 31.5
Taxes Other Than Income
Taxes 1.3 0.8 3.0 2.1
Impairment Loss - 3.3 - 3.3
Gain on Sale of Assets - - 0.4 -
Other Operating Expenses 39.3 38.2 117.2 108.0
Operating Income $46.3 $50.0 $79.5 $92.1
Notes:
(1) Lower Merchant Generation output during the third quarter of 2006
compared to the 2005 quarter was due to milder summer weather, higher
oil prices and an unplanned outage at Hay Road. Lower Merchant
Generation margins were driven by the lower output.
(2) Lower Merchant Generation output during the first nine months of 2006
compared to the 2005 period was due primarily to milder weather and
higher fuel oil prices which led to reduced dispatch of the Mid-Merit
units. 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.
(3) Lower Full Requirements Load Service sales during the third quarter of
2006 compared to the 2005 quarter resulted from the loss of the
Delaware POLR load contract in April 2006, which was partially offset
with new Standard Offer Service (SOS) contracts. For the first nine
months of 2006, Full Requirement Load Service sales were down 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 third quarter of
2006 compared to the 2005 quarter resulted primarily from increased
margins associated with new SOS contracts, lower supply cost and a
mark-to-market gain on a supply contract. For the first nine months of
2006 compared to the 2005 period, the higher Full Requirements Load
Service margins resulted primarily from increased margins from new SOS
contracts, lower supply cost and a mark-to-market gain on a supply
contract, partially offset by the expiration of favorable hedge
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 Services margins during the
third quarter of 2006 compared to the 2005 quarter resulted primarily
from improved oil marketing margins. Higher Other Power, Oil and Gas
Marketing Services margins during the first nine months of 2006
compared to the 2005 period resulted primarily from improved oil,
power and natural gas marketing results.
(6) Higher operating and maintenance expenses during the third quarter of
2006 compared to the 2005 quarter were experienced primarily due to
higher maintenance expenses and an unplanned generator outage. Higher
operating and maintenance expenses were experienced during the first
nine months of 2006 compared to the 2005 period primarily due to
higher maintenance expenses at power plants due to the timing of the
maintenance and an unplanned generator outage.
(7) Lower depreciation expense in the first nine months of 2006 compared
to the 2005 period is due to an adjustment to reflect the results of
an asset life study which increased the estimated remaining life of
the power plants.
Three Months Ended Nine Months Ended
PEPCO ENERGY SERVICES September 30, September 30,
Operating Summary 2006 2005 2006 2005
(Millions of dollars) (Restated) (Restated)
Operating Revenue $488.3 $425.8 $1,205.5 $1,099.6
Cost of Goods Sold 456.8 393.2 1,104.4 1,006.3
Gross Margin 31.5 32.6 101.1 93.3
Gross Margin Detail:
Retail Energy Supply 9.4 (1) 7.1 46.9 (2) 39.0
Energy Services 14.9 (3) 13.9 45.4 (4) 38.1
Power Generation 7.2 (5) 11.6 8.8 (5) 16.2
Total 31.5 32.6 101.1 93.3
Operation and
Maintenance Expenses 16.4 18.2 50.7 53.4
Depreciation 3.0 3.4 8.8 10.1
Impairment Loss 12.6 (6) - 19.1 (6) -
Operating Expenses 32.0 21.6 78.6 63.5
Operating (Loss) Income $(0.5) $11.0 $22.5 $29.8
Notes:
(1) Retail Energy Supply gross margin increased quarter-over-quarter
primarily due to higher electric volumes and more favorable supply
costs.
(2) Retail Energy Supply gross margin increased year-over-year primarily
due to more favorable supply costs and gains on the sale of excess
energy supply.
(3) Energy Services gross margin increased quarter-over-quarter due to
higher construction activity.
(4) Energy Services gross margin increased year-over-year due to higher
construction activity and higher thermal energy sales.
(5) Power Generation gross margin decreased for the quarter and year-to-
date compared to 2005 due to lower generation output.
(6) Impairment loss on certain Pepco Energy Services' assets associated
with its energy services business.
