Pepco Holdings Inc. (POM)
Q2 2009 Earnings Call
August 7, 2009; 11.00 am ET
Joe Rigby - Chairman, President & Chief Executive Officer
Tony Kamerick - Senior Vice President and Chief Financial Officer
Dave Velazquez - President and CEO of Connectiv Energy
Gary Morsches - President & Chief Executive Officer of Conectiv Energy Holding
John Huffman - President & Chief Executive Officer of Pepco Energy Services
Donna Kinzel - Director, Investor Relations
Paul Patterson - Glenrock Associates
Andrew Levy - Incremental Capital
Dan Eggers - Credit Suisse
Paul Ridzon - Key Bank
Dan Jenkins - State of Wisconsin Investment
Maurice May - Power Insights
Dan Eggers - Credit Suisse
Previous Statements by POM
» Pepco Holdings, Inc. Q3 2009 Earnings Call Transcript
» Pepco Holdings Inc. Q1 2009 Earnings Call Transcript
» Pepco Holding, Inc. Q4 2008 Earnings Call Transcript
At this time I would like to turn the call over to your host for today’s conference, Ms. Donna Kinzel, Director of Investor Relations. You may proceed ma’am.
Thank you, operator and good morning ladies and gentlemen. Welcome to the Pepco Holdings second quarter 2009 earnings conference call. The primary speakers on today’s call are Joe Rigby, Chairman, President and Chief Executive Officer and Tony Kamerick, Senior Vice President and Chief Financial Officer.
Also available to answer your questions are Dave Velazquez, Executive Vice President Power Delivery, Gary Morsches, President and Chief Executive Officer of Conectiv Energy and John Hoffman, President and Chief Executive Officer of Pepco Energy Services.
Before Joe begins, let me remind you that some of the comments made during today’s conference call maybe considered forward-looking statements. As such, they should be taken in the context of the risks and uncertainties discussed in the Safe Harbor disclosures contained in our Securities and Exchange Commission filings.
Also please note that today’s call will include a discussion of our results, excluding certain items that we feel are not representative of the company’s ongoing business operations. These special items and their financial impact are described in our earnings release dated August 6, 2009. The earnings release can be found at www.pepcoholdings.com/investors. Joe.
Thanks, Donna and good morning, ladies and gentlemen and thank you for joining us today. Our second quarter earnings reflect the impact of continued recessionary pressures mild weather, challenging power markets and higher interest in pension cost. During the quarter, the demand for power was dampened significantly affecting the results of both Power Delivery and Conectiv Energy.
Whether adjusts regulated kilowatt our sales were down over 4% and generation output was down 44%. In addition because of the proactive steps we took in the fourth quarter of last year, we incurred both higher interest expense primarily attributable to issuances of debt and dissolution caused by sale of common stock.
We also incurred higher pension expense largely due to the decline in the market value over pension plan assets, which drove an increase in operations and maintenance expense quarter-over-quarter, despite a strong focus on managing controllable cost. Consolidated earnings for the quarter were $25 million, compared to $15 million in the 2008 quarter, which included a charge associated with our cross border energy leases. Excluding these charge earnings in the second quarter in 2008 would have been $108 million.
Tony will discuss the financial results and our operating segment performance in more detail, but first, I’ll address some topics of interest. As we reported on the first quarter call in early May, Delmarva Power filed an electric distribution base rate case in Maryland that seeks approval of an annual increase of $14 million in electric base rates base rate, based on a requested return on equity of 11.25%. That case remains on track with hearings scheduled to begin September 21 and a decision is expected by the end of this year.
On May 22, Pepco filed an electric distribution base rate case in the District of Columbia that seeks approval of an annual increase of $52 million base rate, based on a requested return of equity of 11.5%. If our proposal is approved the typical of electric residential customer would see a total bill increase of about 6%. If the commission adopts the purpose bill stabilization adjustment mechanism, the requested rate increase will be $50 million based on a requested return of equity of 11.25%.
As in the Maryland filings, we are asking the commission to authorize at three year rolling average treatment of pension OPEB and bad debt expense to be recovered through a surcharge, which would be updated annually. The difference between three year average of these cost and the incurred amount would be deferred for future recovery in the case of under recovery or deferred for future refunded customers in the case of an over recovery.
If this surcharge mechanism is approved for Pepco in the District of Columbia, it will lower the proposed annual base rate increase by $3 million. Hearings in the case are scheduled to begin November 9 with a decision expected in early 2010.
We remain on track to file two additional electric distribution base rate cases this year. with Atlantic City Electric’s filing in New Jersey targeted for later this month, and Delmarva Power’s electric filing in Delaware targeted for September. As in the Maryland and District of Columbia filings, the cases will adjust for forwarding looking, known and quantifiable expenses, such as pension expense and request a three year rolling average treatment of pension and OPEB expenses and in the case of Delmarva Power, bad-debt expense as well.