PEPCO Holdings, Inc. (POM)

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Pepco Holdings, Inc. (POM)

Q3 2009 Earnings Call Transcript

October 30, 2009 11:00 am ET

Executives

Brian Shivery -- Manager, IR

Joe Rigby -- Chairman, President and CEO, Pepco Holdings, Inc.

Tony Kamerick -- SVP and CFO, Pepco Holdings, Inc.

John Huffman -- President and CEO, Pepco Energy Services

Gary Morsches -- President and CEO, Conectiv Energy

Dave Velazquez -- EVP, Pepco Holdings, Inc.

Analysts

Daniel Eggers -- Credit Suisse

Carrie Saint Louis -- Fidelity Investments

Paul Ridzon -- Keybanc Capital Markets

Reza Hatefi -- Decade Capital

James Dobson -- Wunderlich Securities

Neil Kalton -- Wells Fargo Securities

Maurice May -- Power Insights

Presentation

Operator

Good day, ladies and gentlemen and welcome to the third quarter 2009 Pepco Holdings, Inc. earnings conference call. My name is Eric. I will be your audio coordinator for today. At this time, all participants are in a listen-only mode. We’ll facilitate the question-and-answer session at the end of the presentation. (Operator instructions)

I would now like to turn your presentation over to Mr. Brian Shivery, Manager, Investor Relations. Please proceed.

Brian Shivery

Thank you, operator, and good morning, ladies and gentlemen; and welcome to the Pepco Holdings third quarter 2009 earnings conference call. I am filling in for Donna Kinzel today. 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 Huffman, 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 October 29, 2009. The earnings release can be found at www.pepcoholdings.com/investors. Joe?

Joe Rigby

Thanks, Brian and good morning, ladies and gentlemen. I appreciate your participation on our call today, and I look forward to speaking with many of you in person at the EEI Financial Conference Service this coming weekend.

We continue to face challenging power markets during the third quarter, resulting in lower run-time for Conectiv Energy's generation fleet. Lower energy commodity prices and narrow generation spreads also continued to pressure margins. At Power Delivery, the results were as we expected with the effects of dilution and higher pension and interest costs, as the primary earnings drivers.

Consolidated earnings for the quarter were $124 million compared to $119 million in the 2008 quarter. Excluding two special items in the third quarter of 2009, earnings would've been $97 million.

Tony will discuss the financial results and our operating segment performance in more detail, but first I will address some topics of interest beginning with our progress in executing our regulatory strategy.

During the third quarter, we filed two additional rate cases. On August 14, Atlantic City Electric filed an electric distribution base rate case in New Jersey that seeks approval of an annual increase of $54 million in electric base rates. If our proposal is approved, the typical electric residential customer would see a total bill increase of about 4%. If the commission adopts our proposed bill stabilization adjustment mechanism, the requested rate increase would be $52 million. And this case also requested that the commission authorizes a three-year rolling average treatment of pension and OPEB expenses to be recovered through a separate rate adjustment, which would be updated annually. This rate recovery mechanism is similar to those proposed in our other pending rate cases with the exception that it does not include a component for bad debt expense, which is currently recovered through a separate surcharge in New Jersey. If the separate rate adjustment is approved in New Jersey, it will lower the proposed annual base rate increase by about $8 million. The procedural schedule has not been set for the case.

On September 18, Delmarva Power filed for an electric distribution base rate case in Delaware that seeks approval of an annual increase of $28 million in electric base rates. If our proposal is approved, the typical electric residential customer would see a total bill increase of about 5%. This case also request that the commission authorizes a three-year average treatment of pension, OPEB, and bad debt expenses to be recovered through a rate adjustment, which would be updated annually. If this separate rate recovery mechanism is approved it would lower the proposed annual base rate increase by $7 million. A procedural schedule has not yet being set for this case. As approval by the commission, Delmarva Power will put an increase of $2.5 million annually into effect on a temporary basis on November 17, subject to refund and pending a final commission decision in the case which is expected in the second quarter of 2010.

Delmarva Power's electric distribution base rate case in Maryland filed in May remains on track, with hearings held on late September. A decision is expected by the end of this year. The case seeks approval of an annual increase of $40 million in electric base rates.

Pepco's electric distribution base rate case in the District of Columbia filed in May also remains on track with hearings scheduled to begin on November 9, with a decision expected in first quarter of next year. The case seeks approval of an annual increase of $50 million in electric base rates. We are also in the process of preparing a Pepco case expected to be filed in Maryland late this year. As in the other filings, the case will adjust for forward-looking known and quantifiable expenses, such as pension expense. The case will also request a three-year rolling average treatment of pension, OPEB, and bad debt expenses.

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