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Pepco Holdings Inc. (POM)

Q2 2010 Earnings Call

August 06, 2010 11:00 pm ET


Donna Kinzel - Director of IR

Joe Rigby - Chairman, President and CEO

Tony Kamerick - SVP and CFO

Dave Velazquez - EVP

John Huffman - President and CEO, Pepco Energy Services


Paul Patterson - Glenrock Associates

Maurice May - Power Insights

Ali Agha - SunTrust Robinson

Carrie Saint Louis - Fidelity


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Good day, ladies and gentlemen and welcome to the second quarter 2010 Pepco Holdings, Incorporated earnings conference call. My name is Francine, and I am your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the presentation over to your host for today's call Ms. Donna Kinzel, Director of Investor Relations. Ma'am, please proceed.

Donna Kinzel

Thank you, Francine and good morning, ladies and gentlemen. Welcome to the Pepco Holdings second quarter 2010 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 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 may be 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 today. The earnings release can be found at Joe?

Joe Rigby

Thanks, Donna, and good morning, ladies and gentlemen. I want to thank you for joining us today. Earnings from continuing operations for the quarter were $76 million compared to $39 million in 2009 quarter. Our operating results were driven by strong power delivery earnings that reflect the positive impact of our infrastructure investments and our progress towards reducing regulatory lag.

Our results for both the quarter and year-to-date periods reflect Conectiv Energy's results as a discontinued operations. Tony will discuss the financial results for both continuing operations and discontinued operations as well as our operating segment performance. But first I would like to address some topics of interest.

I'll begin with the status of Pepco's distribution base rate case in Maryland. Last week we requested that the Maryland commission delay the issuance of the rate order. Prior to our request, our service territories experienced a major storm with high winds and lightening, that cost significant damage to the electric system. Approximately 350,000 customers were without power at the height of the storm with the vast majority of the outages occurring in Pepco's service territory. Given these circumstances, we determine that requesting a short delay in the issuance of the order as we complete the restoration work was prudent.

Turning to our cases in Delaware and Delmarva Power's electric distribution base rate case, the hearing examiner's report is schedule to be issued on August 30, with a commission decision expected on or about September 21


. The filing seats approval of an annual rate increase of approximately $24 million based on a 10.75% return on equity. As permitted by Delaware law, Delmarva Power put $2.5 million of its requested rate increase into effect in November 2009 and the remainder of the requested amount into effect on April 19 of this year.

The increase was put into effect on a temporary basis pending final commission approval and is subject to refund. On July 2, Delmarva Power filed a natural gas delivery base rate case in Delaware for filing six approval of an annual rate increase of $12 million based on a requested return on equity of 11% assuming the approval of the implementation of revenue de-coupling, a decision by the Delaware public service commission is expected in early 2011. Delmarva Power plans to implement an interim rate increase of $2.5 million effective August 31


subject to refund.

We continue to make good progress on our blue print for the future initiatives. Over 155,000 advanced meters have been installed in Delaware for our electric and gas customers and several thousand of the meters have been activated to provide real life testing on the various elements of functionality. Discussing has gone very well and has included functions such as meter reading, billing, turn-on, turn-off capability and customer internet access to hourly usage data. We expect to complete all of the meter exchanges in Delaware including commercial customers by the end of the first quarter of 2011. We also remain on track to begin the deployment of advanced meters in the District of Columbia in the fourth quarter of this year with the goal of having the installations completed by the end of 2011.

The installation of the communication device is necessary to support the deployment of the advanced meters in the district is underway. As approved by the commissions in Delaware and the District of Columbia, regulatory assets have been created to show recovery up and a return on AMI related costs between rate cases. In Maryland we are waiting the decision from the public service commission when the AMI plans followed by Pepco and Delmarva Power.

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