Pepco Holdings (POM)

Q3 2011 Earnings Call

November 04, 2011 11:00 am ET

Executives

John U. Huffman - Chief Executive Officer of Pepco Energy Services Inc and President of Pepco Energy Services Inc

Joseph M. Rigby - Chairman, Chief Executive Officer, President and Member of Executive Committee

Anthony J. Kamerick - Chief Financial Officer, Senior Vice President, Chief Financial Officer of Potomac Electric Power Company, Chief Financial Officer of Delmarva Power and Light Company, Chief Financial Officer of Atlantic City Electric Company, Senior Vice President of Potomac Electric Power Company and Senior Vice President of Delmarva Power and Light Company

Donna J. Kinzel - Vice President of Investor Relations

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

James L. Dobson - Wunderlich Securities Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Pepco Holdings Earnings Conference Call. My name is Cathy, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today's call, to Ms. Donna Kinzel, Vice President of Investor Relations. Please proceed.

Donna J. Kinzel

Thank you, Cathy, and good morning, ladies and gentlemen. Welcome to the Pepco Holdings Third Quarter 2011 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; and John Huffman, President and Chief Executive Officer of Pepco Energy Services.

On today's call, we will be referring to Slides, which are available on the Investor Relations section of our website.

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 and found on Slide 2 of our presentation.

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 our financial impact are described in our earnings release dated today. The earnings release can be found on our website at www.pepcoholdings.com/investors. Joe?

Joseph M. Rigby

Thanks, Donna, and good morning, ladies and gentlemen, and thank you for joining us today. Earnings from continuing operations for the third quarter of 2011 were $80 million compared to $21 million for the third quarter of 2010. Excluding special items for the 2010 quarter, earnings would have been $116 million. Our operating results reflect continued progress on executing our strategic plan, including our efforts to improve system reliability and customer service. Our results for both 2011 and 2010 quarters reflect Conectiv Energy's results as discontinued operations. Tony will discuss the financial results on our operating segment performance in more detail but first, I'd like to address some topics of interest.

Improving system reliability remains a top priority for our company. As shown on Slide 3, we continue to make good progress in advancing infrastructure improvements and performance system maintenance focused primarily in the Pepco region that will reduce power outages and improve service for our customers. Since the launching of our Reliability Enhancement Plan last fall for Pepco, we have trimmed trees along more than 2,600 miles of power lines, replaced or upgraded more than 230 miles of underground cable, and added more than 125 automated switches that will reroute power more effectively during storms. Our Reliability Enhancement Plan is on track and we are beginning to see positive trends in the operating performance of our electric system as is demonstrated by improved outage frequency and outage duration statistics for Pepco.

In addition to our efforts to improve system reliability, we have made several enhancements to our emergency restoration process that will improve customer communications during major storms, such as increasing our call center staff and phone system capability, conducting more frequent customer outreach and expanding the use of mobile applications for outage information and reporting.

Turning to Slide 4, our reliability improvement efforts were tested with the arrival of Hurricane Irene in late August. The high winds and driving rains caused significant damage to the electric system throughout our service territories. Approximately 445,000 of our customers were without power at the peak of the storm, or about 25% of our electric customers. About half of the outages occurred in the Pepco service territory. 98% of the customers were restored in a little over 2 days after the storm seized. After restoration was complete, a survey showed that customers gave Pepco good marks on its handling of storm preparedness, restoration and communications. Tony will discuss the cost of our restoration efforts and the recovery of those costs later on this call.

As we are making progress in advancing our Reliability Enhancement Plan, we also are continuing to dialogue with our regulators regarding system reliability and standards.

Turning to Slide 5, we are awaiting the decision in the Maryland proceeding initiated in August 2010 to investigate the reliability of Pepco's distribution system. Certain parties to this case have recommended the imposition of a variety of sanctions and various reporting requirements. As I have stated, we are committed to improving the reliability of Pepco's electric service. However, while we cannot predict the outcome of the case, we will oppose the sanctions requested by the other parties, which we believe are not supported by the record.

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