Pepco Holdings' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Pepco Holdings (POM)

Q4 2011 Earnings Call

February 24, 2012 11:00 am ET


Donna J. Kinzel - Vice President of Investor Relations

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

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


Paul Patterson - Glenrock Associates LLC

Dan Eggers - Crédit Suisse AG, Research Division

Ashar Khan

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

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



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

Donna J. Kinzel

Thank you Keith, and good morning, everyone ladies and gentlemen. Welcome to Pepco Holdings Fourth 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 items and their financial impact are described in our earnings release dated today. The earnings release can be found on our website at Joe?

Joseph M. Rigby

Thanks, Donna and good morning, ladies and gentlemen. Thank you for joining us today. Before I address earnings, I'd like to comment on the 8-K we filed with the SEC late yesterday, announcing that Tony Kamerick has informed us that he will be retiring in January 2013. After 42 years of service to our company, I'm very happy for Tony and his wife Karen, and I'm confident that the succession plan we have in place will ensure an orderly transition. When a successor CFO is named, Tony will be promoted to Executive Vice President and Chief Regulatory Officer for PHI. He will continue to report to me and lead our regulatory process through the current cycle of rate cases. I expect the successor CFO will be named over the next month or 2. So let me simply say that Tony has been an outstanding CFO and has been instrumental in shaping our business strategy. Under his leadership PHI has become a stronger company, financially. Over the years, I have relied on Tony's wise counsel and his continued leadership of the regulatory process until his retirement will be invaluable. And with that, let me turn to our financial results.

2011 was a year of significant progress on our key initiatives. While there is still more work to be done, we are pleased that our investments to improve system reliability and customer service are producing tangible results. While our earnings were impacted by our increased spending on systems maintenance and tree trimming, this spending is having a positive effect on reliability and restoration performance. Throughout the year, our Power Delivery business invested nearly $900 million in transmission and distribution infrastructure, including projects focused on improving reliability and installing advanced technology. Investment such as these are important components of our strategy to provide enhanced value to our customers and investors. As seen on Slide 3, GAAP earnings from continuing operations for 2011 were $1.15 per share compared to $0.62 per share in 2010. Excluding special items in 2010, earnings would have been $1.24. Our 2011 earnings include $0.08 per share for mark-to-market losses resulting from economic hedging activities associated with the Retail Energy Supply business of Pepco Energy Services and lower earnings of $0.02 per share associated with the tax law changes in the District of Columbia. The effects of these items was excluded from the 2011 earnings guidance range. Excluding these items, our 2011 earnings from continuing operations would have been $1.25 per share compared to the 2011 guidance range of $1.15 to $1.25 per share. The increase in adjusted earnings per share from continuing operations for 2011 as compared to 2010 was primarily the result of higher transmission and distribution revenue due to higher rates driven from increased investment. Lower interest expense also contributed to the increase in adjusted earnings. Partially offsetting the earnings increases were higher Power Delivery operation and maintenance expense and the favorable income of income tax adjustments in the 2010 period. Later on the call, Tony will address financial results and our operating segment performance in more detail. But first I'll address some topics of interest.

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