Pepco Holdings Reports Third-Quarter 2009 Earnings; Conference Call Scheduled

http://www.businesswire.com/news/home/20091029006458/en

WASHINGTON--(Business Wire)--
Pepco Holdings, Inc. (NYSE:POM) today reported third quarter 2009 consolidated
earnings of $124 million, or 56 cents per share, compared to $119 million, or 59
cents per share, in the third quarter of 2008. Excluding special items (as
described below), earnings for the third quarter of 2009 would have been $97
million, or 44 cents per share. There were no special items in the third quarter
of 2008. The weighted average number of basic shares outstanding for the third
quarter of 2009 was 221 million compared to 202 million for the third quarter of
2008.

The earnings decrease for the third quarter of 2009, as compared to the 2008
quarter, excluding special items, was driven by lower Power Delivery and
Conectiv Energy earnings. The lower Power Delivery earnings were due to higher
operation and maintenance expense primarily as the result of increased pension
expense and higher interest expense driven by the debt financing completed late
last year. The lower Conectiv Energy earnings were primarily due to lower
generation output, reduced spark spreads and dark spreads, and the performance
of economic fuel hedges. Partially offsetting these decreases were higher
earnings at Pepco Energy Services driven by favorable electric supply costs and
lower losses on energy derivative contracts.

"During the quarter, the energy markets continued to be challenging," said
Joseph M. Rigby, Chairman, President and Chief Executive Officer. "Generation
output was down 16 percent and energy margins were down 57 percent." Rigby also
noted that excluding the increase in pension expense, Power Delivery operation
and maintenance expense would have been relatively flat, demonstrating the
continued focus on managing controllable costs.

Rigby also cited progress during the third quarter on several key value creation
initiatives that the company believes will position it for growth over the
longer-term. "We filed two additional distribution rate cases, bringing the
total number of cases underway to four, and the District of Columbia Public
Service Commission adopted the revenue decoupling mechanism proposed by Pepco.
With the implementation of this mechanism in the District of Columbia on Nov. 1,
approximately 60 percent of our distribution revenue will be decoupled from
electric sales, providing for more predictable utility revenues and aligning the
interests of our utilities with those of our customers in terms of energy
efficiency programs. I am also very pleased with the recently announced DOE
federal stimulus funds award of $168 million, allowing us to accelerate the
delivery of Smart Grid benefits to our customers."

For the nine months ended Sept. 30, 2009, consolidated earnings were $194
million, or 88 cents per share, compared to $233 million, or $1.16 per share,
for the same period in the prior year. Excluding special items (as described
below), earnings for the nine months ended Sept. 30, 2009, would have been $159
million, or 72 cents per share, compared to $326 million, or $1.62 per share,
for the first nine months of 2008. The weighted average number of basic shares
outstanding for the nine months ended Sept. 30, 2009 was 220 million compared to
201 million for the same period in the prior year.The decrease in earnings for
the nine months ended Sept. 30, 2009, compared to earnings for the same period
in the prior year, excluding special items, was driven by essentially the same
factors that drove the quarterly results.

Third-Quarter Highlights

Operations

* Power Delivery electric sales were 13,709 gigawatt hours (GWh) in the third
quarter of 2009 compared to 14,050 GWh for the same period last year. Cooling
degree days (electric service territory) were 11% lower for the three months
ended Sept. 30, 2009, compared to the same period in 2008. Weather-adjusted
electric sales were 13,782 GWh in the third quarter of 2009 compared to 13,816
GWh for the same period last year.
* Conectiv Energy's gross margin from Merchant Generation and Load Service was
$74 million in the third quarter of 2009, compared to $113 million in the third
quarter of 2008. The decrease resulted primarily from lower generation output,
reduced spark spreads and dark spreads, and the combined performance of economic
fuel hedges and default electricity supply contracts. An offsetting factor was
higher capacity gross margins.
* Conectiv Energy's total generation output was 1,549 GWh in the third quarter
of 2009, compared to 1,851 GWh in the third quarter of 2008. The 16% decrease
was due to decreased demand for electricity related to the economic recession
and milder weather.
* Pepco Energy Services' gross margin from retail energy supply was $42 million
in the third quarter of 2009, compared to $14 million in the third quarter of
2008. The increase was driven by lower electric and gas supply costs, lower
losses on energy derivative contracts, lower reliability pricing model (RPM)
capacity charges, and higher RPM capacity revenues.
* Pepco Energy Services had retail electric sales of 4,619 GWh in the third
quarter of 2009, compared to 5,614 GWh in the third quarter of 2008. This 18%
decrease primarily reflects the continuing expiration of existing retail
contracts.

Regulatory Matters

* On Sept. 28, the District of Columbia Public Service Commission (DCPSC)
approved effective Nov. 1 the revenue decoupling rate structure proposed by
Pepco. In connection with the approval, the DCPSC ordered a reduction of 50
basis points to Pepco`s return on equity, reducing the authorized return on
equity to 9.5%. On May 22, Pepco filed a distribution base rate case in the
District of Columbia. The filing seeks approval of an annual rate increase of
$50 million, based on a requested return on equity of 11.25%, which assumed the
approval of a revenue decoupling mechanism. A decision is expected from the
DCPSC in early 2010.
* On Sept. 18, Delmarva Power filed an electric distribution base rate case in
Delaware. The filing seeks approval of an annual rate increase of $28 million,
based on a requested return on equity of 10.75%. The proposed rate design
incorporates the revenue decoupling rate structure as approved in concept by the
Delaware Public Service Commission (DPSC). The filing also proposes the use of a
three-year average of pension, OPEB, and bad debt expense with recovery through
a surcharge mechanism. The difference between the three-year rolling average of
the costs and the currently incurred amounts would be deferred for future
recovery in the case of an under-recovery, or deferred for future refund to
customers in the case of an over-recovery. If approved, the surcharge proposal
would lower the requested annual rate increase by $7 million. Delmarva Power
intends to put an increase of $2.5 million annually into effect on a temporary
basis on Nov. 17, 2009, subject to refund and pending final DPSC approval, which
is expected in April 2010.
* On Aug. 14, Atlantic City Electric filed a distribution base rate case in New
Jersey. The filing seeks approval of an annual rate increase of $54 million,
based on a requested return on equity of 11.50% (if the Bill Stabilization
Adjustment mechanism is approved, the requested rate increase would be reduced
to $52 million, based on a requested return on equity of 11.25%). The filing
also proposes the use of a three-year average of pension, OPEB, and bad debt
expense with recovery through a surcharge mechanism. The difference between the
three-year rolling average of the costs and the currently incurred amounts would
be deferred for future recovery in the case of an under-recovery, or deferred
for future refund to customers in the case of an over-recovery. If approved, the
surcharge proposal would lower the requested annual rate increase by $8 million.

* In Nov. 2008, Pepco filed proposals with the DCPSC and the Maryland Public
Service Commission (MPSC) to share with customers the remaining balance of the
proceeds from the Mirant bankruptcy settlement. On March 5, 2009, the DCPSC
approved Pepco`s proposal for the sharing of the District of Columbia portion of
the proceeds. After giving effect to the sharing arrangement, Pepco recorded a
pre-tax gain of $14 million in the first quarter of 2009. On July 2, 2009, the
MPSC approved a settlement agreement providing for the sharing of the Maryland
portion of the proceeds. As a result, Pepco recorded a pre-tax gain of $26
million in the third quarter of 2009.

Other

* On Oct. 27, 2009, the U.S. Department of Energy announced that Pepco Holdings
Inc. was awarded $168 million in federal stimulus funds to help build Smart Grid
projects in the District of Columbia, Maryland and New Jersey.
* On Nov. 7, 2008, Pepco Holdings entered into a 364-day credit facility, which
has aggregate commitments of $400 million and had a Nov. 6, 2009 termination
date. In Oct. 2009, the termination date was extended to Oct. 15, 2010. This
credit facility is in addition to the $1.5 billion multi-year credit facility
that is in effect until May 2012.
* As noted in the 10-Q, in the last several years, IRS challenges to certain
cross-border lease transactions have been the subject of litigation. On October
21, 2009, the U.S. Court of Federal Claims issued a decision in favor of a
taxpayer regarding a lease-in lease-out cross border lease transaction. The
transaction that is the subject of the ruling is similar in many respects to
PHI`s cross border energy lease investments. PHI is currently evaluating the
implications of this decision.
* In October 2009, PHI filed a claim with the IRS requesting a Federal income
tax refund of approximately $138 million, a substantial portion of which is
associated with PHI`s utility subsidiaries. The refund results from the carry
back of a 2008 net operating loss for tax reporting purposes that reflected,
among other things, significant tax deductions related to accelerated
depreciation, the pension plan contributions paid in 2009 (which were deductible
for 2008) and the cumulative effect of adopting a new method of tax reporting
for certain repairs. The timing of receipt of the refund is uncertain, however,
after a 45-day period, interest would begin to accrue on the amount of the
refund.

Further details regarding changes in consolidated earnings between 2009 and 2008
can be found in the following schedules. Additional information regarding
financial results and recent regulatory events can be found in the Pepco
Holdings, Inc. Form 10-Q for the quarter ended Sept. 30, 2009 as filed with the
Securities and Exchange Commission, which is available at
www.pepcoholdings.com/investors.

Reconciliation of GAAP Earnings to Earnings Excluding Special Items

Management believes the special items shown below are not representative of the
company`s ongoing business operations.

Net Earnings - millions of dollars Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2009 2008 2009 2008
Reported (GAAP) Net Earnings $ 124 $ 119 $ 194 $ 233
Special Items:
-- Mirant bankruptcy damage claims settlement (16 ) - (24 ) -
-- Maryland income tax benefit (11 ) - (11 ) -
-- Adjustment to the equity value of the cross-border energy lease investments - - - 86
-- Interest accrued on the income tax obligations from the adjustment to the equity value of the cross-border energy lease investments - - - 7

Net Earnings, Excluding Special Items $ 97 $ 119 $ 159 $ 326

Earnings per Share Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2009 2008 2009 2008
Reported (GAAP) Earnings per Share $ 0.56 $ 0.59 $ 0.88 $ 1.16
Special Items:
-- Mirant bankruptcy damage claims settlement (0.07 ) - (0.11 ) -
-- Maryland income tax benefit (0.05 ) - (0.05 ) -
-- Adjustment to the equity value of the cross-border energy lease investments - - - 0.43
-- Interest accrued on the income tax obligations from the adjustment to the equity value of the cross-border energy lease investments - - - 0.03

Earnings per Share, Excluding Special Items $ 0.44 $ 0.59 $ 0.72 $ 1.62

CONFERENCE CALL FOR INVESTORS

Pepco Holdings Inc. will host a conference call to discuss third quarter results
on Friday, Oct. 30 at 11:00 a.m. E.T. Investors, members of the media and other
interested persons may access the conference call on the Internet at
http://www.pepcoholdings.com/investors or by calling 1-866-700-7441 before 10:55
a.m. The pass code for the call is 45195428. International callers may access
the call by dialing 1-617-213-8839, using the same pass code, 45195428. An
on-demand replay will be available for seven days following the call. To hear
the replay, dial 1-888-286-8010 and enter pass code 77223380. International
callers may access the replay by dialing 1-617-801-6888 and entering the same
pass code, 77223380. An audio archive will be available at PHI's Web site,
http://www.pepcoholdings.com/investors.

Note: If any non-GAAP financial information (as defined by the Securities and
Exchange Commission in Regulation G) is used during the quarterly earnings
conference call, a presentation of the most directly comparable GAAP measure and
a reconciliation of the differences will be available at
http://www.pepcoholdings.com/investors.

About PHI: Pepco Holdings, Inc., headquartered in Washington, D.C., delivers
electricity and natural gas to about 1.9 million customers in Delaware, the
District of Columbia, Maryland and New Jersey, through its subsidiaries Pepco,
Delmarva Power and Atlantic City Electric. PHI also provides competitive
wholesale generation services through Conectiv Energy and retail energy products
and services through Pepco Energy Services.

Forward-Looking Statements: Except for historical statements and discussions,
the statements in this news release constitute "forward-looking statements"
within the meaning of federal securities law. These statements contain
management's beliefs based on information currently available to management and
on various assumptions concerning future events. Forward-looking statements are
not a guarantee of future performance or events. They are subject to a number of
uncertainties and other factors, many of which are outside the company's
control. Factors that could cause actual results to differ materially from those
in the forward-looking statements herein include general economic, business and
financing conditions; availability and cost of capital; changes in laws,
regulations or regulatory policies; weather conditions; competition;
governmental actions; and other presently unknown or unforeseen factors. These
uncertainties and factors could cause actual results to differ materially from
such statements. PHI disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. This information is presented solely to provide additional
information to further understand the results and prospects of PHI.

SELECTED FINANCIAL INFORMATION
Pepco Holdings, Inc.
Earnings Per Share Variance
2009 / 2008
3rd Quarter
Competitive Energy
Pepco
Power Conectiv Energy Other Non Corporate Total
Delivery Energy Services Regulated & Other PHI
2008 Net Income/(Loss) (GAAP) 1/ $ 0.38 $ 0.24 $ 0.01 $ 0.02 $ (0.06 ) $ 0.59

Change from 2008 Net Income/(Loss)
Regulated Operations
-- Distribution Revenue
- Weather (estimate) 2/ (0.01 ) - - - - (0.01 )
- Other Distribution Revenue Margin (driven by customer sales/rate mix) 0.03 - - - - 0.03
-- ACE Basic Generation Service (primarily unbilled revenue) 0.03 - - - - 0.03
-- Network Transmission (0.01 ) - - - - (0.01 )
-- Operation & Maintenance (primarily higher pension expense) (0.03 ) - - - - (0.03 )
-- Other, net (0.02 ) - - - - (0.02 )
Conectiv Energy
-- Margins (operating revenue less cost of goods sold)
- Merchant Generation & Load Service - (0.11 ) - - - (0.11 )
- Energy Marketing - (0.03 ) - - - (0.03 )
-- Operating costs, net - 0.01 - - - 0.01
Pepco Energy Services
-- Retail Energy Supply - - 0.08 - - 0.08
-- Energy Services - - (0.01 ) - - (0.01 )
Other Non-Regulated - - - - - -
Corporate & Other - - - - - -
Capital Costs (0.02 ) (0.01 ) (0.02 ) 0.01 - (0.04 )
Income Tax Adjustments - - - - 0.01 0.01
Dilution (0.04 ) (0.01 ) - - - (0.05 )
2009 Net Income/(Loss) excluding Special Items 0.31 0.09 0.06 0.03 (0.05 ) 0.44

2009 Special Items 3/

-- Mirant Settlement, net of customer sharing - MD jurisdiction 0.07 - - - - 0.07
-- MD Income Tax benefit 0.05 - - - - 0.05

2009 Net Income/(Loss) (GAAP) 4/ $ 0.43 $ 0.09 $ 0.06 $ 0.03 $ (0.05 ) $ 0.56

Notes:

1/ The 2008 weighted average number of basic shares outstanding was 201,794,635.
2/ The effect of weather in 2009 compared with the 20 year average weather is estimated to have no earnings impact.
3/ Management believes the special items are not representative of the company's ongoing business operations.
4/ The 2009 weighted average number of basic shares outstanding was 220,919,643.

Pepco Holdings, Inc.
Earnings Per Share Variance
2009 / 2008
September Year-to-Date
Competitive Energy
Pepco
Power Conectiv Energy Other Non Corporate Total
Delivery Energy Services Regulated & Other PHI
2008 Net Income/(Loss) (GAAP) 1/ $ 0.99 $ 0.59 $ 0.14 $ (0.34 ) $ (0.22 ) $ 1.16

2008 Special Items 2/
Cross Border Leases
-- Re-evaluation Adjustment - - - 0.43 - 0.43
-- Related Interest on Tax Obligation - - - 0.03 - 0.03

2008 Net Income/(Loss) excluding Special Items 0.99 0.59 0.14 0.12 (0.22 ddingleft0
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Development and Lease-Up Communities 1,126 304 2,682 47
Redevelopment Communities 705 726 2,098 2,256
Dispositions / Other 379 (430 ) 1,192 2,263
Net Operating Income (NOI) $91,709 $93,943 $282,289 $286,425

EBITDA
EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization, including net operating income from discontinued operations, excluding equity in income of joint ventures, gain on sale of real estate assets, and net income allocated to noncontrolling interests. The Company considers EBITDA to be an appropriate supplemental measure of operating performance to net income attributable to common shareholders because it represents income before non-cash depreciation and the cost of debt, and excludes gains or losses from property dispositions. A reconciliation of net income attributable to common shareholders to EBITDA is provided below:

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net income attributable to common shareholders $3,937 $73,673 $28,486 $105,882
Interest expense 31,117 32,924 97,364 99,163
Amortization of deferred financing costs 682 798 2,356 2,121
Depreciation and amortization 42,895 43,808 130,763 128,514
Less net income allocated to perpetual preferred units 1,750 1,750 5,250 5,250
Net income allocated to noncontrolling interests 505 1,005 1,448 3,400
Income tax expense - current 126 83 772 516
Real estate depreciation and amortization from discontinued operations - 348 - 2,762
Gain on sale of properties, including land - (1,823 ) - (2,929 )
Gain (loss) on early retirement of debt - (2,440 ) 2,550 (4,738 )
Equity in income (loss) of joint ventures 38 261 (592 ) 782
Gain on sale of discontinued operations - (65,599 ) (16,887 ) (80,275 )
EBITDA $81,050 $84,788 $251,510 $260,448

Pepco Holdings, Inc.
Media Contact:
Robert Dobkin, 202-872-2680
or
Investor Contact:
Brian Shivery, 302-429-3591

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