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For Immediate Release

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Pepco Declares Dividends and Reports Second Quarter 2000 Earnings

For Immediate Release
July 27, 2000

Dividends
Potomac Electric Power Company's (Pepco) Board of Directors today declared a quarterly dividend on common stock of 41.5 cents per share payable Sept. 29, 2000, to shareholders of record on Sept.11, 2000. Dividends on preferred stock were declared payable Sept.1, 2000, to shareholders of record on Aug.7, 2000.

Operating Results

 

Three Months Ended
       June 30,          

Six Months Ended

           June 30,          

Twelve Months Ended

              June 30,            

 

    2000    

    1999    

     2000     

    1999    

     2000    

    1999    

Basic Earnings Per Share

         

Recurring Utility Operations

$ .51

$ .46

$ .52

$ .50

$ 1.75

$1.74

Non-Recurring Utility Item -

           

Contract Termination Fee

    -

     -

      -

    .12

   -

    .12

     Net Utility Operations

    .51

    .46

    .52

    .62

   1.75

  1.86

             

PHI Operations

           

     PCI Operations

-

.17

.08

.22

.08

.25

     Pepco Energy Services
Operations

   (.03)

   (.01)

   (.05)

   (.02)

   (.09)

   (.03)

Total PHI Operations

   (.03)

    .16 

    .03

    .20

   (.01)

    .22

             

Pepco Consolidated Earnings

$ .48

$ .62

$ .55

$ .82

$1.74

$2.08

Average Common Shares

Outstanding

118,385,000

118,528,000

118,450,000

118,528,000

118,491,000

118,528,000

Diluted Earnings Per Share

         

Pepco Consolidated Earnings

$ .47

$ .61

$ .55

$ .81

$1.72

$2.04

Average Common Shares

Outstanding

121,778,000

122,410,000

121,843,000

123,323,000

121,883,000

123,784,000

Second Quarter Results
Revenue from the sale of electricity increased for the quarter ended June 30, 2000, compared with the corresponding period in 1999. An increase in kilowatt-hour sales of 5.8 percent during the second quarter, which resulted from a stronger local economy and an increase in total customers, was partially offset by base rate reductions of 2 percent and 3.5 percent for District of Columbia residential and non-residential customers, respectively. The base rate reductions were implemented Jan. 1, 2000. Additionally, weather during the second quarter, as measured in cooling degree hours, was 33 percent hotter than the corresponding quarter in 1999.

Pepco today reported consolidated earnings of 48 cents per share for the quarter ended June 30, 2000, compared with consolidated earnings per share of 62 cents for the corresponding period in 1999. The 48-cent earnings per share consisted of 51 cents per share from recurring utility operations offset by a 3-cent loss per share from the operations of its non-regulated subsidiary, Pepco Holdings, Inc. (PHI). The 62-cent earnings per share for the corresponding period in 1999 included a contribution of 46 cents per share from recurring utility operations and 16 cents per share from subsidiary operations.

The increase in recurring utility earnings per share of 5 cents for the second quarter (51 cents vs. 46 cents,) results from the increase in revenue from the sale of electricity related to hotter weather.

The decrease in PCI earnings per share of 17 cents for the second quarter (0 cents vs. 17 cents) primarily results from non-recurring tax benefits received in June 1999 associated with the completion of a restructuring transaction related to a partnership.

Additionally, the 2-cent increase in Pepco Energy Services` loss per share (3 cents vs. 1 cent) results from an increase in costs incurred to build up its infrastructure in preparation for the deregulation of the electric utility industry, which began July 1, 2000.

Oil Spill at the Chalk Point Generating Station
On April 7, 2000, approximately 139,000 gallons of oil leaked from the company`s pipeline at its Chalk Point Generating Station in Aquasco, Md. As of June 30, 2000, approximately $59 million in clean up costs had been incurred in connection with the oil spill; and it is currently anticipated that total costs, principally consisting of labor, supplies, repair work on damaged properties, and rental of equipment, but excluding liability claims against the company and fines or other monetary penalties, if any, may be in the range of $70 million to $75 million. Accordingly, the company recorded a total accrual of $75 million in costs associated with the oil spill for the quarter ended June 30, 2000. This $75 million accrual was offset by $5 million in insurance proceeds as well as an additional $69 million in anticipated recoveries from its insurance carriers. Accordingly, the pre-tax net impact of the oil spill on the company's results of operations as of June 30, 2000, is $1 million ($ 600,000 after-tax), the amount of the company's insurance deductible, and therefore the impact of the oil spill on Pepco`s second quarter 2000 earnings is not significant.

Six Months Ended Results
Revenue from the sale of electricity increased for the six months ended June 30, 2000, compared with the corresponding period in 1999. An increase in kilowatt-hour sales of 4 percent during the period, which resulted from a stronger local economy and an increase in total customers, was partially offset by reductions in District of Columbia base rates. Additionally, weather that was 33 percent hotter during the second quarter of 2000 was partially offset by milder weather during the first quarter of the year.

Pepco reported consolidated earnings of 55 cents per share for the six months ended June 30, 2000, compared to consolidated earnings per share of 70 cents for the corresponding period in 1999, excluding the

12-cent impact from a non-recurring utility item. The 55-cent earnings per share consisted of 52 cents per share from recurring utility operations and 3 cents per share from subsidiary operations. The 70-cent earnings per share for the corresponding period in 1999, excluding the 12-cent impact from a non-recurring utility item, included a contribution of 50 cents per share from recurring utility operations and 20 cents per share from subsidiary operations.

The increase in recurring utility earnings per share of 2 cents for the six month period (52 cents vs. 50 cents) over the corresponding period in 1999, results from the increase in revenue from the sale of electricity related to hotter weather during the second quarter. Additionally, consolidated results from the corresponding period in 1999 reflect the 12-cent impact on earnings per share from a non-recurring utility item related to a contract termination fee to be received from Southern Maryland Electric Cooperative, Inc. (SMECO) in January 2001 under an agreement that became effective Jan. 1, 1999. The contract termination fee compensates Pepco for future earnings that would have been received under its previous 10-year full-service power supply requirements contract. Pepco Energy Services has signed a four-year agreement commencing Jan. 1, 2001, to meet SMECO's power requirements.

The decrease in PCI earnings of 14 cents (8 cents vs. 22 cents) primarily results from non-recurring tax benefits received in June 1999 associated with the completion of a restructuring transaction related to a partnership.

Additionally, the 3-cent increase in Pepco Energy Services` loss per share over the period (5 cents vs.2 cents) results from an increase in costs incurred to build up their infrastructure in preparation for deregulation.

Twelve Months Ended Results
Revenue from the sale of electricity increased for the 12 months ended June 30, 2000, compared to the corresponding period in 1999. An increase in kilowatt-hour sales of 3.2 percent during the period, which resulted from a stronger local economy and an increase in total customers, was partially offset by reductions in District of Columbia base rates. Additionally, summer weather during the 12 months ended June 30, 2000, as measured in cooling degree hours, was 18 percent hotter than 1999 and 22 percent hotter than the 20-year average.

Pepco reported consolidated earnings of $1.74 per share for the 12 months ended June 30, 2000, compared to consolidated earnings per share of $1.96 for the corresponding period in 1999, excluding the 12-cent impact in earnings per share from the SMECO contract termination fee. The $1.74 earnings per share consisted of $1.75 per share from recurring utility operations offset by a 1-cent loss per share from subsidiary operations. The $1.96 per share earnings for the corresponding period in 1999, excluding the 12-cent impact from the non-recurring utility item, included a contribution of $1.74 per share from recurring utility operations and 22 cents per share from subsidiary operations.

The increase in recurring utility earnings per share of 1 cent for the 12 month period ($1.75 vs. $1.74), results from the increase in revenue from the sale of electricity related to hotter weather during the summer months.

The decrease in PCI earnings of 17 cents (8 cents vs. 25 cents) primarily results from non-recurring tax benefits received in June 1999 associated with the completion of a restructuring transaction related to a partnership.

Additionally, the 6-cent increase in Pepco Energy Services` loss per share over the 12-month period (9 cents vs. 3 cents) results from an increase in costs incurred to build up their infrastructure in preparation for deregulation.

Average Common Shares Outstanding
In April 2000, following the indicative bid stage of the auction process used to divest its generation assets, Pepco announced its Board-approved plan to repurchase up to $200 million of its common stock in anticipation of the proceeds that will be received from the divestiture. In May 2000, the company retained Banc of America Securities LLC (B of A), to acquire Pepco shares in the open market as principal and to hold them for purchase by Pepco. This transaction, which is commonly referred to as a "forward share repurchase," allows Pepco to purchase these shares from B of A at a future date for a price per share that is based upon the purchase price per share plus a financing charge equal to accumulated interest less dividends. On June 28, 2000, Pepco acquired 4,958,800 common shares from B of A for approximately $125.8 million as the initial phase of the reacquisition plan. Previously, on June 7, 2000, Pepco reacquired 151,500 shares of its common stock in the open market for approximately $3.9 million. These shares (5,110,300 in total) are no longer "outstanding" and therefore are not included in Pepco`s calculation of average common shares outstanding for purposes of computing earnings per share for the period the shares are held in treasury. Accordingly, the average common shares outstanding for the three, six and 12 month periods ended June 30, 2000, decreased in comparison to the corresponding periods in 1999. This decrease, however, resulted in an insignificant impact on Pepco`s earnings per share for each period presented.

Divestiture of Generation Assets
On June 7, 2000, Pepco entered into an agreement with Southern Energy Inc. (Southern), a wholly owned subsidiary of Southern Company, to sell substantially all of its plants, facilities and equipment used in the generation of electricity, its purchased capacity contracts, and its other rate-based assets that are not required for the provision of electric transmission and distribution services for $2.65 billion. The agreement was reached after Southern was selected by Pepco as the winning bidder in its open auction process that was held to select the new owner of its generation assets. Additionally, on May 19, 2000, Pepco reached an agreement with PPL Global, Inc. and Allegheny Energy Supply Company, LLC, to sell its 9.72 percent interest in the Conemaugh Generating Station for approximately $152.5 million. Accordingly, the total Pepco will receive for the divestiture of its generation assets is $2.8 billion. Pepco expects both divestitures to close in the fourth quarter of 2000.

 

Pepco
Pepco is engaged in regulated utility operations and in diversified, competitive energy and telecommunications businesses through its wholly owned nonregulated subsidiary, PHI. PHI was created in 1999 as the parent company of its two wholly owned subsidiaries, PCI and Pepco Energy Services. PCI manages a diversified portfolio of financial investments and provides telecommunication services and utility industry-related services. Pepco Energy Services provides nonregulated energy and energy related services in the mid-Atlantic region from Pennsylvania to Georgia, and its products include electricity, natural gas, equipment retrofits, equipment operation and maintenance, and fuel management.

 

 

Selected Consolidated Financial Information

   Three Months Ended June 30, 2000                    

Utility     


    PCI        

Pepco Energy

Services   

Pepco

Consolidated

 

(Millions of Dollars)

         

Operating Revenue

$574.9

$31.8

$46.4

$653.1

Operating Expenses

470.5

29.6

51.9

552.0

(Loss) Income from Equity Investments, principally
Telecommunication Entities


-


(4.8
)


.8 


(4.0
)

Pre-Tax Income (Loss)

104.4

(2.6)

(4.7)

97.1

Distributions on Preferred Securities of

Subsidiary Trust

2.3

-

-

2.3

Income Tax Expense (Benefit)

40.9

(2.5)

(1.6)

36.8

         

Net Income (Loss)

61.2

(.1)

(3.1)

58.0

         

Dividends on Preferred Stock

1.4

-

 1.4

         

Earnings (Loss) Available for Common Stock

$ 59.8

$ (.1)

$(3.1)

$ 56.6 

   Three Months Ended June 30, 1999                    

Utility     


    PCI        

Pepco Energy

Services   

Pepco

Consolidated

 

(Millions of Dollars)

         

Operating Revenue

$546.0

$26.2

$27.8

$600.0

Operating Expenses

453.4

25.0

30.2

508.6

Loss from Equity Investments, principally
Telecommunication Entities


-


(1.7
)

-


(1.7
)

Pre-Tax Income (Loss)

92.6

(.5)

(2.4)

89.7

Distributions on Preferred Securities of

Subsidiary Trust

2.3

-

-

2.3

Income Tax Expense (Benefit)

34.0

(21.1)

(.8)

12.1

         

Net Income (Loss)

56.3

20.6

(1.6)

75.3

         

Dividends on Preferred Stock

2.0

-

-

 2.0

         

Earnings (Loss) Available for Common Stock

$ 54.3

$20.6

$(1.6)

$ 73.3

 

Selected Consolidated Financial Information

   Six Months Ended June 30, 2000                     

Utility     


    PCI        

Pepco Energy

Services   

Pepco

Consolidated

 

(Millions of Dollars)

         

Operating Revenue

$1,016.0

$76.2

$90.1

$1,182.3

Operating Expenses

904.1

57.1

99.4

1,060.6

(Loss) Income from Equity Investments, principally
Telecommunication Entities

-

(8.9)

  .9

   (8.0)

Pre-Tax Income (Loss)

111.9

10.2

(8.4)

113.7

Distributions on Preferred Securities of

Subsidiary Trust

4.6

-

-

4.6

Income Tax Expense (Benefit)

   42.8

1.5

(2.9)

   41.4

         

Net Income (Loss)

64.5

8.7

(5.5)

67.7

         

Dividends on Preferred Stock

        2.8

-

-

        2.8

         

Earnings (Loss) Available for Common Stock

$ 61.7

$ 8.7

$(5.5)

$ 64.9

   Six Months Ended June 30, 1999                     

Utility     


    PCI        

Pepco Energy

Services   

Pepco

Consolidated

 

(Millions of Dollars)

         

Operating Revenue

$999.1

$62.8

$50.2

$1,112.1

Operating Expenses

868.7

53.0

54.5

976.2

Loss from Equity Investments, principally
Telecommunication Entities

-

(4.8)

    -

   (4.8)

Pre-Tax Income (Loss)

130.4

5.0

(4.3)

131.1

Distributions on Preferred Securities of

Subsidiary Trust

4.6

-

-

4.6

Income Tax Expense (Benefit)

48.0

(21.3)

(1.5)

 25.2

         

Net Income (Loss)

77.8

26.3

(2.8)

101.3

         

Dividends on Preferred Stock

4.0

-

    -

   4.0

         

Earnings (Loss) Available for Common Stock

$ 73.8

$26.3 

$(2.8)

$ 97.3 

 

Selected Consolidated Financial Information

   Twelve Months Ended June 30, 2000                    

Utility     


    PCI        

Pepco Energy

Services   

Pepco

Consolidated

 

(Millions of Dollars)

         

Operating Revenue

$2,236.2

$136.8

$173.2

$2,546.2

Operating Expenses

1,874.8

114.6

190.6

2,180.0

(Loss) Income from Equity Investments, principally
Telecommunication Entities

-

(14.4)

   1.6 

  (12.8)

Pre-Tax Income (Loss)

361.4

7.8

(15.8)

353.4

Distributions on Preferred Securities of

Subsidiary Trust

9.2

-

-

9.2

Income Tax Expense (Benefit)

137.4

(1.2) 

 (5.5)

 130.7

         

Net Income (Loss)

214.8

9.0

(10.3)

213.5

         

Dividends on Preferred Stock

6.7

-

-

6.7

         

Redemption Expense on Preferred Stock

1.0

-

  -

     1.0

         

Earnings (Loss) Available for Common Stock

$ 207.1

$ 9.0

$(10.3)

$ 205.8

   Twelve Months Ended June 30, 1999                    

Utility     


    PCI        

Pepco Energy

Services   

Pepco

Consolidated

 

(Millions of Dollars)

         

Operating Revenue

$2,156.4

$119.2

$71.6

$2,347.2

Operating Expenses

1,777.8

106.4

77.4

1,961.6

Loss from Equity Investments, principally
Telecommunication Entities

-

(12.4)

    -

  (12.4)

Pre-Tax Income (Loss)

378.6

.4

(5.8)

373.2

Distributions on Preferred Securities of

Subsidiary Trust

9.2

-

-

9.2

Income Tax Expense (Benefit)

141.4

(29.6)

(2.0)

  109.8

         

Net Income (Loss)

228.0

30.0

(3.8)

254.2

         

Dividends on Preferred Stock

7.9

-

-

7.9

         

Redemption Premium on Preferred Stock

.1

-

    -

      .1

         

Earnings (Loss) Available for Common Stock

$ 220.0

$ 30.0

$(3.8)

$ 246.2

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