Pepco Holdings Earnings Call Insights: Tax Adjustment and Sales Growth

Pepco Holdings (NYSE:POM) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Tax Adjustment

Matthew Davis – Credit Suisse: It’s actually Matt Davis. Can you just walk through what drove the tax adjustment on the quarter, and if there are any other outstanding issues that we should look for that could help in the future, given that this happened last year as well?

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Frederick J. Boyle – SVP and CFO, Pepco Holdings, Inc.: This is Fred. These tax adjustments relate to uncertain items and open items, because right now we’re open with the IRS going back to – actually all the way back to 2002-2001 period. So there’s a lot of open years here, and as we were updating our projections relating to the lease activity, that had some implications and touched upon some of the impacts that the favorable tax adjustments that we reported last year associated with (IDT 5) with our NOLs how those are being utilized. So that ended up impacting the utility companies and ended up reflecting interest impacts on the utility companies.

Matthew Davis – Credit Suisse: Okay. And then can you just walk through the 206 in your argument there and then what the process will look like going forward as you try to move towards resolution?

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Frederick J. Boyle – SVP and CFO, Pepco Holdings, Inc.: As far as the 206 challenge where we’ve responded, we’ve filed asserting that the claim to reduce the interest rate from the 10.8 base rate we have down to 8.7, asserting that it is not appropriate. As far as the way forward this is going to take most of this year and may go into next year before that’s resolved.

Sales Growth

Charles Fishman – Morningstar: Sales growth, I see in the release, weather adjusted for the first quarter is flattish, again I recall at the Analyst Day presentation, you were thinking more in terms of north of 1%, is there something going on you were anticipating, do we just have a small sample size here or if you could comment on that, I’d appreciate it.

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Frederick J. Boyle – SVP and CFO, Pepco Holdings, Inc.: Well, we do only have one quarter at this time, but I would note that Pepco was down, the residential and commercial was down and as far as some specific items to point to there, there’s nothing specifically such as sequestration comes up. But we don’t believe that would be a driver right now unless because of the overhang of sequestration, that’s changing behavior I know there is we don’t think any cuts associated with that have really occurred. That wouldn’t have happened until later in the year. As far as what we’d see from an ongoing growth in sales, we still see for this year approximately 1%. As you look at some of the other utilities at DPL, we did see some good growth and ACE on a weather normalized basis.

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Charles Fishman – Morningstar: And then the other question I had, on the Grid Resiliency Charge that you are proposing in Maryland, it’s still my understanding those are the type of things you would – if you didn’t get this rate tracker, you would not go forward with the additional feeders or the tree trimming or you would continue to discuss it with Maryland or how would you approach that?

Frederick J. Boyle – SVP and CFO, Pepco Holdings, Inc.: Yes, in the case, the Grid Resiliency Charges and the accelerated spending activity including undergrounding activity are not costs that we would incur to meet the current reliability standards. These go over and above what is needed to meet those standards. So our plan would be for not getting recovery of this through the Grid Resiliency Charge that we would not move forward with these activities at this time.

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