[phigreenlogo.jpg]
 
 
NEWS RELEASE
 
701 Ninth Street NW
Washington, DC 20068
www.pepcoholdings.com
NYSE: POM
 
FOR IMMEDIATE RELEASE
August 6, 2009
Media Contact:  Robert Dobkin
202-872-2680
Investor Contact:  Donna Kinzel
302-429-3004
 

Pepco Holdings Reports Second-Quarter 2009 Earnings;
Conference Call Scheduled
 
Pepco Holdings, Inc. (NYSE: POM) today reported second quarter 2009 consolidated
earnings of $25 million, or 11 cents per share, compared to $15 million, or 7
cents per share, in the second quarter of 2008.  There were no special items in
the second quarter of 2009.  Excluding special items (as described below under
the heading “Special Items”) for the second quarter 2008, earnings would have
been $108 million, or 53 cents per share.  The weighted average number of basic
shares outstanding for the second quarter of 2009 was 220 million compared to
201 million for the second quarter of 2008.
 
The earnings decrease for the second 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 lower
distribution sales caused by mild weather and lower non-weather related customer
usage, as well as lower Atlantic City Electric basic generation service revenue
relating to unbilled revenue.  The decline in Power Delivery earnings also
resulted from the recognition of lower benefits from income tax adjustments,
higher operation and maintenance expense primarily due to increased pension
expense, and higher interest expense primarily due to the debt financing
completed late last year.  The lower Conectiv Energy earnings were primarily due
to significantly lower generation output and reduced spark spreads and dark
spreads.
 
“During the quarter, the demand for power was dampened significantly by
recessionary pressures and mild weather, and the energy markets continued to be
challenging,” said Joseph M. Rigby, Chairman, President and Chief Executive
Officer.  “Weather-adjusted regulated kilowatt hour sales were down over four
percent and generation output was down 44 percent.”  Rigby also noted that
despite managing controllable costs, Power Delivery operation and maintenance
expense was pressured by higher pension costs.
 
Rigby also cited progress during the second quarter on several key value
creation initiatives that position the company for longer-term growth.  “We
filed two of the four distribution rate cases we expect to file this year, and
the District of Columbia passed legislation approving advanced metering
infrastructure, further advancing our ‘Blueprint for the Future’ project.  Also,
today we filed applications with the Department of Energy seeking  $266 million
in smart grid related stimulus funds.  On the transmission front, the PJM
Interconnection confirmed the need for our Mid-Atlantic Power Pathway
transmission line, and we expect to begin construction later this year.”
 

 
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For the six months ended June 30, 2009, consolidated earnings were $70 million,
or 32 cents per share, compared to $114 million, or 57 cents per share, for the
same period in the prior year.  Excluding special items (as described below
under the heading “Special Items”), earnings for the six months ended June 30,
2009, would have been $62 million, or 28 cents per share, compared to $207
million, or $1.03 per share, for the first six months of 2008.  The weighted
average number of basic shares outstanding for the six months ended June 30,
2009 was 220 million compared to 201 million for the same period in the prior
year.
 
The decrease in earnings for the six months ended June 30, 2009, compared to
earnings for the same period in the prior year, excluding special items, was
driven by lower Power Delivery and Conectiv Energy earnings.  The lower Power
Delivery earnings were due to the recognition of lower benefits from income tax
adjustments, higher operation and maintenance expense primarily due to increased
pension expense, and higher interest expense primarily due to the debt financing
completed late last year.  The decline in Power Delivery earnings also resulted
from lower distribution sales caused by lower non-weather related customer
usage, and lower Atlantic City Electric basic generation service revenue
relating to unbilled revenue.  The lower Conectiv Energy earnings were due to
significantly lower generation output, reduced spark spreads and dark spreads,
fewer opportunities to benefit from generating unit operating flexibility and
dual-fuel capability, and fewer remarketing activities around firm natural gas
transportation and storage positions, due to less favorable energy prices and
less price volatility than were experienced during the first quarter of
2008.  The performance of economic fuel hedges was also a factor.
 

Second-Quarter Highlights
 
Operations
 
·
Power Delivery electric sales were 11,323 gigawatt hours (GWhs) in the second
quarter of 2009 compared to 12,122 GWhs for the same period last year.  Heating
degree days (electric service territory) increased by 10% for the three months
ended June 30, 2009, compared to the same period in 2008.  Cooling degree days
(electric service territory) decreased by 17% for the three months ended June
30, 2009, compared to the same period in 2008.  Weather-adjusted electric sales
were 11,439 GWhs in the second quarter of 2009 compared to 11,977 GWhs for the
same period last year.

 
 
·
Conectiv Energy’s gross margin from Merchant Generation and Load Service was $18
million in the second quarter of 2009, compared to $85 million in the second
quarter of 2008.  The decrease resulted primarily from significantly lower
generation output and reduced spark spreads and dark spreads.

 
 
·
Conectiv Energy’s total generation output was 610 GWhs in the second quarter of
2009 compared to 1,094 GWhs in the second quarter of 2008.  The 44% decrease was
driven primarily by lower demand for electricity related to the economic
recession and mild weather.

 
·
Pepco Energy Services' gross margin from retail energy supply was $41 million in
the second quarter of 2009, compared to $36 million in the second quarter of
2008.  The increase resulted primarily from favorable electric supply,
ancillary, and other electric-related wholesale supply costs, and favorable

 

 
 
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natural gas supply costs; partially offset by less favorable mark-to-market
gains on energy contracts and lower generation output.

 
 
·
Pepco Energy Services had retail electric sales of 4,594 GWhs in the second
quarter of 2009, compared to 4,825 GWhs in the second quarter of 2008.  This 5%
decrease primarily reflects lower commercial and industrial customer loads.

 
 
·
In May, PJM Interconnection (PJM) reaffirmed the need for the Mid-Atlantic Power
Pathway (MAPP) transmission project, but delayed the in-service date by one year
as a result of its recent load forecast.  PJM also transferred the Indian River
to Salem segment of the project from its Regional Transmission Expansion Plan to
its “continuing study” list.  The revised project total cost is $1.2 billion and
the revised in-service date is 2014.  Construction of the line will begin later
this year.

 
 
·
On June 18, the District of Columbia adopted legislation that permits Advanced
Metering Infrastructure (AMI) deployment in the District, subject to the
District of Columbia Public Service Commission (DCPSC) agreeing to the
sufficiency of federal grants received for AMI.  The legislation allows Pepco to
establish a regulatory asset for recovering costs associated with implementing
AMI as well as earn a return on its investment.

 

 
Regulatory Matters
 

 
 
·
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 $52 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 $50 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 $3
million.  A decision is expected from the DCPSC in early 2010.

 
 
·
In November 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.  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 expects to record a pre-tax gain of
between $26 million and $28 million in the third quarter of 2009.

 

 
 
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Other
 

 
 
·
On August 6, each of the utilities made filings with the Department of Energy
requesting a total of approximately $266 million in smart grid related stimulus
funds.  A decision is anticipated in Octoer 2009.

 

 
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 June 30, 2009 as filed with the
Securities and Exchange Commission, which is available at
www.pepcoholdings.com/investors.
 

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

 

Reconciliation of GAAP Earnings to Earnings Excluding Special Items
 
Net Earnings – Millions of dollars
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2009
2008
 
2009
2008
Reported (GAAP) Net Earnings
$25
$15
 
$70 
$114
Special Items:
         
·
Mirant bankruptcy settlement (net of customer sharing)
-
-
 
(8)
-
·
Adjustment to the equity value of the cross-border energy lease investments
-
86
 
- 
86
·
Interest accrued under FIN 48 on the income tax obligations from the adjustment
to the equity value of the cross-border energy lease investments
-
7
 
- 
7
           
Net Earnings, Excluding Special Items
$25
$108
 
$62 
$207

 

 
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Earnings per Share
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2009
2008
 
2009
2008
Reported (GAAP) Earnings per Share
$0.11
$0.07
 
$0.32 
$0.57
Special Items:
         
·
Mirant bankruptcy settlement (net of customer sharing)
-
-
 
(0.04)
-
·
Adjustment to the equity value of the cross-border energy lease investments
-
0.43
 
- 
0.43
·
Interest accrued under FIN 48 on the income tax obligations from the adjustment
to the equity value of the cross-border energy lease investments
-
0.03
 
- 
0.03
           
Earnings per Share, Excluding Special Items
$0.11
$0.53
 
$0.28 
$1.03

 
 
CONFERENCE CALL FOR INVESTORS
 
Pepco Holdings Inc. will host a conference call to discuss second quarter
results on Friday, Aug. 7 at 11 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 1-800-901-5213 before 10:55
a.m.  The pass code for the call is 11516473.  International callers may access
the call by dialing 1-617-786-2962, using the same pass code, 11516473.  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 60111073.  International
callers may access the replay by dialing 1-617-801-6888 and entering the same
pass code 60111073.  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 understand further the results and prospects of PHI.

 
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SELECTED FINANCIAL INFORMATION
Pepco Holdings, Inc.
Earnings Per Share Variance
2009 / 2008
 
2nd Quarter
   
Competitive Energy
       
Power
  Delivery   
Conectiv
   Energy   
Pepco
Energy
  Services  
Other Non
 Regulated 
Corporate
  & Other  
Total
    PHI    
2008 Net Income/(Loss) (GAAP) 1/
$         0.37 
$         0.10 
$        0.08  
$       (0.41)
$        (0.07)
$        0.07 
             
2008 Special Items 2/
               
Cross-Border Energy Leases
               
·
Re-evaluation Adjustment
- 
- 
- 
0.43 
- 
0.43 
   
·
Related FIN 48 Interest
                 - 
                 - 
                 - 
           0.03 
                 - 
         0.03 
                     
2008 Net Income/(Loss) excluding Special Items
0.37 
0.10 
0.08 
0.05 
(0.07)
0.53 
                     
Change from 2008 Net Income/(Loss) excluding Special Items
           
     Regulated Operations
               
·
Distribution Revenue
                 
-
Weather (estimate) 3/
(0.02)
- 
- 
- 
- 
(0.02)
     
-
Other Distribution Revenue (primarily usage)
(0.03)
- 
- 
- 
- 
(0.03)
   
·
ACE Basic Generation Service (primarily unbilled revenue)
(0.05)
- 
- 
- 
- 
(0.05)
   
·
Operation & Maintenance (primarily higher
    pension expense)
(0.04)
- 
- 
- 
- 
(0.04)
     Conectiv Energy
               
·
Margins (operating revenue less cost of goods sold)
                 
-
Merchant Generation & Load Service
- 
(0.20)
- 
- 
- 
(0.20)
     
-
Energy Marketing
- 
0.02 
- 
- 
- 
0.02 
   
·
Operating costs, net
- 
0.02 
- 
- 
- 
0.02 
     Pepco Energy Services
               
·
Retail Energy Supply
- 
- 
0.01 
- 
- 
0.01 
   
·
Energy Services
- 
- 
(0.01)
- 
- 
(0.01)
     Other Non-Regulated
               
·
Financial investment portfolio
- 
- 
- 
(0.01)
- 
(0.01)
     Corporate & Other
               
·
Other, net
- 
- 
- 
- 
0.01 
0.01 
 
Capital Costs
(0.03)
- 
(0.03)
- 
- 
(0.06)
 
Income Tax Adjustments (primarily FIN 48 interest)
(0.05)
- 
- 
- 
- 
(0.05)
 
Dilution
         (0.01)
                 - 
                 - 
                 - 
                 - 
          (0.01)
2009 Net Income/(Loss) excluding Special Items
0.14 
(0.06)
0.05 
0.04 
(0.06)
0.11 
                     
2009 Special Items 2/
                                 
2009 Net Income/(Loss) (GAAP) 4/
$         0.14 
$        (0.06)
$         0.05 
$         0.04 
$        (0.06)
$         0.11 
                     

 

   
1/  
The 2008 weighted average number of basic shares outstanding was 201,399,066.
   
2/  
Management believes the special items are not representative of the company’s
ongoing business operations.
   
3/  
The effect of weather in 2009 compared with the 20-year average weather is
estimated to have decreased earnings by $.01 per share.
   
4/  
The 2009 weighted average number of basic shares outstanding was 220,123,926.

 
 
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Pepco Holdings, Inc.
Earnings Per Share Variance
2009 / 2008
 
June
Year-to-Date
   
Competitive Energy
       
Power
  Delivery   
Conectiv
   Energy   
Pepco
Energy
  Services  
Other Non
 Regulated 
Corporate
  & Other  
Total
    PHI    
2008 Net Income/(Loss) (GAAP) 1/
$         0.61 
$         0.34 
$        0.12  
$       (0.37)
$        (0.13)
$        0.57 
             
2008 Special Items 2/
               
Cross-Border Energy Leases
               
·
Re-evaluation Adjustment
- 
- 
- 
0.43 
- 
0.43 
   
·
Related FIN 48 Interest
                 - 
                 - 
                 - 
           0.03 
                 - 
           0.03 
                     
2008 Net Income/(Loss) excluding Special Items
0.61 
0.34 
0.12 
0.09 
(0.13)
1.03 
                     
Change from 2008 Net Income/(Loss) excluding Special Items
           
     Regulated Operations
               
·
Distribution Revenue
                 
-
Weather (estimate) 3/
- 
- 
- 
- 
- 
- 
     
-
Rate Order Impact (Pepco/DC)
0.01 
- 
- 
- 
- 
0.01 
     
-
Other Distribution Revenue (primarily usage)
(0.04)
- 
- 
- 
- 
(0.04)
   
·
ACE Basic Generation Service (primarily unbilled revenue)
(0.04)
- 
- 
- 
- 
(0.04)
   
·
Standard Offer Service Margin
(0.01)
- 
- 
- 
- 
(0.01)
   
·
Operation & Maintenance (primarily higher  pension expense)
(0.06)
- 
- 
- 
- 
(0.06)
   
·
Other, net
(0.02)
- 
- 
- 
- 
(0.02)
     Conectiv Energy
               
·
Margins (operating revenue less cost of goods sold)
                 
-
Merchant Generation & Load Service
- 
(0.41)
- 
- 
- 
(0.41)
     
-
Energy Marketing
- 
0.01 
- 
- 
- 
0.01 
   
·
Operating costs, net
- 
0.02 
- 
- 
- 
0.02 
     Pepco Energy Services
               
·
Retail Energy Supply
- 
- 
0.02 
- 
- 
0.02 
   
·
Energy Services
- 
- 
(0.01)
- 
- 
(0.01)
     Other Non-Regulated
               
·
Financial investment portfolio
- 
- 
- 
(0.04)
- 
(0.04)
     Corporate & Other
               
·
Other, net
- 
- 
- 
- 
- 
- 
 
Capital Costs
(0.06)
(0.01)
(0.04)
0.01 
0.01 
(0.09)
 
Income Tax Adjustments (primarily FIN 48 interest)
(0.07)
- 
- 
- 
0.01 
(0.06)
 
Dilution
         (0.03)
                 - 
         (0.01)
                 - 
          0.01 
          (0.03)
2009 Net Income/(Loss) excluding Special Items
0.29 
(0.05)
0.08 
0.06 
(0.10)
0.28 
                     
2009 Special Items 2/
               
·
Mirant Settlement (net of customer sharing -
    DC jurisdiction)
0.04 
- 
- 
- 
- 
0.04
                     
2009 Net Income/(Loss) (GAAP) 4/
$         0.33 
$        (0.05)
$         0.08 
$         0.06 
$        (0.10)
$         0.32 

 

   
1/  
The 2008 weighted average number of basic shares outstanding was 201,164,142.
   
2/  
Management believes the special items are not representative of the company’s
ongoing business operations.
   
3/  
The effect of weather in 2009 compared with the 20-year average weather is
estimated to be zero.
   
4/  
The 2009 weighted average number of basic shares outstanding was 219,633,258.

 
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SEGMENT INFORMATION

               
Three Months Ended June 30, 2009
 
(millions of dollars)
   
Competitive
Energy Segments
       
Power
Delivery
Conectiv
Energy
Pepco
Energy
Services
Other
Non-
Regulated
Corp.
& Other (a)
PHI
Cons.
Operating Revenue
$ 1,095      
$   469 (b)
$  560 
$       14 
$      (73)
$   2,065 
Operating Expense (c) 
995 (b) 
487       
531 
1 
(76)
1,938 
Operating Income
100      
(18)      
29 
13 
3 
127 
Interest Income
1      
1       
1 
1 
(2)
2 
Interest Expense
53      
7       
12 
3 
21 
96 
Other Income
3      
-       
- 
1 
1 
5 
Income Tax Expense (Benefit)
20      
(10)      
8 
4 
(9)
13 
Net Income (Loss)
31      
(14)      
10 
8 
(10)
25 
Total Assets
10,254     
1,995       
743 
1,516 
1,605 
16,113 
Construction Expenditures
$     149     
$      50       
$     3 
$        - 
$       6 
$     208 

 

Notes:
(a)
Includes unallocated Pepco Holdings’ (parent company) capital costs, such as
acquisition financing costs, and the depreciation and amortization related to
purchase accounting adjustments for the fair value of Conectiv assets and
liabilities as of the August 1, 2002 acquisition date.  Additionally, the Total
Assets line item in this column includes Pepco Holdings’ goodwill
balance.  Corp. & Other includes intercompany amounts of $(73) million for
Operating Revenue, $(71) million for Operating Expense, $(20) million for
Interest Income, and $(19) million for Interest Expense.
 
(b)
Power Delivery purchased electric energy and capacity and natural gas from
Conectiv Energy in the amount of $62 million for the three months ended June 30,
2009.
 
(c)
Includes depreciation and amortization of $95 million, consisting of $79 million
for Power Delivery, $10 million for Conectiv Energy, $5 million for Pepco Energy
Services, and $1 million for Corp. & Other.

 
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SEGMENT INFORMATION - Continued
 

               
Three Months Ended June 30, 2008
 
(millions of dollars)
   
Competitive
Energy Segments
       
Power
Delivery
Conectiv
Energy
Pepco
Energy
Services
Other
Non-
Regulated
Corp.
& Other (a)
PHI
Cons.
Operating Revenue
$   1,297      
$  789 (b)  
$   631    
$  (105) (d)
$        (94)   
$   2,518  
Operating Expense (c) 
1,144  (b)
748       
606    
1      
(95)   
2,404  
Operating Income
153      
41       
25    
(106)      
1    
114  
Interest Income
3      
1       
1    
1       
(1)   
5  
Interest Expense
46      
6       
-     
5       
23    
80  
Other Income (Expense)
3      
-        
1    
(1)      
1     
4  
Income Tax Expense (Benefit)
38      
15       
11    
(27) (d)
(9)   
28  
Net Income (Loss)
75      
21       
16    
(84) (d)
(13)   
15  
Total Assets
10,054      
2,431       
1,000    
1,464      
1,417    
16,366  
Construction Expenditures
$       134      
$     44       
$    12    
$       -       
$           5    
$    195  

 

 Notes:
 

(a)
Includes unallocated Pepco Holdings’ (parent company) capital costs, such as
acquisition financing costs, and the depreciation and amortization related to
purchase accounting adjustments for the fair value of Conectiv assets and
liabilities as of the August 1, 2002 acquisition date.  Additionally, the Total
Assets line item in this column includes Pepco Holdings’ goodwill
balance.  Corp. & Other includes intercompany amounts of $(94) million for
Operating Revenue, $(92) million for Operating Expense, $(12) million for
Interest Income, and $(11) million for Interest Expense.
 
(b)
Power Delivery purchased electric energy and capacity and natural gas from
Conectiv Energy in the amount of $87 million for the three months ended June 30,
2008.
 
(c)
Includes depreciation and amortization of $93 million, consisting of $79 million
for Power Delivery, $9 million for Conectiv Energy, $3 million for Pepco Energy
Services, $1 million for Other Non-Regulated and $1 million for Corp. & Other.
 
(d)
Included in operating revenue is a pre-tax charge of $124 million ($86 million
after-tax) related to the adjustment to the equity value of cross-border energy
lease investments, and included in income taxes is a $7 million after-tax charge
for the additional interest accrued on the related tax obligations.

 
9
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--------------------------------------------------------------------------------

 

SEGMENT INFORMATION – Continued
 

 
Six Months Ended June 30, 2009
 
(millions of dollars)
   
Competitive
Energy Segments
       
Power
Delivery
Conectiv
Energy
Pepco
Energy
Services
Other
Non-
Regulated
Corp.
& Other (a)
PHI
Cons.
Operating Revenue
$    2,467        
$   1,044 (b)
$  1,217 
$     27 
$   (170) 
$  4,585 
Operating Expense (c) 
2,253 (b)(d)
1,048     
1,173 
2 
(173) 
4,303 
Operating Income
214        
(4)    
44 
25 
3  
282 
Interest Income
2        
1     
1 
2 
(3) 
3 
Interest Expense
106        
15     
16 
7 
42  
186 
Other Income
6        
-      
1 
- 
1  
8 
Preferred Stock Dividends
-        
-      
- 
1 
(1) 
- 
Income Tax Expense (Benefit)
43        
(8)    
12 
5 
(15) 
37 
Net Income (Loss)
73        
(10)    
18 
14 
(25) 
70 
Total Assets
10,254        
1,995    
743 
1,516 
1,605  
16,113 
Construction Expenditures
$      281        
$        91    
$         6 
$        - 
$        10  
$     388 

 

Notes:
(a)
Includes unallocated Pepco Holdings’ (parent company) capital costs, such as
acquisition financing costs, and the depreciation and amortization related to
purchase accounting adjustments for the fair value of Conectiv assets and
liabilities as of the August 1, 2002 acquisition date.  Additionally, the Total
Assets line item in this column includes Pepco Holdings’ goodwill
balance.  Corp. & Other includes intercompany amounts of $(170) million for
Operating Revenue, $(165) million for Operating Expense, $(44) million for
Interest Income, $(42) million for Interest Expense, and $(1) million for
Preferred Stock Dividends.
 
(b)
Power Delivery purchased electric energy and capacity and natural gas from
Conectiv Energy in the amount of $145 million for the six months ended June 30,
2009.
 
(c)
Includes depreciation and amortization of $191 million, consisting of $158
million for Power Delivery, $19 million for Conectiv Energy, $9 million for
Pepco Energy Services, $1 million for Other Non-Regulated and $4 million for
Corp. & Other.
 
(d)
Includes $14 million ($8 million after-tax) gain related to settlement of Mirant
bankruptcy claims.

 
10
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SEGMENT INFORMATION - Continued
 

               
Six Months Ended June 30, 2008
 
(millions of dollars)
   
Competitive
Energy Segments
       
Power
Delivery
Conectiv
Energy
Pepco
Energy
Services
Other
Non-
Regulated
Corp.
& Other (a)
PHI
Cons.
Operating Revenue
$            2,592      
$ 1,612 (b)
$            1,252
$   (87) (d)
$         (210)
$             5,159 
Operating Expense (c) 
 2,335 (b)
            1,484      
            1,213
2       
           (212)
             4,822 
Operating Income
            257      
            128      
            39
              (89)     
                2 
             337 
Interest Income
                  9      
       1      
 1
              2       
               (1)
             12 
Interest Expense
            94      
            12      
            1
9       
               45 
             161 
Other Income (Expense)
            7      
            -      
            2
              (3)      
               1 
             7 
Preferred Stock Dividends
            -       
            -      
            -  
              1       
               (1)
             -  
Income Tax Expense (Benefit)
            57      
            48      
            16
              (26) (d)
(14)
             81 
Net Income (Loss)
            122      
            69      
            25
              (74) (d)
               (28)
             114 
Total Assets
            10,054      
            2,431      
            1,000
1,464       
               1,417 
             16,366 
Construction Expenditures
$            282      
$            59      
$            17
$       -       
$               8 
$             366 

 
 

Notes:
(a)
Includes unallocated Pepco Holdings’ (parent company) capital costs, such as
acquisition financing costs, and the depreciation and amortization related to
purchase accounting adjustments for the fair value of Conectiv assets and
liabilities as of the August 1, 2002 acquisition date.  Additionally, the Total
Assets line item in this column includes Pepco Holdings’ goodwill
balance.  Corp. & Other includes intercompany amounts of $(210) million for
Operating Revenue, $(207) million for Operating Expense, $(28) million for
Interest Income, $(27) million for Interest Expense, and $(1) million for
Preferred Stock Dividends.
 
(b)
Power Delivery purchased electric energy and capacity and natural gas from
Conectiv Energy in the amount of $185 million for the six months ended June 30,
2008.
 
(c)
Includes depreciation and amortization of $184 million, consisting of $155
million for Power Delivery, $18 million for Conectiv Energy, $6 million for
Pepco Energy Services, $1 million for Other Non-Regulated, and $4 million for
Corp. & Other.
 
(d)
Included in operating revenue is a pre-tax charge of $124 million ($86 million
after-tax) related to the adjustment to the equity value of cross-border energy
lease investments, and included in income taxes is a $7 million after-tax charge
for the additional interest accrued on the related tax obligations.

 
11
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PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
   
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
     
2009
   
2008
   
2009
   
2008
       
(millions of dollars, except per share data)
 
Operating Revenue
                         
  Power Delivery
$   
1,095    
 
$
1,297  
 
$
2,467  
 
$
2,592  
   
  Competitive Energy
 
95  8
   
1,329  
   
2,097  
   
2,657  
   
  Other
 
12    
   
(108) 
   
21  
   
(90) 
   
     Total Operating Revenue
 
2,065    
   
2,518  
   
4,585  
   
5,159  
                               
Operating Expenses
                         
  Fuel and purchased energy
 
1,491    
   
1,832  
   
3,378  
   
3,650  
   
  Other services cost of sales
 
82    
   
180  
   
178  
   
360  
   
  Other operation and maintenance
 
237    
   
231  
   
473  
   
450  
   
  Depreciation and amortization
 
95    
   
93  
   
191  
   
184  
   
  Other taxes
 
90    
   
85  
   
181  
   
173  
   
  Deferred electric service costs
 
(57)   
   
(17) 
   
(84) 
   
8  
   
  Effect of settlement of Mirant bankruptcy claims
 
-    
   
-  
   
(14) 
   
-  
   
  Gain on sale of assets
 
-    
   
-  
- 
 
-  
   
(3) 
   
     Total Operating Expenses
 
1,938    
   
2,404  
   
4,303  
   
4,822  
                               
Operating Income
 
127    
   
114  
   
282  
   
337  
                               
Other Income (Expenses)
                         
  Interest and dividend income
 
2    
   
5  
   
3  
   
12  
   
  Interest expense
 
(96)   
   
(80) 
(
 
(186) 
   
(161) 
   
  Gain (Loss) from equity investments
 
2    
   
-  
   
1  
   
(2) 
   
  Other income
 
4    
   
4  
   
8  
   
10  
   
  Other expenses
 
(1)   
   
-  
   
(1) 
   
(1) 
   
     Total Other Expenses
 
(89)   
   
(71) 
   
(175) 
   
(142) 
                               
Income Before Income Tax Expense
 
38    
   
43  
   
107  
   
195  
                               
Income Tax Expense
 
13    
   
28  
   
37  
   
81  
                               
Net Income
 
25    
   
15  
   
70  
   
114  
                               
Retained Earnings at Beginning of Period
 
1,257    
   
1,238  
   
1,271  
   
1,193  
                               
Dividends Paid on Common Stock
 
(60)   
   
(55) 
   
(119) 
   
(109) 
                               
Retained Earnings at End of Period
$ 
1,222    
 
$
1,198  
 
$
1,222  
 
$
1,198  
                               
Basic and Diluted Share Information
                         
  Weighted average shares outstanding
 
220    
   
201  
   
220  
   
201  
   
  Earnings per share of common stock
$   
.11    
 
$
.07  
 
$
.32  
 
$
.57  
                               

 
12
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PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
 
June 30,
2009
December 31,
2008
 
(millions of dollars)
ASSETS
         
CURRENT ASSETS
   
Cash and cash equivalents
$              120  
$                 384  
Restricted cash equivalents
9  
                 10  
Accounts receivable, less allowance for uncollectible accounts of $43 million
and $37 million, respectively
1,158  
                 1,392  
Inventories
282  
                 333  
Derivative assets
83  
                 98  
Prepayments of income taxes
238  
                 294  
Prepaid expenses and other
165  
                 115  
     
Total Current Assets
2,055  
                 2,626  
     
INVESTMENTS AND OTHER ASSETS
   
Goodwill
1,411  
                 1,411  
Regulatory assets
1,993  
                 2,088  
Investment in finance leases held in trust
1,362  
                 1,335  
Income taxes receivable
314  
                 191  
Restricted cash equivalents
69  
                 108  
Assets and accrued interest related to uncertain tax positions
115  
                 178  
Derivative assets
29  
                 9  
Other
204  
                 215  
     
Total Investments and Other Assets
5,497  
                 5,535  
     
PROPERTY, PLANT AND EQUIPMENT
   
Property, plant and equipment
13,298  
                 12,926  
Accumulated depreciation
(4,737)
 (4,612) 
     
Net Property, Plant and Equipment
8,561 
                 8,314  
     
TOTAL ASSETS
$16,113 
$                 16,475  
     

 

 
13
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PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
June 30,
2009
 
December 31,
2008
 
(millions of dollars, except shares)
LIABILITIES AND EQUITY
         
CURRENT LIABILITIES
   
Short-term debt
$                 640  
$                    465 
Current maturities of long-term debt and project funding
502  
                    85 
Accounts payable and accrued liabilities
658  
                    847 
Capital lease obligations due within one year
7  
                    6 
Taxes accrued
62  
                    62 
Interest accrued
69  
                    71 
Liabilities and accrued interest related to uncertain tax positions
4   
                    71
Derivative liabilities
138  
                    144 
Other
302  
                    279 
     
Total Current Liabilities
2,382  
                    2,030 
     
DEFERRED CREDITS
   
Regulatory liabilities
754  
                    893 
Deferred income taxes, net
2,306  
                    2,269 
Investment tax credits
38  
                    40 
Pension benefit obligation
469  
                    626 
Other postretirement benefit obligations
447  
                    461 
Income taxes payable 18
186  
                    176 
Liabilities and accrued interest related to uncertain tax positions
175  
                    163 
Derivative liabilities
79  
                    59 
Other
151  
                    184 
     
Total Deferred Credits
4,605  
                    4,871 
     
LONG-TERM LIABILITIES
   
Long-term debt
4,502  
                    4,859 
Transition bonds issued by ACE Funding
385  
                    401 
Long-term project funding
18  
                    19 
Capital lease obligations
96  
                    99 
     
Total Long-Term Liabilities
5,001  
                    5,378 
     
COMMITMENTS AND CONTINGENCIES
         
EQUITY
   
Common stock, $.01 par value, 400,000,000 shares authorized, 220,820,630 shares
and 218,906,220 shares outstanding, respectively
2  
                    2 
Premium on stock and other capital contributions
3,203  
                    3,179 
Accumulated other comprehensive loss
(308) 
                    (262)
Retained earnings
1,222  
                    1,271 
     
Total Shareholders’ Equity
4,119  
                    4,190 
Noncontrolling interest
6  
                    6 
     
Total Equity
4,125  
                    4,196 
     
TOTAL LIABILITIES AND EQUITY
$                 16,113  
$                    16,475 

 
14
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POWER DELIVERY SALES AND REVENUES
 
Three Months Ended
June 30,
Six Months Ended
June 30,
 
Power Delivery Sales (Gigawatt Hours)
 
2009
   
2008
   
2009
   
2008
   
Regulated T&D Electric Sales
                         
  Residential
 
3,448
   
3,674
   
8,222
   
8,159
   
  Commercial and industrial
 
7,819
   
8,392
   
15,312
   
15,957
   
  Other
 
56
   
56
   
126
   
126
   
Total Regulated T&D Electric Sales
 
11,323
   
12,122
   
23,660
   
24,242
                               
Default Electricity Supply Sales
                         
  Residential
 
3,328
   
3,551
   
7,966
   
7,896
   
  Commercial and industrial
 
2,148
   
2,605
   
4,620
   
4,945
   
  Other
 
21
   
24
   
48
   
50
   
Total Default Electricity Supply Sales
 
5,497
   
6,180
   
12,634
   
12,891
                                                             
Three Months Ended
June 30,
Six Months Ended
June 30,
 
Power Delivery Electric Revenue (Millions of dollars)
 
2009
   
2008
   
2009
   
2008
   
Regulated T&D Electric Revenue
                         
  Residential
$
130
 
$
134
 
$
274
 
$
267
   
  Commercial and industrial
 
202
   
201
   
382
   
370
   
  Other
 
62
   
86
   
125
   
163
   
Total Regulated T&D Electric Revenue
$
394
 
$
421
 
$
781
 
$
800
                               
Default Supply Revenue
                         
  Residential
$
383
 
$
388
 
$
900
 
$
839
   
  Commercial and industrial
 
232
   
302
   
492
   
550
   
  Other
 
27
   
87
   
86
   
173
   
Total Default  Supply Revenue
$
642
 
$
777
 
$
1,478
 
$
1,562
                               
Other Electric Revenue
$
19
 
$
16
 
$
37
 
$
31
                               
Total Electric Operating Revenue
$
1,055
 
$
1,214
 
$
2,296
 
$
2,393
   

 
Three Months Ended
June 30,
Six Months Ended
June 30,
 
Power Delivery Gas Sales and Revenue
 
2009
   
2008
   
2009
   
2008
   
Regulated Gas Sales (Bcf)
                         
  Residential
 
1
   
1
   
5
   
5
   
  Commercial and industrial
 
-
   
1
   
3
   
3
   
  Transportation and Other
 
1
   
1
   
3
   
4
   
Total Regulated Gas Sales
 
2
   
3
   
11
   
12
                               
Regulated Gas Revenue (Millions of dollars)
                         
  Residential
$
17
 
$
20
 
$
92
 
$
77
   
  Commercial and industrial
 
11
   
14
   
53
   
47
   
  Transportation and Other
 
2
   
2
   
4
   
4
   
Total Regulated Gas Revenue
$
30
 
$
36
 
$
149
 
$
128
   
Other Gas Revenue
$
10
 
$
47
 
$
22
 
$
71
                               
Total Gas Operating Revenue
$
40
 
$
83
 
$
171
 
$
199
                               
Total Power Delivery Operating Revenue
$
1,095
 
$
1,297
 
$
2,467
 
$
2,592
   

 

15
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WEATHER DATA - CONSOLIDATED ELECTRIC SERVICE TERRITORY
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2009
 
2008
 
2009
 
2008
Heating Degree Days
410
 
374
 
2,846
 
2,486
20 Year Average
437
 
443
 
2,695
 
2,731
Percentage Difference from Average
-6%
 
-16%
 
6%
 
-9%
Percentage Difference from Prior Year
10%
     
14%
                   
Cooling Degree Days
346
 
417
 
346
 
417
20 Year Average
353
 
345
 
356
 
348
Percentage Difference from Average
-2%
 
21%
 
-3%
 
20%
Percentage Difference from Prior Year
-17%
     
-17%
   

CONECTIV ENERGY

 
Quarter Ended:
 
June 30,
2009
 
March 31,
2009
 
December 31,
2008
 
September 30,
2008
 
June 30,
2008
Gigawatt Hour Supply (GWh)
                           
Base-Load (1)
 
107
   
304   
   
340   
   
437   
   
368  
Mid-Merit (Combined Cycle) (2)
 
374
   
309   
   
344   
   
1,318   
   
588  
Mid-Merit (Oil Fired) (3)
 
(3)
   
34   
   
9   
   
-   
   
68  
Peaking
 
6
   
2   
   
3   
   
31   
   
41  
Tolled Generation
 
126
   
180   
   
16   
   
65   
   
29  
Generation Output
 
610
   
829   
   
712   
   
1,851   
   
1,094  
                             
Load Service Volumes (4)
 
1,485
   
2,010   
   
2,454   
   
2,907   
   
2,335  
                             
Around-the-clock Market Prices
  ($/MWh) PJM - East (5)
$
35.35
 
$
54.89   
 
$
56.45   
 
$
89.62   
 
$
87.85  
                             
On Peak Market Prices ($/MWh) PJM - East (5)
$
40.68
 
$
60.81   
 
$
65.72   
 
$
107.66   
 
$
109.29  
                             
Gas Price - M3 (Market Area) ($/MMBtu) (5)
 
4.04
   
6.28   
   
7.37   
   
9.71   
   
12.13  
 
$
   
$
   
$
   
$
   
$
 
Average Power Sales Price ($/MWh) (6)
                           
Generation
$
41.34
 
$
71.91   
 
$
70.93   
 
$
117.50   
 
$
139.01  
Other
$
83.38
 
$
88.60   
 
$
93.40   
 
$
101.17   
 
$
87.11  
                             
  Gross Margin Key Drivers ($ millions)
                           
  Physical Energy and Ancillary Services (7)
$
(9)
 
$
4   
 
$
7   
 
$
59   
 
$
45  
  Fuel & Power Hedges of Generation Activities (8)
$
(6)
 
$
3   
 
$
(5)  
 
$
21   
 
$
17  
  PJM Capacity Margin for Generation Activities (9)
$
44 
 
$
35   
 
$
35   
 
$
37   
 
$
32  
  Load Service and Load Hedges (10)
$
(11)
 
$
1   
 
$
4   
 
$
(4)  
 
$
(9) 
  Energy Marketing (11)
$
13
 
$
14   
 
$
13   
 
$
17   
 
$
8  

Notes:
 
(1)
Edge Moor Units 3 and 4 and Deepwater Unit 6.
(2)
Hay Road and Bethlehem, all units.
(3)
Edge Moor Unit 5 and Deepwater Unit 1.  Generation output for these units was
negative for the second quarter of 2009 because of station service consumption.
(4)
Includes both PJM and ISO New England default electricity supply sales.
(5)
Daily average.
(6)
Calculated from data reported in Conectiv Energy's Electric Quarterly Report
filed with the FERC; does not include capacity or ancillary services
revenue.  Prices may differ from those originally reported in prior periods due
to normal load true-ups requiring EQR filing amendments.
(7)
Includes actual generation energy revenue net of fuel costs, and fuel switching
and ancillary services margin, less gas transportation and storage costs
associated with generation.
(8)
Includes financial contracts used to economically hedge fuel inputs and power
output.  Some of these contracts qualify for hedge accounting treatment and some
are marked-to-market through current earnings.
(9)
Includes revenue for generation capacity from PJM and bilateral forward sales
and capacity swaps used as hedges of generation capacity.
(10)
Includes load service sales net of capacity, energy and other costs of providing
the service. Does not include the fixed margin portion of the sale of full
requirements load service which is recorded in Energy Marketing.
(11)
Includes power origination which primarily represents the fixed margin component
of structured power transactions such as default electricity supply service,
wholesale natural gas marketing, fuel oil marketing, and the activities of the
short-term power desk, which generate margin by capturing price differences
between power pools, and locational and timing differences within a power pool.

 
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CONECTIV ENERGY - (continued)
 
   
Operating Summary
(Millions of dollars)
     
Three Months Ended
June 30,
Six Months Ended
June 30,
 
2009
 
2008
2009
 
2008
Gigawatt Hour Supply (GWh)
                   
  Generation Output
 
610 
(3)
 
1,094
 
1,439
(3)
 
2,043
  Load Service Volumes
 
1,485 
(4)
 
2,335
 
3,495 
(4)
 
5,268
                     
Operating Revenue:
                   
    Merchant Generation and Load Service (1)
$
343 
 
$
487
$
711
 
$
994
    Energy Marketing (2)
 
126 
   
302
 
333
   
618
      Total
 
469 
   
789
 
1,044
   
1,612
                     
Cost of Goods Sold:
                   
    Merchant Generation and Load Service (1)
 
325 
   
402
 
650 
   
794
    Energy Marketing (2)
 
113 
   
294
 
306 
   
595
      Total
 
438 
   
696
 
956 
   
1,389
                     
Gross Margin:
                   
    Merchant Generation and Load Service (1)
 
18 
(5)
 
85
 
61 
(6)
 
200
    Energy Marketing (2)
 
13 
   
8
 
27 
   
23
      Total
 
31 
   
93
 
88 
   
223
                     
    Operating and Maintenance Expenses
 
37 
(7)
 
42
 
70 
(7)
 
75
    Depreciation
 
10 
   
9
 
19 
   
18
    Taxes Other Than Income Taxes
 
1 
   
1
 
2 
   
2
    Other Operating Expenses
 
1 
   
-
 
1 
   
-
       Total
 
49 
   
52
 
92 
   
95
                     
    Operating (Loss) Income
$
(18)
 
$
41
$
(4)
 
$
128

Notes:
(1)
Merchant Generation and Load Service consists primarily of electric power,
capacity, and ancillary services sales from Conectiv Energy's generating plants;
tolling arrangements entered into to sell energy and other products from
Conectiv Energy's generating plants and entered into to purchase energy and
other products from other companies' generating plants; hedges of power,
capacity, fuel and load; the sale of excess fuel (primarily natural gas) and
emission allowances; electric power, capacity, and ancillary services sales
pursuant to competitively bid contracts entered into with affiliated and
non-affiliated companies to fulfill their default electricity supply
obligations; and fuel switching activities made possible by the multi-fuel
capabilities of some of Conectiv Energy's generating plants.
 
(2)
Energy Marketing consists primarily of power origination which primarily
represents the fixed margin component of structured power transactions such as
default electricity supply service, wholesale natural gas marketing, fuel oil
marketing, and the activities of the short-term power desk, which generate
margin by capturing price differences between power pools, and locational and
timing differences within a power pool.
 
(3)
Lower generating plant output during 2009 compared to 2008 was primarily due to
decreased demand for electricity related to the economic recession and mild
weather.
 
(4)
Lower load service volumes during 2009 compared to 2008 were primarily due to
decreased demand for electricity related to the economic recession and mild
weather.
 
 (5)
Lower Merchant Generation and Load Service gross margins during the second
quarter of 2009 compared to 2008 were driven by (i) significantly lower
generating plant output and reduced spark spreads and dark spreads, (ii) the
performance of economic fuel hedges, and (iii) lower margins from default
electricity supply contracts and associated hedges, partially offset by higher
capacity margins.
 
 (6)
Lower Merchant Generation and Load Service gross margins year-to-date 2009
compared to 2008 were driven by (i) significantly lower generating plant output
and reduced spark spreads and dark spreads (ii) significantly fewer
opportunities to benefit from generating unit operating flexibility and fuel
switching capability, and remarketing activities around firm natural gas
transportation and storage positions due to less favorable energy prices and
less price volatility than was experienced during the winter of 2008, (iii) the
performance of economic fuel hedges, and (iv) lower margins from default
electricity supply contracts and associated hedges, partially offset by higher
capacity margins.
 
 (7) Lower Operating and Maintenance Expenses in 2009 were primarily due to
postponed plant maintenance projects because of lower run-time, and lower labor
and other employee-related costs.

 

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PEPCO ENERGY SERVICES
 
           
Operating Summary
 
(Millions of dollars)
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
     
2009  
   
2008  
   
2009  
   
2008  
                           
Retail Electric Sales (GWh)
 
4,594
   
4,825
   
9,388
   
9,591
                           
Operating Revenue
$
560
 
$
631
 
$
1,217
 
$
1,252
 
Cost of Goods Sold
 
505
   
582
   
1,119
   
1,166
 
Gross Margin
 
55
   
49
   
98
   
86
                           
Gross Margin Detail:
                       
  Retail Energy Supply (1)
 
41
(2)
 
36
   
71
(2)
 
59
 
  Energy Services
 
14
   
13
   
27
   
27
 
    Total
 
55
   
49
   
98
   
86
                           
Operation and Maintenance Expenses
 
21
   
21
   
44
   
40
 
Depreciation
 
5
   
3
   
9
   
6
 
Other
 
-
   
-
   
1
   
1
 
Operating Expenses
 
26
   
24
   
54
   
47
                           
Operating Income
$
29
 
$
25
 
$
44
 
$
39
 

Notes:
(1)
Includes power generation.
 
(2)
Retail Energy Supply gross margin increased due to favorable electric supply,
ancillary, and other electric-related wholesale supply costs, and favorable
natural gas supply costs; partially offset by less favorable mark-to-market
gains on energy contracts and lower generating plant output.

 
 
18
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