UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): December 3,
2009
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PEPCO
HOLDINGS, INC.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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001-31403
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52-2297449
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(State
or other jurisdiction
of
incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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701
Ninth Street, N.W., Washington, DC
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20068
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code
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(202)
872-3526
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Not
Applicable
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(Former
name or former address, if changed since last
report.)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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¨
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
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Pepco
Holdings, Inc.
Form
8-K
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Item
8.01
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Other
Events
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Pepco Holdings, Inc. (“PHI”) has
decided to exit the retail electric and natural gas supply business, which PHI
conducts through its subsidiary Pepco Energy Services, Inc. (“Pepco Energy
Services”). In prior disclosures, PHI stated that it was performing a
strategic analysis of the retail energy supply business with a view to a
possible restructuring, sale or wind down of the business. The retail
energy supply business historically has generated a substantial portion of the
operating income of PHI’s Pepco Energy Services operating segment.
Following a comprehensive analysis of
strategic alternatives, PHI has elected to wind down the retail energy business
in an orderly manner. To effectuate the wind down, Pepco Energy
Services will discontinue signing new retail energy supply
contracts. During the wind down, Pepco Energy Services will continue
to fulfill all of its commercial and regulatory obligations and to perform its
customer service functions to ensure that it meets the needs of its
customers.
As the existing contracts expire, the
operating revenue, operating expense and operating income of the retail energy
supply business will diminish. PHI expects the retail energy supply
business to remain profitable based on its existing contract backlog and its
corresponding portfolio of wholesale hedges through December 31, 2012, with
minimal losses beyond that date primarily reflecting estimated general and
administrative expenses necessary to perform fully the remaining contracts in
excess of estimated revenues from those contracts.
As of November 30, 2009, Pepco Energy
Services’ supply obligations for future delivery of energy to retail customers
consisted of approximately 24.9 million megawatt-hours of electricity and 113
billion cubic feet of natural gas for the period December 1, 2009 through May
31, 2014. Approximately 52% of this retail electric backlog and 50%
of this retail natural gas backlog will be delivered to retail customers by
December 31, 2010; an aggregate of 79% of the retail electric backlog and 78% of
the retail natural gas backlog will be delivered by December 31, 2011; and an
aggregate of 95% of the retail electric backlog and 95% of the retail natural
gas backlog will be delivered by December 31, 2012. Substantially all
of Pepco Energy Services’ retail customer obligations will be fully performed by
June 1, 2014.
In connection with the operation of the
retail energy supply business, as of November 30, 2009, Pepco Energy
Services had collateral requirements, which are based on existing wholesale
energy purchase and sale contracts and current market prices, of approximately
$315 million committed to its wholesale energy suppliers. Of this
collateral amount, $186 million was in the form of letters of credit and $129
million was posted in cash. Pepco Energy Services estimates that at
current market prices, with the wind down of the retail energy supply business,
this collateral will be released as follows: 57% by December 31,
2010; an aggregate of 85% by December 31, 2011; and an aggregate of 95% by
December 31, 2012. Substantially all collateral will be released by
June 1, 2014.
2
Pepco
Holdings, Inc.
Form
8-K
Pepco Energy Services will record a
pre-tax impairment charge in the fourth quarter with respect to its retail
energy supply business in the approximate amount of $4.3 million, reflecting the
write off of all goodwill allocated to this business. Additionally,
Pepco Energy Services will record a pre-tax charge in the fourth quarter related
to employee severance expenditures of approximately
$0.7 million. Pepco Energy Services’ net income for the nine
months ended September 30, 2009 was approximately $32 million.
Pepco Energy Services’ remaining line
of business - principally providing energy savings performance contracting
services to federal, state and local government customers - will not be affected
by the wind down of the retail energy supply business.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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PEPCO
HOLDINGS, INC.
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(Registrant)
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Date:
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December
7, 2009
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/s/
A. J.KAMERICK
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Name: Anthony
J. Kamerick
Title: Senior
Vice President and
Chief
Financial Officer
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