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Pepco Holdings, Inc. (NYSE:POM)

Q3 2010 Earnings Conference Call

October 29, 2010 10 AM ET

Executives

Donna Kinzel – Director, IR

Joe Rigby – Chairman, President and CEO

Tony Kamerick – SVP and CFO

Analysts

Paul Patterson – Glenrock Associates

Ali Agha – SunTrust Robinson Humphrey

Maurice May – Power Insights

Operator

Good day, ladies and gentlemen and welcome to the third quarter 2010 Pepco Holdings earnings conference call. My name is Sab, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of today’s conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Donna Kinzel, Director of Investor Relations. Please proceed.

Donna Kinzel

Thank you, Sab. Good morning ladies and gentlemen and welcome to the Pepco Holdings third quarter 2010 earnings conference call. The primary speakers on today’s call are Joe Rigby, Chairman, President and Chief Executive Officer; and Tony Kamerick, Senior Vice President and Chief Financial Officer. Also available to answer your questions are Dave Velazquez, Executive Vice President, Power Delivery; and John Huffman, President and Chief Executive Officer of Pepco Energy Services.

On today’s call we will be referring to slides which are available on the Investor Relations section of our website. Before Joe begins, let me direct you to the Safe Harbor statement on slide one of our presentation, that some of the comments made during today’s conference call may be considered forward-looking statements. As such, they should be taken in the context of the risks and uncertainties discussed in the Safe Harbor disclosures contained in our Securities and Exchange Commission filings.

Also please note that today’s call will include a discussion of our results excluding certain items that we feel are not representative of the company’s ongoing business operations. These special items and their financial impacts are described in our earnings release dated today. The earnings release can be found on our website www.pepcoholdings.com/investors. Joe?

Joe Rigby

Thanks Donna, and good morning, ladies and gentlemen and thank you for joining us today. Earnings from continuing operations for the quarter were $21 million compared to $104 million in 2009 quarter. Excluding special items for both periods, earnings would have been $116 million in the 2010 quarter compared to $77 million for the 2009 quarter.

Our operating results were driven by strong Power Delivery earnings which reflects positive impacts of our infrastructure investments, regulatory outcomes and higher sales due to the hot summer weather. Lower interest expense resulting from the pay down of parent company debt with Conectiv Energy’s generation asset sale proceeds also boosted earnings after income tax adjustments.

Our results for both the quarter and year-to-date periods reflect Conectiv Energy’s results as discontinued operations. Tony will discuss the financial results for both continuing operations and discontinued operations as well as our operating segment performance. But first I would like to address some topics of interest.

We continued to be very active in the regulated front with two distribution base case currently pending and a decision received on August 6 in Pepco’s Maryland case. In Maryland, the Commission approved an $8 million annual increase in Pepco’s distribution base rates based on the 9.83% return on equity. The details of the order can be seen on slide 2. The new rates were effective as of July 29. The commission’s decision felt short of our expectations. Not only do we view the return on equity that was authorized as being inadequate, we feel several of the commission’s rate making adjustment decisions make it challenging for Pepco to earn that authorized rate of return.

On September 2, we filed with the Commission an application for rehearing in which we are contesting several elements of the order. In our application we requested reconsideration of our request for $2.3 million of post test year reliability expenditures and for $1.5 million of enhanced vegetation management costs which the Commission presumed would be offset by savings. We also requested corrections to formulas which the Commission mandated that Pepco use in calculating its annual cost of removal accrual.

The corrections would increase depreciation expense by $4.7 million but will be offset by related cost recovery. Slides 3 and 4 summarize the current states of our two cases in Delaware. In Delmarva Power’s electric distribution base rate case, our filing seeks approval of an annual rate increase of approximately $24 million based on the 10.75% return on equity, assuming the implementation of revenue decoupling. As permitted by Delaware law, Delmarva Power put $2.5 million of its requested rate increase into effect in November 2009 and the remainder of the requested amount into effect on April 19 of this year.

These increases were put into effect on a temporary basis pending final Commission approval and are subject to refund. On October 1, the hearing Commissioner issued her report to the Commission, which recommends an increase of approximately $6 million based on an 8.5% return on equity with the implementation of revenue decoupling. We found the hearing examiners report very disappointing and that several recommendations are contrary to Commission President and the recommended return on equity is well below those granted in other electric utilities across the country.

Our exception to hearing examiners report were filed with the Commission on October 25. And the Commission is expected to consider the case at its leading schedule for November 10 at which time the parties will be given the opportunity to further address these issues. On July 2, Delmarva Power filed a natural gas delivery base rate case in Delaware. The filing seeks approval of an annual rate increase of $10 million based on the requested return on equity of 11%, assuming approval of the implementation of revenue decoupling.

Hearings are scheduled for January 18 and 19 and a decision by the Public Service Commission is expected in April 2011. Delmarva Power implemented an interim rate increase of $2.5 million effective August 31 subject to refund. The remainder of the requested rate increase may be implemented at the end of the statutory period which is February 2, 2011 again subject to refund. Looking ahead to our next round of cases, as you can see on slide 5, we currently expect to file in Maryland in late 2010 or early 2011 for Delmarva Power and in the spring of 2011 for Pepco.

Next summer, we expect Pepco to file in the district Atlantic City Electric to file in New Jersey and Delmarva Power to file an electric case in Delaware. Note that this filing schedule is tentative and maybe impacted by financial projections or other considerations. We also plan to aggressively pursue on our rate case filings, a more comprehensive discussion on the topic of regulatory lag and its negative effects.

Given our plans to make significant and necessary investments in our utilities, it is crucial that our regulators and other stakeholders into regulatory process understand the causes and consequences of regulatory lag. Our filings will include proposals for methods to minimize lag. Earlier this month, the PJM Board reaffirmed the need for a Mid-Atlantic Power Pathway or MAPP transmission project with a one year delay in the in-service date.

Without MAPP, PJM’s analysis shows significant violations of reliability criteria in the MAC and East MAC regions of PJM in 2015. The PJM Board directed us to adopt project schedule to meet an in-service date of June 1, 2015. We plan to file an updated application for a certificate of public convenience and necessity with the Maryland Public Service Commission before the end of this year. While the project was being reviewed by PJM, we put in place agreements for all new rider and converter station locations, and have been moving forward with the environmental permitting and engineering design.

While the project cost remains an estimated $1.2 billion, we have revised our annual construction expenditure forecasts due to the change with the in-service date. The revised forecast can be seen on slide six. You can see that the near-term impact is a shifting of $83 million of capital from 2011 to later years. Also note that in the current forecasts, $183 million of capital has shifted from Delmarva Power to Pepco as a result of the final route selected for the Chesapeake Bay crossing.

We continue to make good progress on our blue print for the future initiatives. The status by jurisdiction can be seen on slide 7. Over 190,000 advanced meters have been installed in Delaware for our electric and gas customers and we expect to complete all the meter exchanges in Delaware by the end of the first quarter 2011. Meter activation will occur in stages. We began activating meters this month and plan to have all Delaware meters activated by June 2011.

The initial functionality includes remote meter reading, billing and outage notification. In the District of Columbia, we began the deployment of the advanced meters earlier this month with the goal of having the installations completed by the end of 2011. As approved by the Commissions in Delaware and the District of Columbia, regulatory assets have been created to assure recovery of and a return on AMI related costs between rate cases.

In Maryland, the Public Service Commission approved the deployment of advanced meters for Pepco customers subject to the implementation of a Commission approved, customer education and communication plan. We recently submitted this plan to the Commission and stakeholders for review. The Commission also approved the creation of a regulatory asset for AMI related costs with cost recovery in a base rate proceeding. Would currently plan to meter installations in mid-2011, for Pepco’s Maryland customers.

For Delmarva Power, the Maryland Commission deferred its decision on the deployment of advanced meters pending review and approval of an amended business case. We plan to file this business case with the Commission in mid-November. During the quarter, Pepco announced reliability enhancement plans for Maryland and the District of Columbia. The six point reliability plan advances work on existing programs as well as initiates new activities.

The programs include enhanced vegetation management, priority feeder upgrades, load growth, distribution automation, underground residential cable replacement and selective undergrounding. By focusing on these six areas, Pepco plans to increase the reliability of the distribution system by reducing both the frequency and duration of power outages. The total incremental cost of these reliability improvements is estimated to be $100 million in Maryland and $90 million in the District of Columbia over the next five years.

We are currently in the process of updating our five year capital plan and we’ll determine by the end of this year, the impact that these additional reliability improvements may have on the total capital budget. We expect to initiate similar programs in our other jurisdictions in the near future. At Pepco Energy Services, the profitable wind down of the retail energy supply business continues to be on tract and we are making progress on our efforts to ramp-up the Energy Services business.

Although, during the first half of this year, we had seen a slowing of contract signings, since July, PES has signed $90 million of new contracts. For example as seen on slide 8, Pepco Energy Services recently signed an energy savings and renewable energy performance contract with the Maryland Aviation Administration. The $21 million project includes the design and implementation of energy conservation measures that will improve the overall efficiency of more than 30 airport buildings including the main terminal at the BWI Thurgood Marshall Airport.

Pepco Energy Services will also install more than one acre of solar power generation equipment on the roof of the parking garage. Construction began in September, and is scheduled to be completed in December 2011. As we look ahead, we are lowering our longer term growth estimate and are now targeting an annual earnings of approximately $0.15 per share for Pepco Energy Services by 2014, down from $0.20 per share. PES has fewer federal projects currently under development than originally anticipated due to the governments focus on implementing the stimulus program at the expense of energy performance contracted.

We expect the focus to shift back to performance contract in over the coming year, but given the lengthy sales cycle, we have shifted the growth of the business to later in the planning horizon.

As we discussed last quarter, earlier this year, we began a comprehensive organizational review to identify opportunities to streamline the organization and achieve reduction in corporate overhead costs that were previously attributed to Conectiv Energy. We began the implementation of the restructuring plan during the third quarter and we expect to complete the execution of the plan by the end of this year.

The reduction in annual corporate overhead cost is currently estimated to be at least

$20 million for realization of the cost reductions is expected in 2011 and is reflected in our 2011 earnings outlook. At this point, let me turn it over to Tony Kamerick. Tony?

Tony Kamerick

Good morning and thank you for joining us today. I will recap our earnings, address our performance by operating segment and review our recent financing activity. We will then open the call to your questions. Our results for both the quarter and year-to-date periods show Conectiv Energy’s results as discontinued operations. Year-to-date Pepco Holdings has incurred an after-tax loss of $126 million from discontinued operations. We expect this loss will be partially offset over the remainder of the year by gains from the liquidation of the load service supply contracts and other remaining Conectiv Energy assets.

Upon completion of this liquidation, we currently expect the overall after-tax loss on the Connective Energy disposition will be in the range of $110 million to $125 million. Slide 9 summarizes our earnings for the quarter and year-to-date period. Earnings from continuing operations for the third quarter were $21 million or $0.09 per share compared to $104 million or $0.47 per share for the third quarter of last year. There were three special items recorded in the 2010 period. The first is an $81 million after-tax charge for debt extinguishment costs that were incurred due to the earlier redemption of parent company debt with the proceeds from the Connectiv Energy generation asset sale.

The second is an $8 million after-tax restructuring charge related to the organizational review that Joe just discussed. And the third is a $6 million after-tax charge due to the issuance of an order in the District of Columbia related to Pepco’s divestiture of its generating assets in the year 2000. Note that we have recently filed an appeal of this order.

In the 2009 period we recognized after-tax gains related to the Mirant bankruptcy settlement. We also recognized the Maryland state income tax benefit due to a change in the tax reporting for the disposition of certain assets in prior years. Excluding the special items, earnings from continuing operations for the third quarter of 2010 would have been a $116 million or $0.52 per share compared to $77 million or $0.35 per share in the 2009 period.

For the year-to-date period, earnings from continuing operations were $125 million or $0.56 per share compared to $184 million or $0.84 per share for the 2009 period. Excluding the special items I just referred to, earnings from continuing operations for 2000 – for the 2010 year-to-date period would have been $220 million or $0.99 per share compared to $149 million or $0.68 per share in the 2009 period.

A summary of the drivers of our financial results can be found on slide 10. Power Delivery earnings excluding special items were $0.41 per share in the third quarter compared to $0.31 per share for the 2009 quarter. Higher distribution rates during the quarter increased earnings by $0.04 per share. The higher rates reflect the impact of rate case decisions for Pepco in the District of Columbia, Delmarva Power in Maryland and for Atlantic City Electric. The higher rates also reflect the interim rates put in place for Delmarva Power in Delaware.

Higher weather related sales verses prior year also increased quarterly earnings by $0.04 per share. Cooling degree days were up by 36%. Keep in mind that our distribution revenue in Maryland and the District of Colombia which represent approximately two-thirds of total distribution revenue is decoupled from consumption and therefore is not impacted by weather.

Higher transmission revenue contributed $0.03 per share of the earnings increase due to higher transmission rates in effect. Partially offsetting these increases, was higher operation and maintenance expense which reduced earnings by $0.02 per share quarter-over-quarter. This increase was driven by the higher storm activity in 2010, partially offset by lower pension expense.

Year-to-date Power Delivery earnings excluding special items were $0.79 per share in 2010 compared to $0.60 per share for the nine months ended September 2009. The higher earnings were due to higher distribution revenue due to higher rates, growth in the number of customers and higher customer usage. Other drivers of the increase were higher transmission revenue, higher weather related sales versus the prior year, and higher earnings from unbilled revenue related to Atlantic City Electric’s basic generation service.

As we have previously discussed, under New Jersey regulation, Atlantic city Electric is entitle to recover from its customer all costs providing default service. Any difference between the total revenue and the total cost providing this service are deferred for future recovery from customers or returned to customers. However unbilled revenue is not included in the deferral is not included in the deferral calculation and therefore can impact earnings.

Typically the earnings impact is negligible. However given the much normal weather this year as compared to 2009, we realized a positive impact of $0.04 per share period-over-period. Over the last few years on an annual basis, we have experienced minimal earnings impact from unbilled revenue, partially offsetting factors in the year-to-date period were the negative impact of tax adjustments due to interest on uncertain and effectively settled tax positions, higher depreciation expense as a result of utility plan investment and higher operation and maintenance expense driven by severe storms.

Pepco Energy Service’s third quarter earnings were $0.03 per share as compared to $0.06 per share for the 2009 quarter. The decrease in earnings was due to the cost to repair a distribution pipe leak of the thermal services business. Higher costs of operating a customer’s cogeneration plant and lower gross margins in the retail natural gas supply business. Year-to-date Pepco Energy Service’s earnings were $0.14 per share compared to $0.15 per share for the 2009 period. The decrease in earnings was due to lower retail electricity sales volumes due to the ongoing wind down of the retail electricity supply business, partially offset by higher generation output.

In our corporate and other segment, which is primarily unallocated corporate costs, earnings improved by $0.09 per share quarter-over-quarter. The earnings improvement is due to the favorable state income tax effect resulting from the restructuring of certain PHI entities as well as lower interest expense due to the pay down of parent company debt with the proceeds from the Connectiv Energy generation asset sale.

Year-to-date earnings improved by $0.14 per share driven by favorable state income tax adjustments. Turning to slide 11, given the year-to-date results and our expectations for the remainder of the year, we are raising our 2010 earnings guidance range for ongoing operations to $1.00 to $1.10 per share from the previous range of $0.80 to $0.95 per share. The revised guidance range reflects strong Power Delivery operating results including the impact of hot summer weather on electric distribution revenue in certain jurisdictions, partially offset by the effects of a much higher level of storm activity in 2010 compared to 2009.

The revised guidance range also considers the anticipated reversal of $0.07 per share of our year-to-date earnings from unbilled revenue related to Atlantic City Electric’s basic generation service as well as incremental operation and maintenance expense associated with Pepco’s reliability enhancement plans.

We are reaffirming our 2011 earnings outlook range of $1.10 to $1.30 per share. We expect to convert the 2011 earnings outlook range to more refined earnings guidance range in the first quarter of 2011. Now I’ll turn to slide 12 to review our recent financing activity. On October 1, Pepco Holdings issued $250 million of 2.7% notes due in 2015. A portion of the proceeds was used on October 13 to repurchase $40 million of 6.125% notes due in 2017. The remaining proceeds along with other funds will be used in November to redeem $200 million of 6% notes due in 2019 and $10 million of 5.9% notes due in 2016.

This debt refunding will result in lower annual interest expense of approximately $0.02 per share beginning in 2011. Our refinancing combined with the pay down of parent company debt that I referred to earlier has significantly lowered interest expense and resulted in a very – and resulted in a very manageable debt redemption schedule as you can see from the slide.

On the credit side, earlier this week, Pepco Holdings closed on two 364 day credit facilities totaling $200 million to replace the $400 million, 364 day credit facility that expired in October 2010 and the $50 million, 18 months facility that expires in November 2010. The size of the new facilities is $250 million, less than the expiring facilities due to lower liquidity and collateral requirements as a result of the continued exit of the retail energy business and the disposal of the Connectiv Energy segment.

Now let me turn it back to Joe Rigby for some closing remarks.

Joe Rigby

Thanks Tony. In closing, I am certainly pleased with the results for the quarter. And believe that we have made very good progress on our strategic initiatives that position us to provide value to our customers and to our investors. And with that we’d like to open the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question will come from the line of Paul Patterson from Glenrock Associates.

Paul Patterson – Glenrock Associates

Good morning.

Joe Rigby

Good morning Paul.

Paul Patterson – Glenrock Associates

Just if you could go over the income tax adjustment and how we should be thinking about income taxes in 2011?

Tony Kamerick

Paul, I think a lot of the income tax items this year are the result of the sort of abnormal activity that we’re experiencing this year. So I would not expect the income tax items to affect 2011 too much and we would suggest using an effective tax rate that is more in the normal range for next year.

Paul Patterson – Glenrock Associates

And what is that, could you remind us again?

Tony Kamerick

We would suggest something in the high 30s.

Paul Patterson – Glenrock Associates

Okay, and then you mentioned something and I’m sorry if you cut out or I got little distracted, the unbilled revenue that you mentioned I think in – could you go over that again, what the impact of that was?

Tony Kamerick

Year-over-year, on to-date basis through September it’s about $0.04, but if you add the effect of last year to the effect this year, we’re on the positive to the tune of about $0.07, if that…

Paul Patterson – Glenrock Associates

Okay, but $0.04 sort of above normal. Is that how we should think about it, or below normal excuse me? How do we think about it in terms of the impact on a more normalized bases, I guess?

Tony Kamerick

I would say for the year-to-date we have improved by $0.04 compared to last year.

Paul Patterson – Glenrock Associates

Okay.

Tony Kamerick

So I think what I would say is from year-to-year basis, we usually see no impact. It usually kind of fluctuates month-to-month, but when you look at the total calendar year, it’s kind of a wash. If we returned all of the accrued revenue on the – what we’ve accrued so far, it would be about $0.07. So I guess the better way of saying it Paul, kind of going around here is that we have $0.99 per share from the continuing operations through September, about $0.07 of that is due to this unbilled revenue.

Paul Patterson – Glenrock Associates

Okay. And then finally the...

Joe Rigby

Paul, this is Joe. Just the other thing just kind of maybe put a little finer point on what Tony just said, when we – as we thought about the year-end, the updated range, part of what’s kind of thought there is going from $0.99 now into $1.00 to $1.10 is kind of a reversal of some of that back to the quote, unquote normal level of contribution from that particular item.

Paul Patterson – Glenrock Associates

Okay, great. Now just in general when we look at 2011, what kind of – I know that you probably don’t want to project specific ROEs for specific utility, so I won’t ask that, although that will be great. But just in general for the system wide, how should we think about sort of just the range of ROE or what the earned ROE would be if you were to achieve the numbers that you have there in guidance?

Tony Kamerick

It would not be up to the authorized return, go that far. We’ve generally said that our rates of return on equity at the utilities recently – they fluctuated between 6.5% on equity to maybe 8%, somewhere in that general range. But I mean, it does vary a lot jurisdiction to jurisdiction Paul.

Paul Patterson – Glenrock Associates

Sure.

Tony Kamerick

So I hate to put a number on any of those individual jurisdictions.

Paul Patterson – Glenrock Associates

Right, I understand that. But I guess when we’re looking at this though, it would indicate that you guys would be in the low – not the low, excuse me, the high sort of single digit area roughly speaking when we’re thinking about what that guidance is and so therefore, I guess what I’m wondering is there a potential as we go past 2011 for you guys to earn a more – a higher ROE, I mean?

Joe Rigby

Paul, this is Joe, I think you actually framed it pretty well, that’s kind of how we think about the situation we’re in that – we’re going to be flying below the allowed return. And frankly, as I mentioned in my comments that the last two cases have been very disappointing and part of what are our assignment is going into 2011 and beyond is to kind of change the dialog with the regulator and have them understand that, in a moment where there is very necessary infrastructure investment putting us in this position is not good for anybody, certainly not good for the customer in the long-term. So having different mechanisms in place whether they’re writers, trackers, formulas is really going to be a win all around because it obviously mutes the impact on the customer bill. It’s going to provide the kind of reliability our customers want, there is a tremendous amount of our spend that is focused frankly on helping our customers lower their overall cost.

And what we want as a result of that is a reasonable chance to earn our allowed return. So we are where we are. We have significant growth ahead of us, but I think we’re also needing to have a different dialog with our regulators and Tony and his team and all of us, that’s a significant area of focus for us. And I do expect that we’re going to get some real good traction in 2011 on that.

Paul Patterson – Glenrock Associates

Great. Thanks a lot guys.

Operator

(Operator Instructions) And your next question will come from the line of Ali Agha from SunTrust Robinson Humphrey. Please proceed.

Ali Agha – SunTrust Robinson Humphrey

Thank you. Good morning.

Joe Rigby

Good morning Ali.

Ali Agha – SunTrust Robinson Humphrey

Joe, picking on your theme here on your regulatory strategy for ‘011 and beyond. The trends that you alluded to we saw in DC and Maryland where they’re coming in with ROEs now below 10%, well below the national average. Do you see that really as a philosophical change in their mind on your risk profile or is it more a function of trying to mitigate any kind of rate increase given the economic climate we are in and using the ROE as one of the tools just to keep rate increases down? How are you seeing this below 10% ROEs being authorized?

Joe Rigby

That’s a great question. Let me make two comments. One is I absolutely agree with your premise that I think this is reflective of some of the recent the kind of the current economic condition and obviously a very difficult situation our regulators would be in. I also think that what you’re seeing is somewhat of an impact of implementing the coupling in a sense that there has been a change in the risk profile. So what we have seen is our position going in is to – would suggest that 25 basis point change in the allowed ROE and the Commission is taking 50 basis points.

So that’s a – that in combination I think with this pressure to react to the current economic condition is what’s pushing these things below double-digits.

Ali Agha – SunTrust Robinson Humphrey

And I mean to that point as you pointed out, you’re obviously not even earning those kind of authorized ROEs. As we’re looking at your plan again and assuming some realistic success for you, when would you expect to be closer to authorized levels assuming the game plan plays out, are we talking three or four years down the road or how are you seeing those ROEs getting closer to authorized level and the lag getting significantly reduced.

Joe Rigby

Well my expectation is that as we finish this cycle, that we are already in the process of putting together our positions in terms of coming at this in a slightly different way with the trackers and maybe even formula rates. So I’m not going to try to peg a year, but I would certainly expect that we’re going to be able to get some progress in this next round of cases that we mentioned.

Ali Agha – SunTrust Robinson Humphrey

Okay and last question Tony for you. Can you just remind us with regards to your debt reduction or pay down targets, maybe it’s in the numbers and I may have missed it. Are you done, or is there – how much is left in terms of utilizing the proceeds for the debt pay down. And also as far as new equity, is that still something that you would look at in 2012 or what’s your current thinking there?

Tony Kamerick

Okay, as far as the debt pay down goes, we’re pretty much done. We paid down $1.4 billion with proceeds of long-term parent company debt. So we’re pretty much done. On the second question on the equity, I would say, yes we are still looking at 2012 as the earliest at which we would issue equity.

Ali Agha – SunTrust Robinson Humphrey

Okay, thank you.

Operator

Your next question will come from the line of Maurice May from Power Insights.

Maurice May – Power Insights

Yes, good morning folks.

Joe Rigby

Good morning Maurice.

Maurice May – Power Insights

I want to try to get the drivers of a possible 2011 earnings increase, because the midpoints of your two – your guidance range and your outlook range indicate a $0.15 per share rise and I’m just wondering, you mentioned $0.02 per share from lower interest costs at the parent level. And I was just wondering whether you could go from there and give us some color?

Tony Kamerick

Well it’s more than $0.02 Maurice, the $0.02 related to just the most recent, the $250 million refinancing that we did.

Maurice May – Power Insights

Right sure, yes.

Tony Kamerick

So if you look at the totality of the interest expense reduction, it’s a lot larger than that. And then there is annualizing of some of the rate increases we’ve gotten. It’s a – those are probably the biggest drivers.

Maurice May – Power Insights

Okay and on the unbilled revenue situation at Atlantic City, you say the unbilled revenue evens out overtime and if you’re way ahead now, is it swing to the negative next year?

Tony Kamerick

We wouldn’t expect it to, no.

Maurice May – Power Insights

Okay.

Tony Kamerick

It’s generally as I said, it’s generally a wash but we now are king of overloaded by about $0.07. So if that – as Joe said if that gets returned to the balance of the year, the $0.99 really turns into $0.92.

Maurice May – Power Insights

Okay, good. Alrighty.

Tony Kamerick

For the first three quarters.

Maurice May – Power Insights

Okay, thank you very much Tony.

Tony Kamerick

You’re welcome.

Operator

And that concludes today’s question and answer session. I would now like to turn the call back over to Mr. Joe Rigby for closing comments.

Joe Rigby

Thanks operator. And again thank you all for joining us and for your interest in PHI. And the team and I look forward to see many of you at the EI conference next week and with that have a great day.

Operator

Thank you all for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

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