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Pepco Holdings, Inc. (POM)

Q2 2012 Earnings Call

August 7, 2012 11:00 a.m. ET

Executives

Donna Kinzel – VP, IR

Joe Rigby – Chairman, President & CEO

Fred Boyle – SVP & CFO

John Huffman – CEO, Pepco Energy Services

Tony Kamerick – Chief Regulatory Officer

Analysts

Paul Patterson – Glenrock Associates

Dan Eggers – Credit Suisse

Shahriar Pourreza – Citigroup

Paul Ridzon – KeyBanc

Ali Agha – SunTrust

James Dobson – Wunderlich Securities

Noah Hauser – Decade Capital

Andrew Levi – Avon Capital

Gregg Orrill – Barclays

Maurice May –Wellington Shields

Operator

Good day, ladies and gentlemen, and welcome to the Quarter Two 2012 Pepco Holdings Earnings Conference Call. My name is Ian, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) And as a reminder, the call is being recorded for replay purposes.

And I would now like to turn the call over to Donna Kinzel, Vice President of Investor Relations. Please proceed, ma’am.

Donna Kinzel

Thank you, Ian, and good morning, ladies and gentlemen. Welcome to the Pepco Holdings second quarter 2012 earnings conference call. The primary speakers on today’s call are Joe Rigby, Chairman, President and Chief Executive Officer, and Fred Boyle, Senior Vice President and Chief Financial Officer. Also available to answer your questions are Tony Kamerick, Executive Vice President and Chief Regulatory Officer, 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 remind you 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 our Safe Harbor disclosures contained in our Securities and Exchange Commission filings and found on Slide 2 of our presentation.

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 items and the associated financial impact are described in our earnings release dated today. The earnings release can be found on our website at www.pepcoholdings.com/investors. Joe?

Joe Rigby

Thanks, Donna, and good morning, ladies and gentlemen, and thanks for joining us today.

As seen on Slide 3, earnings from continuing operations for the second quarter of 2012 were $62 million compared to $95 million for the second quarter of 2011. The 2012 and 2011 earnings include the effects of mark-to-market activity and the 2012 earnings also include an asset impairment charge at Pepco Energy Services.

We view these items as not representative of our ongoing business operations. Excluding these items, earnings for the second quarter of 2012 would have been $57 million compared to $97 million for the second quarter of 2011. The decrease in adjusted earnings quarter over quarter was primarily due to favorable income tax adjustments in the 2011 quarter for prior tax years, higher power delivery operation and maintenance expense and lower Pepco Energy Services earnings.

Later in the call, Fred will address the financial results in our operating segment performance in more detail. But first, I’ll address some important matters starting with the recent distribution rate case orders in Maryland.

On July 20, we received decisions in both the Pepco and Delmarva Power distribution base rate cases in Maryland, which we found to be disappointing. A summary of the decisions can be found on Slides 4 and 5.

For Pepco, the Commission approved an $18 million annual increase in electric distribution base rates based on a 9.31% return on equity, but directed Pepco to reduce the amount of the rate increase by the annual cost of certain energy advisory programs and seek recovery of these costs through the EmPower Maryland Program. This reduction is currently estimated at $1.5 million.

Lower depreciation rates were approved resulting in an annual reduction of depreciation expense of approximately $27 million. The Commission also authorized recovery of $9 million of storm costs that were charged to operation and maintenance expense in 2011. The reversal of this expense and the establishment of the regulatory asset will occur in the third quarter.

For Delmarva Power, the Commission approved an $11 million annual increase in electric distribution base rates based on a 9.81% return on equity and authorized lower depreciation rates resulting in an annual reduction of depreciation expense of approximately $4 million. In both cases, the new distribution rates and depreciation rates were effective July 20.

The Commission rejected our proposals aimed at timely cost recovery in both cases and authorized a return on equity for Pepco that is among the lowest in the country. We view the Commission’s unwillingness to adopt mechanisms that would enable timely cost recovery to be disappointing and that it will necessitate the filing of frequent rate cases. While our deep and experienced regulatory staff is prepared to pursue this path, we view the frequent rate cases as inefficient and costly to the customer.

In response to these orders, we have extended our current hiring freeze indefinitely and we are in the process of rigorously reviewing our overall operating expenses. We are currently evaluating the orders to determine what actions, if any, to pursue. Also in Maryland, on July 25, the governor issued an executive order to find ways to improve and strengthen the state’s electric distribution system. The executive order sets in place a process to evaluate the effectiveness and feasibility of underground lines in selective areas, options for other infrastructure investments in the electric distribution system and options for financing and cost recovery for capital investments.

This group, led by the administration’s energy advisor, is tasked with reporting back to the governor within 60 days regarding recommended legislative changes, regulatory reforms and other executive branch actions. We endorse the dialog initiated by the governor and look forward to supporting and participating in the process.

We expect to file our next round of rate cases in Maryland in the fourth quarter of this year. A fair and reasonable outcome in the next round of cases will be crucial to continue the pace of investment in Maryland. We remain committed to system reliability and improving the customer experience, but we expect timely cost recovery and reasonable regulatory returns.

Our distribution rate cases in our other jurisdictions are proceeding as expected as shown on Slide 6 through 8. In New Jersey, briefs have been filed, reply briefs are due on August 10 and we expect a decision in the case by the end of this year. In Delaware, hearings, which were to begin on July 30, have been indefinitely postponed as the parties are currently engaged in settlement negotiations. As permitted by Delaware law, Delmarva Power implemented interim rate increases of $2.5 million on January 31 and $22.3 million on July 3 subject to refund based on the ultimate outcome of the case.

Our record in the District of Columbia case is now complete with reply briefs filed on July 9, and we expect a Commission decision in the fall. Also in the District of Columbia, the mayor has established a task force co-chaired by the city administrator and myself focused on the issue of undergrounding power lines to improve electric system reliability. Meetings of the task force will begin later this month, and a written report is due to the mayor by year end.

On June 29, our electric system was again tested with the arrival of a violent and destructive storm. With little to no advance warning, the high winds uprooted trees across our service territories causing significant damage to the electric system.

As shown on Slide 9, approximately 702,000 customers were without power at the height of the storm, or about 38% of our electric customers. By many accounts, this storm was the most destructive storm to strike the Mid-Atlantic region in almost a decade. Our efforts to enhance reliability and customer service over the past two years proved beneficial during the restoration process.

Within two days after the storm, we had mobilized the majority of the more than 2,000 outside mutual assistance workers. These workers, when combined with internal resources, represented the largest contingent of workers PHI has ever mobilized to restore service after a storm or hurricane. Even with all the destruction, we beat our initial global estimated time of restoration by two days. We restored power to 90% of customers by July 4, and our performance was in line with the response of other utilities affected by the storm.

Given the timing of the storm, the impact of the second quarter results was negligible as most of the costs incurred will be reflected in the third quarter. The total incremental cost to system restoration is currently estimated to be in the range of $70 million to $85 million.

A portion of the costs will be expensed or deferred with the balance being charged to capital. As I mentioned, a large portion of the cost incurred relates to services provided by third parties. We have not yet received all the invoices for these services, therefore, the costs have been estimated. Recovery of the incremental system restoration expenses will be pursued during the next cycle of distribution base rate cases.

During the second quarter, we continued to make good progress in implementing advanced metering infrastructure, or AMI. The status of each of our jurisdictions can be seen on Slide 10. Meter installation and activation is complete for Delaware Electric customers and is nearing completion for Pepco’s customers in the District of Columbia. For Pepco’s customers in Maryland, meter installation and activation is underway.

On May 8, the Maryland Public Service Commission authorized Delmarva Power to proceed with the implementation of AMI in Maryland. The initial customer benefits include the availability of more detailed account-specific information on energy usage, fewer estimated bills, enhanced billing options as well as an outage detection capability that helps make the restoration process more efficient.

Our restoration efforts after the recent storm were aided by this outage detection functionality. We were able to ping the AMI meters and get data that allowed us to clear outage orders, thereby eliminating the need to dispatch crews or call back customers in over 3,500 instances. As approved by the respective Commissions, regulatory assets have been created to assure recovery of and a return on AMI-related costs between rate cases.

As we have mentioned previously, late last year, Delaware approved the implementation of the critical peak rebate form of dynamic pricing for all default service customers with implementation for residential customers phased in over two years beginning this year. The customers in the current phase of implementation have received education packets and have selected their critical peak period notification preference. Under the critical peak rebate structure, customers are rewarded for lowering their energy use during critical peak periods when energy demand and the cost of supplying electricity are higher.

This critical peak rebate structure and similar implementation phase-in was approved for Pepco in Maryland on June 6 with the tariff effective July 1 and has been approved in concept for Delmarva Power in Maryland pending AMI deployment.

In the District of Columbia, a proposal to implement dynamic pricing is pending. Subject to approval, the phase-in implementation for Pepco’s residential customers in the District of Columbia is targeted to begin this year and continue into 2013. Through the expansion of the smart grid and implementation of dynamic pricing, we will enable customers to better manage their energy use and lower their energy bills, while we gain added tools to improve system reliability.

Now turning to slide 11, while we are seeing modest growth in the number of customers, weather-normalized kilowatt hour sales decreased 2.6% quarter-over-quarter and decreased 1.7% year-to-date. These decreases were driven by lower usage by residential customers across all jurisdictions and lower sales to commercial customers in the District of Columbia.

Higher industrial sales at Delmarva Power were a partially offsetting factor. A portion of the impact of the lower sales was offset by the revenue decoupling mechanisms we have in place. With decoupling in place in Maryland and the District of Columbia, approximately two-thirds of the distribution revenue was decoupled from consumption. Looking ahead, we expect power delivery sales to improve modestly in the second half of 2012, driven by employment growth across all jurisdictions.

At Pepco Energy Services, we have been focused over the past two years on growing the Energy Services business in the federal, state and local government sectors. As shown on slide 12, this year we have experienced challenges in the state and local government markets. These challenges stem from lower energy prices, which lessened the benefits of energy efficiency projects, and from the reluctance of the state and local governments to incur debt associated with such projects.

Given the slowdown in these markets, we believe that new business in these sectors will remain challenged in the near-term. Therefore, we plan to slow resource growth and geographic expansion in these markets, while focusing existing resources on developing businesses in the federal government sector and continuing to pursue combined heat and power projects.

As for the Retail Energy Supply business, the wind down of this business continues to be on track with substantially all of Pepco Energy Services’ retail customers’ obligations being performed by June 2014. And in the second quarter, Pepco Energy Services completed the scheduled deactivation of its two oil-fired generating station facilities in Washington, DC. We will update our long-term earnings target for Pepco Energy Services on the third quarter earnings call.

And at this point, let me turn it over to Fred Boyle.

Fred Boyle

Good morning and thank you for joining us today. I’ll now recap our earnings, address our performance by operating segment and discuss some topics of interest. We will then open the call to your questions.

As shown on slide 13, GAAP earnings from continuing operations for the second quarter of 2012 were $0.27 per share compared to $0.42 per share for the second quarter of 2011. Both periods include the mark-to-market effects of Pepco Energy Services’ retail energy economic hedging activities.

The 2012 period also includes an impairment charge of $0.01 per share related primarily to a Pepco Energy Services landfill gas-fired generation plant. Excluding these adjustments, earnings per share from continuing operations for the second quarter would have been $0.25 per share compared to $0.43 per share for the second quarter of 2011.

GAAP earnings from continuing operations for the six months ended June 30, 2012 were $0.57 per share compared to $0.69 per share for the 2011 period. Excluding the adjustments that I just discussed, earnings per share from continuing operations for the six months ended June 2012 would have been $0.55 per share compared to $0.71 per share for the 2011 period.

A summary of the drivers of our financial results for the quarter and year-to-date periods can be found on slides 14 and 15. The biggest driver of the reduction in quarterly earnings was the positive impact of a tax adjustment in the second quarter of 2011, which increased after-tax earnings by $17 million or $0.08 per share.

This tax adjustment primarily resulted from an agreement reached with the IRS regarding the interest due on tax liabilities related to a settlement for prior tax years. Approximately half of the tax benefit affected the Power Delivery segment with the balance affecting the other non-regulated segment.

For the second quarter, Power Delivery earnings were $0.23 per share compared to $0.32 per share for the 2011 quarter. In addition to the 2011 tax benefit that I just discussed, higher operation and maintenance expense in the 2012 quarter decreased earnings by $0.05 per share.

This $0.05 is made up of several components. About $0.02 per share is due to the impact of an unfavorable adjustment to pension expense this year resulting from the annual actuarial review versus a favorable adjustment to pension expense last year resulting from the annual review. About $0.01 per share is due to the positive impact of a reduction in self-insurance reserves in 2011.

Higher employee-related expenses and higher customer support costs also each decreased earnings by $0.01 per share. The earnings decreases were partially offset by higher transmission and distribution rates, which increased earnings by $0.02 per share and $0.01 per share respectively. The higher rates were driven by increased investment in the Power Delivery business.

Year to date, Power Delivery earnings were $0.44 per share in 2012 compared to $0.53 per share for the six months ended June 2011. The decrease in earnings was the result of higher operation and maintenance expense, higher depreciation expense and lower weather-related sales versus the prior year.

Partially offsetting the earnings decreases were higher distribution and transmission revenues due to higher rates associated with increased investment in the Power Delivery business. At our Analyst Conference in March, we provided a forecast of total 2012 O&M expense for Power Delivery of $850 million to $880 million. Given our year-to-date results and expectations for the remainder of the year, we expect O&M to be in the top half of this range. This level of O&M spending is contemplated in our earnings guidance range.

Pepco Energy Services’ second quarter adjusted earnings were $0.02 per share compared to $0.04 per share for the 2011 quarter. Year to date, adjusted earnings were $0.06 per share compared to $0.10 per share for the six months ended June 2011. The decrease in earnings for both the quarter and year-to-date periods was due to lower Energy Services project activity and lower retail electric sales volumes resulting from the ongoing wind down of the Retail Energy Supply business.

In our other non-regulated segment, earnings were $0.03 per share for the second quarter of 2012 compared to $0.08 per share for the same period in 2011. Year to date, earnings were $0.08 per share compared to $0.11 per share for the six months ended June 2011. The decrease in earnings for both the quarter and year-to-date periods was primarily due to the impact of the 2011 income tax adjustments I discussed earlier.

In our Corporate and Other segment, which is mainly unallocated corporate costs, earnings decreased by $0.02 per share in the second quarter of 2012 as compared to the 2011 quarter. The decrease was due to an unfavorable tax adjustment related to tax years 2004 through 2010. The year-to-date earnings were unchanged period over period.

Now I’ll turn to some topics of interest.

Turning to Slide 16, on June 26, Delmarva issued $250 million of 30-year first mortgage bonds. The bonds bear interest at an annual fixed rate of 4% and are due on June 1, 2042. Delmarva Power used $31 million of the net proceeds to redeem all outstanding 5.2% tax exempt bonds due 2019.

The balance of the proceeds was used to repay Delmarva Power commercial paper that was issued to temporarily fund capital expenditures and working capital and to redeem tax-exempt bonds prior to maturity as well as other general corporate purposes.

On August 2, PHI and its utility subsidiaries amended their $1.5 billion credit facility to extend the expiration date by one year to August 1, 2017 and to decrease certain fees and interest rates payable to the lenders under the facility. All other terms and conditions of the credit facility remained unchanged.

Turning to Slide 17, given the year-to-date results and our expectations for the remainder of the year, we are reaffirming our 2012 earnings guidance range for ongoing operations of $1.15 to $1.30 per share. The guidance range excludes the results of discontinued operations and the impact of any special, unusual or extraordinary items. The guidance range also excludes the net mark-to-market effects of economic hedging activities associated with the Retail Energy Supply business of Pepco Energy Services.

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

Joe Rigby

Thanks, Fred. We continue to make good progress on executing our strategic plan, and we will maintain that momentum for the remainder of 2012 and beyond. This year has not been without challenges, but we continue to manage through them and remain focused on our top priority of electric system reliability and improving the customer experience. Our stable earnings base, low-risk profile, commitment to the dividend, and our earnings growth opportunities provide a strong foundation for enhancing value to our investors.

And with that, we’d like to open the call to your questions.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. (Operator Instructions) And our first question comes from the line of Paul Patterson with Glenrock Associates. Please proceed, sir.

Paul Patterson – Glenrock Associates

Good morning. Can you hear me?

Joe Rigby

Yes.

Fred Boyle

Yes.

Paul Patterson – Glenrock Associates

First, on sales growth, you guys expected to weather adjusted turned positive because of employment growth. Did I hear that accurately for the second half of this year?

Fred Boyle

Yes. This is Fred. That’s correct.

Paul Patterson – Glenrock Associates

Okay. How much more – can you quantify that a little bit? Or what’s the metric that we’re actually looking at here in terms of employment growth? Is this, I mean, just could you just outline this because for the last 18 months it’s been negative. I’m just trying to get a sense as to how should we think about this?

Joe Rigby

Right. As far as in the Delmarva region, we’re seeing some improvements, significant improvement in the industrial activity there and there’s been job expansion in that area that we expect to continue the second half of this year.

Looking to New Jersey in the ACE area, which had been very hard hit through the recession from an employment perspective, we are seeing indications of strong growth there and we expect that to continue the second half or expect it to really accelerate for the second half of this year.

The Philadelphia Fed South Jersey Survey of Small Business Confidence, for example, is now indicating that the confidence level is back to pre-recession levels, which had been quite depressed in New Jersey. Similarly, in the Mid-Atlantic region, the Manufacturers Survey, about 70% are now saying they’re adding staff. So we’re seeing some positive signs there which should help offset some of the residential that’s been depressed, really, across the system.

Paul Patterson – Glenrock Associates

Right. So it’s basically on the industrial side? Is that how we should think about this?

Joe Rigby

And on the commercial in the New Jersey area with the casinos.

Paul Patterson – Glenrock Associates

Okay. Any sense as to how much?

Joe Rigby

From a total system, we had been targeting total growth of about 1.9% for 2012 and we’re now expecting, on a weather-adjusted basis, to be down 2012 a little less than 0.5%.

Paul Patterson – Glenrock Associates

Okay. Now, on the Slide 12, you guys mentioned the PES, the sort of changing – the market challenges. Could you elaborate a little bit more on that in terms of what you’re seeing there at PES?

Joe Rigby

Yes, John?

John Huffman

Yeah, hey, Paul, this is John Huffman. Since the Analyst Conference in March, we’ve seen continued challenges in the state and local government markets, which is, by far, our biggest segments. And really, you know, the biggest driver really is the unwillingness or the caution that they’re showing in terms of taking on new debt which is associated with the third-party financing of our projects.

So we’re continuing to see that. We’ve signed just $2 million of energy efficiency contracts through the first half of the year and we’re just seeing fewer projects out there. So our pipeline hasn’t been replenished like we were expecting.

Paul Patterson – Glenrock Associates

So how is the outlook going forward on this business, I guess?

John Huffman

Well, we’re evaluating that right now as part of our annual planning process. And as Joe mentioned, we’ll be providing a new outlook on the next earnings call.

Paul Patterson – Glenrock Associates

Okay, great. On the regulatory outlook here, I’m not exactly clear. Maybe you can sort of give us a little bit more of a flavor here as to how you feel the next set of rate cases is going to do the trick here. It seems that they don’t – I don’t know, when I read these orders and what have you, particularly in Maryland, it doesn’t look like they like the idea of RIM. Basically, it looks like they want reliability, but they don’t want to pay for it, is how I’m reading it. Can you just give us a little bit more of a flavor as to how you outline this? And if it doesn’t work out, Joe, what then is the plan because the strategy seems to have been get reliability up, get customer satisfaction up and then better regulatory treatment, et cetera. What happens in this situation if you repetitively don’t get what you need?

Joe Rigby

Let me make a couple comments, Paul, because that is probably the question of the day and it’s probably been the question that has had the most focus certainly over the last couple of months and certainly over the last couple weeks. The basic premise that if you provide it or if you build it, they will be willing to pay is something that you kind of have to believe in to be in this business.

I think if you look at the – certainly, if you look not only at the words, but even the tone of the recent Maryland order for Pepco, it’s really pretty harsh. I think our view, and Tony can comment when I wrap up, is that it would not appear to be the right path to continue to pursue the RIM, if you will, in the next Maryland case. They pretty severely rejected that.

I think at the analyst conference, we had kind of shown a menu of different alternatives that we can pursue and we’ll kind of go down that menu. But I think that we also talked about kind of plan B, which is just to go back in and make more and more filings. As fast as we have to, we will. I think that we also don’t look at it that necessarily Maryland is the whole story for PHI. It’s 25% of, I’ll say, the revenue base. It’s, obviously, very important, but we do think that we’ll be able to make good decent headway in our other jurisdictions.

One of the other things that we think about, not surprising is, in parallel, we have to continue to expand the dialog with other key stakeholders. I wouldn’t rule out turning to take a legislative approach in the State of Maryland. I don’t think that that would necessarily deliver a benefit per se in this next round of cases. But that’s clearly something that we’re evaluating as we move forward.

I think to kind of get to the heart of your question, is there a point where we just say, ‘Hey, we’re not going to spend any more money in this jurisdiction if we don’t get a fair outcome,’ I just don’t want to raise that issue right now. But I would tell you that we are keenly aware that there is a point, potentially, that we have to have a much more difficult conversation with both our regulators and our legislative leaders that this is just truly not sustainable.

And I don’t think we’re quite there yet. I think it’s important for us to maintain the progress that we’ve made. Candidly, it’s disappointing to me that when I look at the facts and the facts show significant improvement in reliability over the last two years, when I look at the facts of the performance, not only in Hurricane Irene, but in this most recent storm, we performed right in line, in some cases better, than the other regional utilities and yet there seems to be just a very harsh tone taken towards Pepco.

So I’m believing that the facts will eventually win out. I think there’s a view that I hold that if you continue to perform, you’ll be able to work your way through this. There’s no question that we’re in a tough environment right now. I just don’t want to – I don’t think it would be prudent to kind of draw a line in the sand at this point because of the progress that we’ve made. And I think that if we tried that option, it probably would invite a reaction that we really don’t want at this point in time. I’m more heartened by expanding the dialog both in DC and Maryland around undergrounding.

If you get to where most of the criticism comes, it’s after an enormous weather event. And if you just look at what causes that, it’s predominantly trees that are outside the right-of-way that are literally taking the infrastructure down. And the obvious solution there is how do you harden the system to prevent that. So I’m pleased that the governor and the mayor have initiated the conversations to get to the core issue of what’s causing the most frustration, which is after major weather events.

So a long-winded way to say that I think it’s more prudent for us to keep pace. But I do want you to know that we understand that there’s a point in the future potentially where we have to have a much more difficult conversation.

Paul Patterson – Glenrock Associates

Okay. DC, you said the third quarter, and I guess listening to your comments, you’re expecting something more constructive there. Do we have any idea when DC is going to act on this case?

Tony Kamerick

Paul, this is Tony. They do not have a statutory deadline, so we’re expecting it in the third quarter. But it could be early fourth quarter, also.

Paul Patterson – Glenrock Associates

Okay, and then sort of following up, Joe, on this undergrounding thing, I mean, that sounds like a lot more CapEx. And I mean, is it safe to assume that you’d have to have some different kind of regulatory construct or some substantially better sense in terms of regulatory treatment of some sort before you really undertake something like that, as opposed to just sort of politicians saying that they sort of promising you something, do you follow me, as opposed to...?

Joe Rigby

Oh, yeah. Paul, let me tell you something. We would not outrun our headlights proceeding with undergrounding without having a very fulsome discussion. I mean, there are many issues with undergrounding. People can talk about the cost. Obviously, that’s an enormous impact, but just even the logistics of pulling it off. I mean, it’s very technically feasible. It’s not technically beyond anything we can do. But the issues that surround that are not just related to cost. But I think part of that dialog, as we kind of peel that onion back, it has to include a very clear path of recovery because we just could not proceed on something that significant.

If you get a chance to take a look at the Shaw Group report that, I guess, we did about four years ago in the District around the potential of undergrounding, and these are enormous dollars, enormous monthly impacts to a customer’s bill even if you stretch it out over 30 years.

So we need to have this dialog that both the governor and the mayor have initiated so people kind of see this for what it really is. It’s possible. It would improve reliability following a major weather event, but it’s not without some very serious issues. We view this as more so a policy issue than anything else, and that’s why we welcome the dialog.

Paul Patterson – Glenrock Associates

Okay. Great. Thanks a lot.

Tony Kamerick

Paul, this is Tony. I would just add one further thought. In the District of Columbia, one of the proposals that was made was that there would be a surcharge on customers’ bills to help pay for this, and that’s the kind of thing we’d be looking for.

Paul Patterson – Glenrock Associates

Okay. Thanks so much.

Operator

Thank you very much for your question. Our next question comes from the line of Dan Eggers of Credit Suisse. Please proceed.

Dan Eggers – Credit Suisse

Hey. Good morning, guys. Paul covered a lot of these issues in details. But I guess just kind of thinking through Maryland a little bit more with the governor’s blue-ribbon panel and the 60-day process or less than 60 days now to come up with some plans, how do you see the dialog playing through and, even if there are a series of suggestions as to executive or legislative actions, how quickly could those be implemented given the political calendar ahead and your planned rate case filings later on this year?

Joe Rigby

Well, candidly, we have raised our hand and said that we want to be – this is Joe, by the way – that we raised our hand and said we obviously want to be a participant in this dialog. We have not heard more back from the governor’s energy advisor, although we think that that’s just right in the offing.

I’m not sure, Dan, how much could be done in the upcoming legislative session. So I wouldn’t anticipate that as we make our filing later this year that it would necessarily kind of intersect with that effort such that there would be legislative action. But that’s my own personal speculation at this point.

Dan Eggers – Credit Suisse

And, Joe, I guess when you look at this rate case that’s going to come in the fourth quarter based on what was said and done, not only denying any sort of forward-looking mechanisms, but also the view that the Commission cannot reimburse you for real and natural costs because they don’t feel like they need to because you have the access to capital, what angles do you pursue in this case to try and get closer to what is an arguably still low ROE?

Joe Rigby

Right. I’ll make a comment, but I would also invite Tony to do that. We have spent, obviously, as you would imagine, we’ve spent a lot of time in the last couple of weeks talking about this. I think the short of it is that we need to come in with a very straightforward case. The Commission has made it pretty clear they’re not interested in discussing a RIM or a tracker. So we need to approach this, I think, in a way in which we don’t kind of distract the process with that. I think the point, though, is to get back in there as quickly as we possibly can and also to kind of keep the process as streamlined as we can. And with that, Tony, let me maybe ask you to maybe expand on that.

Tony Kamerick

Okay. Well, I don’t think I can expand a whole lot more. I think, as Joe said earlier, our plan B has always been just to keep filing rate cases every nine months if that’s necessary, and that’s what we plan to do. And Joe also pointed out that we might put a few things in here that are not surcharge mechanisms but some other proposals from the list that we have provided earlier. But I just think we keep pounding the rate case drum.

Dan Eggers – Credit Suisse

I guess, I understand the need to try and get the revenues up as quickly as possible. But it seems like there is such a huge divergence in opinion between what you and the equity markets believe a utility should be allowed to return and what the Commission believes the utility should be allowed to return. Does the hammering-out-the-case process really work in Maryland or does there need to be more time, more education and maybe more of this blue-ribbon panel pressure to try and get to a workable solution rather than going to this regular exercise that hasn’t yielded a whole lot?

Joe Rigby

Well, Dan, this is Joe. I think you’re kind of getting to one of the cores of the issue is that clearly the Commission makes these determinations. But also, there’s a path that we have to follow in parallel which we’re actually very actively involved with right now and we have been. But obviously, we’re just going to have to double our efforts to dialog with key decision makers both at the state and the federal level to have them understand the implications of what’s happening to Pepco and, I’ll say, the disparity between the level of spend and the level of recovery.

So you could be assured that those conversations are taking place and will continue to take place. We have a very full calendar in front of us in terms of our outreach. The need to educate is essential. We’re shifting our advertising from, I’ll say, the focus on the reliability efforts to kind of get even more basic and fundamental about what it takes to maintain a grid and what it takes to restore when you have these major efforts.

But we’re not Pollyannish. I mean, I think it’s clear that we’re going to have to work our way through this over the next several months, certainly, over the next year as we work through the next case. But there’s an extensive amount of outreach that’s already underway, and we’ll be continuing that as we go into the future.

Dan Eggers – Credit Suisse

Okay, and I guess one last question just on the Delaware, the settlement talks that you guys have entered into. Is there any timeline into which, kind of the indefinite stay out, no longer indefinite where we should look for some sort of announcement or some sort of resolution just over the next month or two months or whatever it is?

Tony Kamerick

Yeah. Dan, this is Tony. We’re hoping for something shortly. I would say shortly being within the next week to two weeks.

Dan Eggers – Credit Suisse

Great. Thank you, guys.

Operator

Thank you for the question. Our next question comes from the line of Shahriar Pourreza of Citigroup. Your line is live. Please proceed.

Shahriar Pourreza – Citigroup

Good morning, everyone. Most of my questions were answered I think when you addressed Dan’s question, you answered it as well. But was there any consideration given internally to delay an expedited filing in this state while you work through some of the key issues with the parties involved because hashing out some of these issues could take some time. Why not just wait a few extra months?

Joe Rigby

This is Joe. Yeah, we did. We looked at this from many different angles. And I think that trying to base your decisions or your process on, let’s say, the legislative approach could be workable. But we also felt that we needed to just get right back in there, kind of take the bull by the horns and get back in in front of the Commission, as we said we would, back in April when we had the Analyst meeting. But so, yeah, we did talk about that. But the strong consensus was to move ahead with plan we’re talking about today.

Shahriar Pourreza – Citigroup

Okay, and then just one last question. As far as, I mean, clearly the Commission denounced the use of riders for reliability spending. But has the Commission officially come out there and denounced the use of trackers on the reliability side to maybe capitalize some of the costs?

Tony Kamerick

This is Tony again. We offered a tracker as an alternative to the RIM in both Maryland cases. And though I don’t think the Commission really addressed the issue in their order, it was pretty clear that he rejected that option, also.

Shahriar Pourreza – Citigroup

All right. Thanks. Question’s answered.

Operator

Thank you for the question. Our next question comes from the line of Paul Ridzon of KeyBanc. Your line is live. Please proceed.

Paul Ridzon – KeyBanc

Just on the storm and the third quarter impact, most of it’s capital, but how much do you actually see it hitting the third quarter as opposed to deferred?

Fred Boyle

Well, Paul, this is Fred. Of the total amount of costs that were incurred, you saw the range of, I think, $70 million to $85 million. We haven’t determined at this point in time how much is capital versus O&M. But we will defer, to the extent there’s O&M costs, for Maryland and New Jersey. We don’t defer in DC and Delaware. So when we have the third quarter, we’ll provide more information on that.

Historically, we’ve been more in kind of the 50/50 but every storm is different. That doesn’t mean – by that I mean, 50/50 capital versus O&M, that that’ll play out on this storm.

Paul Ridzon – KeyBanc

And how much ballpark of the damage was done in those states that do allow deferring?

Fred Boyle

Well, we haven’t finally determined that. As far as total company, Pepco, kind of the midpoint I’d say of the range was about $43 million, and DPL, it was just a few million dollars, and then for ACE, New Jersey, it was about $30 million to $35 million. If you look at those numbers, we would expect the amount that’s not going to be deferred to be most likely less than $10 million.

Paul Ridzon – KeyBanc

And that would hit in the third quarter?

Fred Boyle

Yes.

Paul Ridzon – KeyBanc

And then just back to PES, what was the goal? Was that $20 million of net income by 2015 or 2016?

John Huffman

Paul, this is John. Yeah, it was $0.15 EPS in 2016 is the goal we established back in March.

Paul Ridzon – KeyBanc

And that’s under review here?

John Huffman

That’s correct.

Paul Ridzon – KeyBanc

Okay. Thank you very much.

Operator

Thank you very much for your question. Our next question is from the line of Ali Agha of SunTrust. Your line is live. Please proceed.

Ali Agha – SunTrust

Thank you. Good morning.

Joe Rigby

Good morning.

Fred Boyle

Good morning, Ali.

Ali Agha – SunTrust

Joe, if I listen to your commentary particularly as it relates to Maryland and your thought process, et cetera, am I right in assuming that you’ll file the rate case in the fourth quarter, presumably a decision comes out seven months or, let’s say, July or so of next year, and then depending on that decision, you will revisit your future CapEx plans beyond that? So we’re really looking at, maybe, third quarter next year when you folks take a fine look at CapEx budgets? Is that fair?

Joe Rigby

Ali, I think you could take that from what I said. I think what I was really just trying to get across is that we think the best path forward here is to continue the long run. It’s absolutely clear that we’re making improvements.

One of the things that we obviously focus on is, and I think it’s important for people on this call to know, is that we’ve entered the period where the reliability standards in the State of Maryland will be in effect and those measurement periods will be coming up. And I don’t think we want to go into the period after our first report card with a bad outcome here. I just don’t think that that’s going to help the situation.

But having said all that, we are taking steps now that we had identified in the first quarter as we thought through potential downside scenarios to manage cost, and all of that will lead to us taking another hard look at this sometime around this time next year. I’m not going to try to signal or forecast any particular outcome. But I can tell you that it is the top piece of conversation that we have, not only with the senior team, but with the board. So I think I’ll just leave my comments at that.

Ali Agha – SunTrust

Okay. And then secondly with regards to the New Jersey case, I know you folks have made a pretty strong push to try to get a settlement there and then there’s progress and then it kind of got stalled. Is it fair to say that at this point, you’re probably looking at a fully litigated case or is settlement still a possibility in New Jersey?

Tony Kamerick

Ali, this is Tony. I wouldn’t rule it out.

Ali Agha – SunTrust

Would not rule it out?

Tony Kamerick

Would not rule it out, no.

Ali Agha – SunTrust

Okay, because, Tony, I know you had talked about the stand the consumer advocate had taken. Has her position changed at all?

Tony Kamerick

Well, we’re in the briefing stage at this point, Ali, and, as Joe said, our reply briefs are due on Friday. So I don’t think the public advocate’s position has changed much at this point. But again, I wouldn’t put the odds at very high for settlement, but I do think there’s still an opportunity.

Ali Agha – SunTrust

I see. Then thirdly, more near term, I’m looking at your numbers, given where we’re through the first half, results-wise, $0.55 versus $0.71, when I look at your full year guidance, even at the low end, you’re implying a pretty strong second half and then in the high end a very strong second half. Can you remind us why second half should be so much stronger and should we calibrate our thinking somewhat within that range given how the first half has played out so far?

Fred Boyle

Well, this is Fred. As far as the range, in the third quarter call, we’d anticipate providing some more color around where we expect to fall within the range. And as far as the second half of the year, certainly some of the rate case activity impacts the balance of the year as does, then, any of the O&M initiatives that will be taken the second half of the year. That will also have an impact on earnings.

Ali Agha – SunTrust

Okay. And then lastly, on the O&M front, as you pointed out, you’re going to end up at the higher end of the range for the year. In general, you guys have pointed to O&M spending as being one of the areas of focus after the last year or so. Just given the events outside your control, the scrutiny, et cetera, have you revisited your thoughts on O&M and is that going to continue to be escalating, perhaps, at historic levels?

Fred Boyle

This is Fred. We’ll continue to evaluate the O&M. We always try and maintain that. And as we’ve indicated, we have some initiatives in place, including the hiring freeze, for the balance of this year, though, as part of these initiatives, though, we don’t anticipate cutting anything on the reliability side. We’re looking at non-reliability spend and opportunities to make reductions there.

Ali Agha – SunTrust

Okay. Thank you.

Operator

Thank you for your question. Our next question comes from the line of Jay Dobson of Wunderlich Securities. Your line is live. Please proceed.

Jay Dobson – Wunderlich Securities

Good morning, Joe.

Joe Rigby

Good morning, Jay.

Jay Dobson – Wunderlich Securities

Maybe following on the last question because it’s where I really wanted to go. We talk about O&M and as I read a lot of these orders, I guess, a little differently than some of the earlier questioners, it seems to me that regulators – there seems to be a disconnect between how you sort of punctuated your prepared comments saying there’s good progress and regulators sort of saying, we’re not seeing the progress. So maybe that is the time lag you’re talking about. But maybe also the answer is – and I’m not sure, some of us on Wall Street always want to think spending dollars solves problems. But maybe part of the answer is, to Ali’s comment, letting O&M run a little bit more, spending a little bit out on the front end gets you a little better outcome on the back end. Maybe just elaborate a little bit there, if you wouldn’t mind.

Joe Rigby

That’s an interesting point. It’s funny you say that because we’ve talked about that, maybe you just kind of pressed down even harder on the pedal. I think that when I think about the level of spend, I think it’s proper to think about it in certain categories that are essential, whether it’s tree trimming, whether it’s making sure that you’ve got a much larger standing force to execute the construction plan and then also to have them there in place when you do have storms. And I think at this point, we’ve, obviously, signaled that we’re absolutely committed to doing that.

But I also think that it’s prudent to look at, I’ll say, the “kind of the size of the organization” relative to what your revenue stream is. And we just feel that – and we actually had this conversation in the first quarter internally that we need to be looking at different scenarios and that we need to be prepared to move quickly to tighten the belt if we have to, so that we can deliver on the commitments to you in the Street to be in guidance and to make sure that we don’t waiver one iota from our commitment to the dividend, and that’s the case.

So we did have that conversation. I’m “comfortable.” I’m not happy, but I’m comfortable that we’re pulling the right levers here. Candidly, the level of spend we have on the reliability is still very high and it’s one that we have to maintain, in our judgment, to get us to that place where, over time, we can actually realize reasonable regulatory outcomes. But long-winded way to say that we have thought through the scenario you just presented.

Jay Dobson – Wunderlich Securities

Okay. Fair enough. And then maybe if you wouldn’t mind elaborating, I think it’d be good for this audience and maybe for others that are on this. But when you say you’ve made good progress, I think Dan or someone else suggested earlier that there’s a little disconnect there. The stock price certainly hasn’t reflected good progress, nor have rate orders. When you say we’re making good progress in 2012, maybe just cite what exactly you’re talking about.

Joe Rigby

Sure. When you look at the major initiatives, whether it’s the blueprint or the smart grid, whether it’s the execution of the construction plan, the improvement period over period in reliability in the areas that we have really focused, in my opinion, it’s very evident that these are all dollars that are necessary to be spent. They’re dollars that, I’ll say, more in the blue sky day-to-day experience of the customers, it’s very evident.

The expansion of the energy advisors to really help our customers use the technology that we’re putting in place, these are just a couple examples that I would point to. I think that, unfortunately, we have been on the receiving end of a lot of negative feelings. Customers, politicians, the media and, really, for the most part, in our Pepco service territories after these, for lack of a better term, extraordinary weather events.

I think back two years ago, and we seem to be in a pattern here where that part of our service territory has been pounded by serious weather events. I look at the improvement in the performance in those events. I look back to Hurricane Irene. We had a very strong performance, and this one, we did as well. But I think that we seem to be caught in a pattern where it’s very, very difficult for us to get recognition for that. But I think throwing your hands up and saying, well, we’re not going to keep pressing on this, would not be the right approach.

Jay Dobson – Wunderlich Securities

No, I would definitely agree with that. And then, Fred, maybe just going back to the guidance question, and, I guess I’ll ask a little more pointed. I mean, virtually it seems impossible with what I’m looking at to get to the high end of the range to splitting it in two. I mean, 2/3 of your business is decoupled. We’re talking about costs being at the higher end. We’re talking about revisiting PES.

And even if I include the, I guess it’s now $0.04 of tax benefits which I’m excluding from the first half of this year, it just seems like it’s nary impossible. And so I guess, I ask two questions. A, are there other tax benefits? And Tony is probably smiling right now because he’s always willing to answer these questions. Are there tax benefits we’re expecting in the second half that would be again those non-recurring, understanding the accountants in the room might say they’re recurring, non-recurring items or are there other elements we should be thinking about because, again, decisions that are going to come in rate cases later this year aren’t going to have a material impact on the second half. So I’m still just struggling and, I understand getting the summer behind you will help, but I’m just struggling with how we can even have an upper end possibility there.

Fred Boyle

Right. Well, as far as where we’re going to fall in the range, like I say, we’ll give some more clarity around that once we get through the summer and get through September on the third quarter call. As far as your question regarding any other tax items, no, I’m not aware of any that we have barring some settlement or other agreements that are reached that I’m not aware of at this point in time.

So there’s nothing planned or, say, baked into our expectations the rest of the year that place us to get into the guidance. So I think we’ll just have to wait for the third quarter. We have these O&M initiatives, like I mentioned, that are going to have an impact on the second half of the year and the rate case activity.

Regarding PES, as far as our expectations for 2012, there’s not going to be a big change from the contribution of PES in 2012. I think the clarity there that we talk about for the third quarter is more as we look out through the 2015, 2016 that John was alluding to earlier where we were talking about $0.15 contribution. But for 2012, I don’t see a big change there.

Jay Dobson – Wunderlich Securities

Okay. Got you. But back to costs, I mean, you’re saying you’re going to be at the high end of range and, I don’t have it in front of me, but I think if I went through the income statement, the first half of this year is just about on a run rate of high end of the range. So are you suggesting that second half will be a little lower O&M than we might otherwise have seen? So the $880 million is just about the run rate you’re on right now.

Fred Boyle

Right. So what we are looking at through our initiatives would be a reduction of approximately $20 million in the second half that would hit in the second half of this year. In addition, we will have, as Joe alluded to at the beginning, with the Maryland orders, we were allowed to recover storm costs from 2011, and approximately $9 million of those we had not deferred. So we’ll be deferring those in the second half of this year.

Jay Dobson – Wunderlich Securities

Got you. So that’s really out of period, though. But I guess you would call that recurring?

Fred Boyle

That would be, right, recurring. It would be part of our ongoing earnings just like when the expenses hit last year.

Jay Dobson – Wunderlich Securities

Got you. And that $20 million, the reduction you’re talking about, would be part of what’s in that $880 million? So we might have been $900 million and we’ll be $880 million. Is that how I should think about the $20 million you just talked about?

Fred Boyle

Well, the $20 million is factored into us saying that we’re going to be in the upper half of the range.

Jay Dobson – Wunderlich Securities

Okay. Fair enough. And just lastly, the storm costs you’re talking about, the piece that ends up being expensed would be excluded from the $850 million to $880 million?

Fred Boyle

No, that would be part of that. That’s going to be part of our ongoing guidance – our ongoing earnings, I should say. I don’t expect – like I said, our expectation there is that the bulk of that ends up being deferred. It’s only in the Delaware where we did not have a significant impact of the storm and then in DC that we don’t defer.

Jay Dobson – Wunderlich Securities

Okay, great. Thank you very much.

Fred Boyle

Okay.

Operator

Thank you for your question. Our next question comes from the line of Noah Hauser of Decade Capital. Your line is live. Please proceed.

Noah Hauser – Decade Capital

Hey. Thanks, guys. I just wanted to ask about the executive order in Maryland. Is really everything on the table as far as forward test years and other regulatory mechanisms that you guys could use to enhance recovery?

Joe Rigby

No. This is Joe. I would anticipate it is. If you go back and look at the order, they used those words of contemplating different legislative or financing solutions. So I don’t think it would take real long to get into to the kinds of tools that you just mentioned as being part of that potential solution. So our mindset going into that is that that’s on the table.

Noah Hauser – Decade Capital

Okay. And then could you also remind me what 100 basis points of lag is how worth to you guys in terms of being able to eat into that from an earnings per share standpoint?

Tony Kamerick

Noah, this is Tony. The slide that we’ve been presenting is something in the $0.14 range.

Noah Hauser – Decade Capital

Okay.

Tony Kamerick

That’s across all our jurisdictions.

Noah Hauser – Decade Capital

Okay. All right. Cool. Appreciate it, guys.

Operator

Thank you for your question. Our next question comes from the line of Andy Levi of Avon Capital. Your line is live. Please proceed.

Andy Levi – Avon Capital

Hi. Good afternoon. I guess most of my questions have been asked. Just on Energy Services, so, I guess, what the guidance you gave for this year was $0.09. Is that correct?

Joe Rigby

Yes. That’s correct.

Andy Levi – Avon Capital

Okay. So when you say that you’re re-evaluating, and I know you kind of answered this question before, so we should assume that you’ll be able to do $0.09 this year? Is that kind of the thinking?

Joe Rigby

Right. We’ll be right around that. We don’t see a big change there. It’s more on the out years where we’ll be giving updated information at the third quarter call.

Andy Levi – Avon Capital

Okay. And the $0.15 target you had for 2016, I guess that was kind of all premised on new business? Is that kind of – because these contracts aren’t very long, is that kind of way to think about it?

Fred Boyle

This is Fred. Yes, that would have been premised on new business.

Andy Levi – Avon Capital

Okay. And then just back on New Jersey, and I know you kind of answered this one, too, before. But if you were to settle there, what timeframe is the best opportunity to sit down with the staff and with the advocate and try to hash things out? Obviously, the recommendations are out now. What window do you think we should focus on for something to either happen or not happen?

Tony Kamerick

This is Tony. I would say after the briefs are filed this Friday, if there’s going to be another effort along that line, it would probably begin within the two weeks or so after that filing. Again, I wouldn’t put a real high probability on that, but I think there’ll be an effort to at least ask each other, do we want to start talking again?

Andy Levi – Avon Capital

Okay. And then how long does that timeframe last?

Tony Kamerick

Well, it depends on whether they want to talk or not.

Andy Levi – Avon Capital

Okay. And why do you think there’s not an opportunity to settle? The staff’s recommendation was somewhat reasonable and they seem to have come around a little bit on the tax issue relative to where the public advocate was at. Just trying to figure out why you couldn’t find a common ground around the staff recommendation.

Tony Kamerick

Well, we think that’s a reasonable approach. The question is can the public advocate get herself to that level?

Andy Levi – Avon Capital

Well, it seems to me the public advocate needs, again, this is me talking, but her position relative to the staff is very different, obviously. But I would have assumed that the Commission would probably pay more attention to the staff’s recommendation than to where the public advocate is or to what the staff said in their filings that position that the public advocate took was kind of summarizing it, in my eyes, wasn’t reasonable, especially on the tax item. So, again, I’m just trying to figure out what is the, for no better way to put it, the deal with the public advocate and their inability to sit down and work out a reasonable deal?

Tony Kamerick

Well, you’ve got the heart of the matter right there, I think. And the entire question is whether the public advocate is willing to – her recommendation, I think, initially was $8 million. So she has to get herself from $8 million to $45 million. The question is will she be willing to do that? I don’t know.

Andy Levi – Avon Capital

And your feeling is at this stage she probably is not.

Tony Kamerick

Well, I’m not going to prejudge it. She hasn’t so far is what I would say.

Andy Levi – Avon Capital

Right. Okay. Thank you very much.

Tony Kamerick

Okay.

Operator

Thank you for your question. Our next question comes from the line of Gregg Orrill of Barclays. Please proceed.

Gregg Orrill – Barclays

Hi. Thanks a lot. In Maryland, I was wondering if you thought you had a chance to earn the allowed ROEs that were granted and, if not, if there’s any way we could get a sense of how much of a deficit that could be.

Tony Kamerick

This is Tony. I would say we have virtually no chance of earning the authorized return that the Commission granted us. The shortfall is going to be significant, I would say.

Gregg Orrill – Barclays

Probably more than 100 basis points?

Tony Kamerick

Yes, definitely more than 100.

Gregg Orrill – Barclays

Okay.

Operator

Thank you for the question. Our next question comes from the line of Maury May of Wellington Shields. Your line is live. Please proceed.

Maury May – Wellington Shields

Yes. Good morning, folks.

Fred Boyle

Good morning.

Joe Rigby

Good morning.

Maury May – Wellington Shields

Just to kind of follow-up a little bit on that last question, in Maryland, if I recall correctly, you’ve been earning an ROE, this is Pepco Maryland, of approximately breakeven; 0% ROE. Is that correct?

Fred Boyle

That’s correct. Maury, let me just clarify that. That was 2011.

Maury May – Wellington Shields

Yes, I realize that. But was there any big change in the first half?

Fred Boyle

No. Nothing in terms of higher rates, that’s for sure.

Maury May – Wellington Shields

Okay. So I guess my question really is between the $17 million or $18 million you got authorized plus the decreased depreciation, it looks like you could have about $30 million-plus in incremental earnings. And that would get you in, like, the 5% ROE range. Is that fair?

Fred Boyle

I think that’s fair.

Maury May – Wellington Shields

Okay. And then my second question is again on Maryland. And I guess I’m just trying to find some kind of silver lining here. But the date of the governor’s panel, when it was announced, was just five days after the rather punishing rate decision. And I’m just wondering whether once the punishment is meted out, does the governor and the Maryland body politic now move forward in working with you instead of working against you?

Joe Rigby

Maury, this is Joe.

Maury May – Wellington Shields

Or am I just smoking something?

Joe Rigby

Pardon me?

Maury May – Wellington Shields

Or am I just smoking something?

Joe Rigby

No, I don’t think you’re smoking something. I’d like to think that there’s an understanding that one thing leads to another and that there is a point of kind of a reasonable view that we’ve got to be able to move ahead.

The governor has said things that , I think, that give me some reason for optimism in that he’s recognized several times publicly that people have to be willing to pay for the kind of infrastructure that they want to have to meet their expectations. So I am hopeful that we’re at the beginning of a new phase where, with demonstrated performance, we can move ahead in a much more positive way. But that’s about to play out in front of us.

Maury May – Wellington Shields

Yeah. Okay. Thank you, Joe.

Joe Rigby

Sure.

Operator

Thank you very much for your questions. We have no further questions at this time. I would now like to hand the call back over to Joe Rigby for closing remarks.

Joe Rigby

Okay, well, this’ll be quick. I want to thank you all for joining us today. I really thank you for the robust Q&A session. I really appreciate your interest, and we’re going to look forward to seeing you again and we wish you all a good day. Take care.

Operator

Thank you for your participation in today’s conference, ladies and gentlemen. This concludes your presentation. You may now disconnect. Good day.

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