- The Washington Times - Monday, September 29, 2003

Hurricane Isabel knocked out electricity to thousands of people in the Washington area, but it failed to push down the stock price of one of the region’s main power providers.

Shares of Pepco Holdings Inc. held firm over the last two weeks, even as heavy winds and rain caused power outages for more than two-thirds of its customers, and delays in restoring electricity created a storm of frustration by customers and public officials.

Shares went unchanged yesterday, closing at $17.32 on the New York Stock Exchange. They have fallen 13 cents, or 0.75 percent since Isabel hit on Sept. 18.

More than 500,000 of Pepco’s 720,000 customers lost electricity after Isabel hit, and thousands were still without power in the middle of last week. Pepco said all the customers who lost power during the storm now have it back.



Pepco and equity analysts who cover it said it was still not clear how much revenue the company lost as a result of the outages.

“Certainly, when you don’t have power, no one’s paying for electricity,” said Pepco spokesman Robert Dobkin. “We’ll be looking at it.”

Analysts said the greater concern for the company is the bankruptcy case involving Mirant Corp., which provides the power to most of Pepco’s customers. Mirant filed for Chapter 11 bankruptcy in July and has gone to the courts in an effort to void contracts that have helped keep Pepco customers’ rates down. Pepco sold four power plants to Mirant in 2000 at a discount in exchange for the ability to buy electricity at below-market rates.

Pepco, the Federal Energy Regulatory Commission and consumer groups from both the District and Maryland asked a federal court on Sept. 7 to block Mirant’s efforts to void the contract. A hearing on the case was scheduled for tomorrow, but was postponed.

Pepco could be forced to pay an extra several hundred million dollars in electricity costs until 2021, when the last contract expires. If the utility is forced to pay, it may ask the regional public utility commissions to raise rates for customers.

While the bankruptcy case has not created any disruptions in service, the potential for the loss of some contracts is scaring off some investors, analysts said.

“[T]he Mirant bankruptcy in July raised uncertainties about the potential for contract rejections and those uncertainties will persist for some time,” Merrill Lynch’s power and energy group wrote in a research note yesterday.

But for the most part, analysts said investors in utility stocks generally don’t worry about issues like power outages or specific contracts. Utility stocks are historically not very volatile, nor do they grow very rapidly. To compensate for lack of growth, most companies pay shareholders relatively large dividends. As long as those dividends aren’t cut, shareholders are happy, analysts said.

Pepco has maintained its dividend of 25 cents per share for the past four quarters.

Pepco Holdings Inc. reported second-quarter net income of $53.4 million (31 cents per share) compared with $45.7 million (43 cents per share) during the second quarter of 2002.

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