UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): March 20, 2009
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PEPCO
HOLDINGS, INC.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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001-31403
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52-2297449
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(State
or other jurisdiction
of
incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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701
Ninth Street, N.W., Washington, DC
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20068
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code
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(202)
872-3526
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Not
Applicable
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(Former
name or former address, if changed since last
report.)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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¨
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
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Pepco
Holdings, Inc.
Form
8-K
Item
8.01 Other
Events.
Pepco Energy Services, Inc., a wholly
owned subsidiary of Pepco Holdings, Inc. (“PHI”), is engaged in, among other
businesses, the retail sale of electricity to commercial, industrial and
government customers. In conducting this business, Pepco Energy
Services typically enters into retail sales contracts under which it commits to
supply the electricity requirements of its customers over a specified period at
agreed-upon prices. Pepco Energy Services acquires the electricity to
service this load by entering into wholesale purchase contracts. In
order to protect the respective parties against the risk of nonperformance by
the other party, these wholesale purchase contracts typically impose collateral
requirements on each party that are tied to changes in the price of
electricity. In periods of electricity price volatility, these
collateral requirements can fluctuate materially on a day-to-day basis and can
give rise to significant collateral obligations in the event of a sustained
price movement in a particular direction.
As part of PHI’s ongoing plan to
improve its liquidity position, Pepco Energy Services has entered into a credit
intermediation arrangement with Morgan Stanley Capital Group, Inc.
(“MSCG”). Under this arrangement, MSCG has agreed to assume the
obligations of Pepco Energy Services with respect to certain transactions for
the purchase of electricity in 2009, 2010 and 2011 under Pepco Energy Services’
wholesale purchase contracts through novation agreements with Pepco Energy
Services’ counterparties to the wholesale purchase contracts (the “Novation
Transactions”). Simultaneously with each respective Novation
Transaction, Pepco Energy Services and MSCG will enter into a wholesale supply
agreement under which MSCG will agree to supply electricity to Pepco Energy
Services in an amount, at the time, and on price and other terms identical to
the terms of the novated transaction, with the exception that Pepco Energy
Services will not have any obligation to post collateral with MSCG based on
changes in electricity prices. To date, approximately 32% of Pepco
Energy Services’ wholesale electric purchase obligations (measured in megawatt
hours) have been replaced by contracts with MSCG, resulting in the return to
Pepco Energy Services of approximately $198 million of collateral. In
addition, by entering into the credit intermediation arrangement, Pepco Energy
Services will avoid the ongoing obligation to post collateral for electricity
purchased under the wholesale purchase contracts. The amount of this
collateral varies depending on volumes under contract and is estimated to be up
to $55 million each month depending on volumes under
contract.
Under the terms of the arrangements
with MSCG, Pepco Energy Services will be required to post collateral with MSCG
only if (i) Pepco Energy Services is no longer a wholly owned subsidiary of PHI
or (ii) PHI merges, transfers all or substantially all of its assets or effects
any substantial change in its capital structure, or any person acquires a
controlling interest in PHI, but in the case of clause (ii) only if the
creditworthiness of the surviving or acquiring entity is materially weaker than
PHI’s creditworthiness immediately prior to the transaction.
The credit intermediation arrangement
with MSCG does not apply to any future electricity wholesale purchase
obligations incurred by Pepco Energy Services.
The payment obligations of Pepco Energy
Services to MSCG under the new wholesale supply agreement are guaranteed by PHI
in an amount up to $340 million during the first year following the effective
date of the first Novation Transaction, which decreases to $204 million during
the second year and to $68 million during the third year. The payment
obligations of MSCG to Pepco Energy Services under the new wholesale supply
agreement are guaranteed by Morgan Stanley.
2
Pepco
Holdings, Inc.
Form
8-K
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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PEPCO
HOLDINGS, INC.
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(Registrant)
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Date:
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March
25, 2009
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/s/
P. H. BARRY
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Name: Paul
H. Barry
Title: Senior
Vice President and
Chief
Financial Officer
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