El Paso Electric Reports Net Income Of $9.6 Million In Q1 2009

Published: 05-May-2009

By: Staff Writer Staff Writer Staff Writer

El Paso Electric Company (El Paso Electric) has reported net income of $9.6 million for the first quarter of 2009, compared with the net income of $14.5 million in the year-ago quarter. It has also reported earnings per share of $0.21 per share for the first quarter of 2009, compared with the earningsper share of $0.32 per share in the year-ago quarter.

First Quarter 2009:

Earnings for the quarter ended March 31, 2009 when compared to the same period last year, were positively affected by:

Increased retail sales of deregulated Palo Verde Unit 3 power as the unit did not operate for three weeks in January 2008 due to its refueling and replacement of steam generators.

Lower O&M costs at The company’s fossil-fueled generating plants as more planned major maintenance was performed in the first quarter 2008 (Newman Unit 3, Four Corners Unit 5, and Copper generating units) than was performed in the first quarter 2009 (Rio Grande Unit 8 and Newman Unit 4 generating units).

Increased revenues for transmission wheeling in 2009 largely due to increased wheeling of power in Arizona.

Lower depreciation and amortization due to completing the amortization of certain fair value adjustments in December 2008.

Earnings for the quarter ended March 31, 2009 when compared to the same period last year were negatively affected by:

Lower retained margins on off-system sales, primarily due to reduced margins per MWh. Retained margins were also affected by a 4.9% decrease in MWh sales.

Increased interest expense on long-term debt as a result of the June 2008 issuance of $150 million of 7.5% Senior Notes and higher interest rates on auction rate pollution control bonds partially offset by lower interest rates on the revolving credit facility. The auction rate pollution control bonds were refunded and reissued at a fixed interest rate of 7.25% on March 26, 2009.

Increase in impairments of equity securities in The company’s Palo Verde decommissioning trust funds.

Lower retail non-fuel base revenues resulting from declines in sales to residential and large commercial and industrial customers.

Retail Non-fuel Base Revenues:

Retail non-fuel base revenues decreased by $1.8 million, pre-tax, or 1.7% in the first quarter of 2009 compared to the same period in 2008 reflecting a weather-related decline in sales to residential and small commercial and industrial customers and a recession-related decline in sales to large commercial and industrial customers. Kilowatt-hour sales to large commercial and industrial customers in the first quarter of 2009 decreased around 18% compared to the same quarter in 2008, reflecting the impact of the recession on the company’s service territory economy. Kilowatt- hour sales for residential and small commercial and industrial customers declined relative to 2008, primarily as a result of milder winter weather in 2009, partially offset by increased kWh sales and revenues from a 1.6% increase in the average number of customers served. Heating degree days in 2009 were 14% below 2008 and the 10-year average. Non-fuel base revenues and kilowatt- hour sales are provided by customer class on page 8 of the Release.

Palo Verde Operations:

The company own around 633 MW (undivided interest) of generating capacity in three generating units at the Palo Verde Nuclear Generating Station. The operation of Palo Verde not only affects the company’s ability to make off-system sales but also impacts fuel costs to native load customers and represents a significant portion of the company’s non-fuel operation and maintenance expenses. Palo Verde generation accounted for over 68% of total Company generation in the first quarter of 2009 and 64% of total Company generation in the first quarter of 2008. Megawatt-hours (MWh) generated by Palo Verde increased 7.3% in the first quarter of 2009 compared to the same period in 2008. In the first quarter of 2009, Palo Verde operation and maintenance expenses decreased $0.4 million, pre-tax, or 2.0% compared to the first quarter of 2008.

In February 2007, the Nuclear Regulatory Commission (NRC) placed Palo Verde Unit 3 in the “multiple/repetitive degraded cornerstone” column of the NRC’s action matrix which resulted in an enhanced NRC inspection regimen for the entire plant. Operating costs at all three units increased in response to the enhanced inspection regimen by the NRC and associated corrective actions. On March 24, 2009, the NRC announced that it is removing Palo Verde Unit 3 from the “multiple/repetitive degraded cornerstone” column and returning all three units of the plant to routine inspection and oversight. This notification follows the NRC’s completion of its inspections of the corrective actions taken by Palo Verde to address performance deficiencies. The NRC also closed the confirmatory action letter that outlined the performance deficiencies and associated corrective actions.

Off-system Sales:

The company makes off-system sales in the wholesale power markets when competitively priced excess power is available from the company’s generating plants and purchased power contracts.

For the quarter ended March 31, 2009, retained margins from off-system sales decreased around $6.2 million, pre-tax, over the corresponding period in 2008 due primarily to reduced margins per MWh as a result of lower average market prices for power and a 4.9% decrease in MWh sales.

Capital and Liquidity:

The company continues to maintain a strong capital structure. At March 31, 2009, common stock equity represented 45.5% of the company’s permanent capitalization (common stock equity, long-term debt, financing obligations, and the current portion of long-term debt and financing obligations). At March 31, 2009, the company had a balance of $102.0 million in cash and cash equivalents, most of which was invested in federally insured accounts.

Cash flows from operations for the three months ended March 31, 2009 increased $25.1 million to $67.6 million from $42.5 million in the corresponding period in 2008. The primary factor affecting the increased cash flow was the collection of deferred fuel revenues in 2009. The collection of deferred fuel revenues included the over-recovery of fuel costs by $23.4 million in 2009 and the collection of $12.3 million of deferred fuel revenues, including interest, through two fuel surcharges implemented in 2008. At March 31, 2009, the company had a fuel under-recovery balance of $12.2 million, including $10.5 million in Texas and $1.7 million in New Mexico.

At December 31, 2008, The company had a fuel under-recovery balance of $46.9 million, including $39.2 million in Texas and $7.7 million in New Mexico. The current period fuel over-recoveries in Texas are the result of a significant decline in natural gas prices since the current Texas fixed fuel factor was implemented in October 2008. At current gas prices, the company expects to continue to over-recover fuel costs until the Texas fixed fuel factor is revised. As a result, on April 23, 2009, the company received approval from the Public Utility Commission of Texas to terminate the company’s remaining fuel surcharge effective May 2009 as the remaining balance of fuel under-recoveries are expected to be recovered through current period fuel over-recoveries assuming current natural gas price levels.

During the three months ended March 31, 2009, the company’s primary capital requirements were for the construction and purchase of electric utility plant and purchases of nuclear fuel. Capital requirements for new electric plant were $47.3 million for the three months ended March 31, 2009 compared to $44.0 million for the three months ended March 31, 2008. Cash flows from operations funded all of the company’s capital requirements through the first quarter of 2009.

On March 26, 2009, the company completed a refunding of the company’s $100.6 million auction rate pollution control bonds by issuing two new pollution control bonds totaling $100.6 million at a fixed interest rate of 7.25%. The bonds are unsecured and will mature in 2040.

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