Constellation Looking to Expand Residential Marketing

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November 1, 2010

Constellation NewEnergy is "look[ing] to expand our participation in the residential markets by 2012," Kathleen Hyle, COO of Constellation Energy Resources, said during an earnings call Friday.

Constellation is currently in select residential electric markets in Maryland and New Jersey, and select residential gas markets in Maryland and Ohio.

As only reported in Matters, Constellation NewEnergy recently received an expanded Illinois electric supplier license that allows it to market to residential customers at Commonwealth Edison (10/27).

Constellation CEO Mayo Shattuck cited Pennsylvania in addition to Maryland and New Jersey as providing headroom for residential marketing efforts.

Constellation's NewEnergy segment reported an adjusted loss of $14 million for the third quarter, versus adjusted earnings of $33 million a year ago.  The year-over-year variance is largely attributable to the assignment of contracts linked to Constellation's legacy London-based coal and freight business, which resulted in a loss of about $40 million in the quarter.  Constellation does not expect any further material contract assignments related to its legacy coal and freight business.

On a GAAP basis, the NewEnergy segment reported a quarterly loss of $15 million, versus a loss of $44 million a year ago.

Adjusted Gross Margin for the NewEnergy segment in the quarter was $206 million, down from $273 million a year ago.

Retail electric margins were $5.34/MWh in the quarter, versus margins north of $7 a year ago.  Retail gas margins neared 25¢/Dth, relatively flat versus the year-ago quarter.

Revenue for the NewEnergy segment was $2.92 billion for the quarter, versus $2.85 billion a year ago.

In an outlook, Constellation forecast growing NewEnergy's physical retail power sales from 64 TWh in 2010 to about 93 TWh in 2012.  Hyle said that the growth would come from a variety of emerging markets, and said that NewEnergy is generally able to renew or retain customers in the 75% to 80% range, with win rates somewhere in the 25% to 30% range in new markets.

Shattuck said that, should Constellation's stalking horse bid for the assets of Boston Generating be successful, it would "complete" Constellation's previously stated plans to use approximately $1 billion in cash on hand to acquire generation plants.

However, Shattuck later said that Constellation would continue the strategy of looking at assets to match NewEnergy's customer load-serving business.  "So to the extent that there's something in the market that's attractive to us, we will finance that in a balance sheet neutral manner.  So I don't expect that we'll be out of the game in that respect," Shattuck said.

   
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