First Choice Power Reports Higher Margins in Q4 from Commercial Sales, Expects Continued Unit Margin Compression

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March 2, 2011  

First Choice Power recorded higher margins during the fourth quarter of 2010 which helped lift ongoing EBITDA to $7.9 million from $5.8 million a year ago.

Higher margins lifted results by $2.1 million, while First Choice Power also saw a $2.0 million reduction in bad debt versus the year-ago quarter. The improvements were partially offset by, among other things, a $1.7 million increase in marketing expenses.

The improved margins reverse a trend during much of 2010 in which the retailer recorded softer margins versus the particularly strong margins recorded in 2009. An increase in commercial volumes helped mitigate a trend in reduced unit margins. First Choice Power expects unit margin compression to continue in 2011, and said every $1/MWh change in unit margins impacts earnings by about $2.7 million.

Though First Choice does not provide specific unit margins, executives reported, for the year 2010, unit margins were down about 11% year-over-year.

GAAP earnings at First Choice Power in the fourth quarter were $11.4 million, up from $4.4 million a year ago.

As first reported in Matters yesterday, First Choice Power ended the year with 214,200 customers (see 3/1 story for discussion of churn).

Residential customers at year-end were 172,506, versus 186,565 a year ago. PNM Resources' 2011 guidance for First Choice Power assumes a 5-15% increase in residential customer count, though its 2010 guidance had assumed a 5% increase in residential customer count.

For the year 2010, First Choice Power recorded 1,363.8 GWh of commercial sales, up from 1,218.9 GWh a year ago, as the retailer continues to emphasize commercial growth. First Choice Power forecasts a 15-20% increase in commercial sales for 2011.

Bad debt for the year 2010 was $25 million or 5.2% of revenue, which is less than half of what it was in 2008. Increased commercial sales are expected to further mitigate bad debt.

For 2011, First Choice Power forecasts bad debt at 4% to 5% of revenue, or $20 million to $25 million.

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