First Choice Power Reports Compressed Margins

May 6, 2011
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First Choice Power unit margins were down for the first quarter of 2011, but were partially offset by increased commercial volumes.

Lower retail margins negatively impacted total gross margin by $7.1 million versus the year-ago quarter, and also accounted for most of the reduction in quarterly EBITDA, which declined to $12.3 million from $16.7 million a year ago.

Ongoing earnings at First Choice, as well as total customer count and attrition, were reported by Matters on Friday (see 5/6).

During the first quarter, total unit margins for the quarter ended at 18% below last year. This decline includes the negative impact of the February weather event in ERCOT, which led to a $3 million reduction in First Choice Power EBITDA. For parent PNM Resources, this negative impact was offset by a $5.4 million benefit in EBITDA at generator Optim Energy.

During the year 2010, First Choice Power unit margins declined about 10%, and executives expect to see a similar decline for 2011.

A 32% increase in commercial sales volume helped First Choice Power partially offset the negative impact of lower unit margins. Commercial volumes were 369.1 GWh for the quarter, versus 279.8 GWh a year ago, and accounted for 40% of First Choice's volume during the first quarter of 2011.

First Choice bad debt declined from $5.8 million last year to $4.5 million in 2011, reflecting a 15% drop in customer departures and lower average final bills. For the year, First Choice still anticipates bad debt to come in between 4% and 5% of revenue for the year.

First Choice said that it continues to build upon its sales and distribution channels for both residential and commercial service, and said that it is developing stronger relationships and partners to strategically expand its customer portfolio.

First Choice also reported that customer loyalty scores are "strong," and that the first quarter customer satisfaction score was above 80% for the second consecutive quarter.

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