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First Choice Power Reverses Customer Churn, Grows Book

August 5, 2011
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First Choice Power reported lower ongoing earnings of $9.0 million for the second quarter, versus $10.7 million a year ago, on lower retail pricing and higher marketing costs.

Ongoing earnings exclude the mark-to-market impact of economic hedges.

First Choice Power GAAP earnings were $6.6 million for the quarter, versus $16.6 million a year ago.

A 14.8 percent increase in sales volumes as a result of warmer weather, higher per-customer usage and stronger commercial sales, and slightly lower bad-debt expense were more than offset by lower customer prices and higher marketing costs.

Executives said that the lower earnings were expected after the very successful 2010 quarter, and added that current First Choice Power results remain "strong."

Pat Vincent-Collawn, CEO of PNM Resources, said that it is "no surprise" to see margins continue to compress in a competitive retail market.

Collawn also declined to discuss any potential sale of the First Choice Power business (see 6/10 and 7/8), aside from affirming that PNM continues to evaluate strategic alternatives for both of its competitive units (First Choice and Optim Energy).

First Choice Power's customer count stood at 216,600 as of June 30, 2011, up from 212,800 as of March 31, 2011 and 216,100 a year ago.

The net gain of 3,800 customers versus March 31, 2011 is the first sequential net growth seen by First Choice Power for several quarters, reversing net losses of:

- 1,400 customers from December 31, 2010 to March 31, 2011

- 1,100 customers from September 30, 2010 to December 31, 2010,

- 800 customers from June 30, 2010 to September 30, 2010

- 5,300 customers from March 31, 2010 to June 30, 2010 (and similar quarterly losses dating back throughout 2009)

First Choice Power said that it has seen strong commercial sales, and has undertaken new marketing programs to expand its residential and commercial portfolios.

Ongoing adjusted EBITDA at First Choice Power for the quarter was $14.5 million, versus $17.3 million a year ago.

Lower customer prices accounted for a $6 million decline in ongoing adjusted EBITDA versus the year-ago quarter. Higher marketing costs accounted for a negative $2.6 million impact.

Partially offsetting these drivers was a $5.7 million gain in ongoing adjusted EBITDA from favorable weather and higher average customer usage.

Bad debt at First Choice Power improved to 4.7% of revenue, versus 5.1% in the year-ago quarter.

Total operating revenues at First Choice Power were $126.0 million for the second quarter, versus $119.9 million a year ago.

Total First Choice Power volumes were 1,029.2 GWh for the quarter, versus 896.8 GWh a year ago. Commercial sales were up 32% versus the year-ago, at 459.1 GWh for the second quarter of 2011.

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