EVANSVILLE, IN, Oct. 29, 2009 (Marketwire) --
EVANSVILLE, IN -- (Marketwire) -- 10/29/09 -- Vectren Corporation (NYSE: VVC) today reported third quarter 2009 net income of $12.4 million, or $0.15 per share, compared to net income of $23.2 million, or $0.29 per share, for the same quarter last year. Net income for the nine months ended September 30, 2009, which excludes a charge related to an investment by ProLiance Energy, LLC in Liberty Gas Storage, LLC, was $90.4 million, or $1.12 per share. This compares to net income of $91.9 million, or $1.18 per share, in 2008. Including the impacts of the charge recognized in the second quarter, consolidated results for the nine months ended September 30, 2009 were earnings of $78.5 million, or $0.97 per share. Net income excluding the charge is a non-GAAP performance measure. See a discussion of this non-GAAP performance measure later in this earnings release.
2009 Earnings Guidance Affirmed
The company affirmed 2009 consolidated earnings guidance in a range of $1.60 to $1.80 per share. This range continues to exclude as a nonrecurring charge the impact of the charge related to ProLiance's investment in Liberty Gas Storage. This estimate includes projected earnings from the Utility Group of $1.20 to $1.30 per share and from the Nonutility Group of $0.40 to $0.50 per share. This guidance reflects continued weakness in the economy including lower demand for electricity and coal. Changes in these expectations or other circumstances could materially impact earnings and result in earnings for 2009 significantly above or below this guidance. These targeted ranges are subject to such factors discussed below under "Forward-Looking Statements."
Summary Results
- Utility third quarter earnings were $8.7 million, or $0.11 per share, in 2009 with ($0.04) per share related to unfavorable cooling weather, compared to earnings of $13.6 million, or $0.17 per share, in 2008. Year to date, utility earnings were $71.5 million, or $0.89 per share, with ($0.03) per share of unfavorable cooling weather, compared to utility earnings of $80.4 million, or $1.04 per share, in 2008.
- Nonutility earnings were $3.3 million, or $0.04 per share, in the third quarter of 2009, compared to earnings of $9.8 million, or $0.12 per share, in 2008. The decline resulted from third quarter 2008 record earnings from ProLiance, a period in which it benefited from unusually wide cash to NYMEX spreads. Year to date, nonutility earnings, excluding the Liberty charge, were $18.7 million, or $0.23 per share, compared to $12.1 million, or $0.15 per share, in 2008.
- Year to date 2009 reported earnings per share are ($0.04) per share lower than 2008 due to the increased number of shares outstanding as a result of the issuance of common shares in June 2008.
"Our year to date operating results of $90.4 million, before the Liberty charge, achieved in a difficult economy, compare favorably to earnings of $91.9 million in 2008. Consolidated results reflect lower electric demand impacting our electric utility margins, including wholesale power sales, a very cool summer, and lower coal sales. In spite of the decline in ProLiance's quarterly earnings, the year to date results of the nonutility businesses have increased over 50% compared to 2008," said Niel C. Ellerbrook, Vectren's Chairman and CEO.
Ellerbrook added, "We expect the fourth quarter results of the utility business to be similar to 2008 and the results of our nonutility businesses, particularly Coal Mining and ProLiance, to be up as compared to the 2008 fourth quarter. As a result, we are affirming our 2009 guidance of $1.60 to $1.80."
Utility Group Discussion
The Utility Group's 2009 earnings for the quarter ended September 30, 2009 were $8.7 million, compared to $13.6 million in 2008 and $71.5 million for the nine months ended September 30, 2009, compared to $80.4 million in 2008. The decreases reflect continued trends involving lower large customer usage and lower wholesale power sales, both of which have been impacted by the recession, as well as an expected increase in depreciation expense. Management estimates third quarter cooling weather over 20 percent cooler than both normal and the prior year decreased earnings in the quarter by $3.2 million. Management estimates the mild cooling weather decreased earnings $2.1 million for the nine months compared to the prior year period. Increased revenues associated with regulatory initiatives partially offset these declines.
Gas Utility Margin
Gas utility margins were $65.4 million and $319.3 million for the three and nine months ended September 30, 2009. Following are reconciliations of the changes from 2008:
Year
Three to
(millions) Months Date
------- -------
2008 Gas Utility Margin $ 63.7 $ 316.4
Regulatory initiatives, including the full impact of the
Vectren North base rate increase and the Vectren Ohio
base rate increase 2.1 8.4
Ohio weather 0.8 0.4
Recessionary impacts:
Large customer margin decreases (0.7) (4.0)
Decreased small customer counts (0.2) (1.2)
Costs directly recovered in margin and other (0.3) (0.7)
------- -------
Total change in Gas Utility Margin 1.7 2.9
2009 Gas Utility Margin $ 65.4 319.3
======= =======
Electric Utility Margin
Retail & Firm Wholesale Margin
Electric retail utility margins were $87.3 million and $238.0 million for the three and nine months ended September 30, 2009. Following are reconciliations of the changes from 2008:
Year
Three to
(millions) Months Date
------- -------
2008 Retail Electric Margin $ 90.2 $ 236.9
Return on pollution control investments 1.4 3.2
Recovery of tracked MISO and pollution control related
costs 1.9 7.4
Weather (5.4) (3.6)
Recessionary driven large customer margin decreases (1.7) (5.4)
All other changes 0.9 (0.5)
------- -------
Total change in Retail Electric Margin (2.9) 1.1
2009 Retail Electric Margin $ 87.3 $ 238.0
======= =======
Margin from Wholesale Activities
For the three and nine months ended September 30, 2009, wholesale margins were $5.6 million and $15.3 million, representing decreases of ($3.4) million and ($6.9) million, compared to 2008.
Of the quarterly and year to date decreases ($4.3) million and ($11.5) million, respectively, relate to lower margin retained by the company from off-system sales. The company experienced lower wholesale power marketing margins due primarily to lower demand and wholesale prices due to the recession, coupled with increased coal costs. The base rate case effective August 17, 2007, requires that wholesale margin from off-system sales earned above or below $10.5 million be shared equally with customers as measured on a fiscal year ending in August, and results reflect the impact of that sharing. Decreases associated with off-system sales have been partially offset by margins associated with transmission system operations.
Beginning in June 2008, the Company began earning a return on electric transmission projects constructed by the company in its service territory that meet the criteria of Midwest Independent System Operator's (MISO) transmission expansion plans. Margin associated with these projects and other transmission system operations increased $0.9 million, to $4.4 million for the three months ended September 30, 2009 and for the nine months ended September 30, 2009, margin increased $4.6 million, to $11.0 million.
Other Operating
For the three and nine months ended September 30, 2009, other operating expenses were $69.9 million and $227.9 million, which represent increases of $0.7 million and $10.2 million, compared to 2008. Approximately $1.3 million and $8.3 million of the increases result from increased costs directly recovered through utility margin. Examples of such tracked costs include Ohio bad debts, Indiana gas pipeline integrity management costs, costs to fund Indiana energy efficiency programs, and MISO transmission revenues and costs, among others. Bad debt expense associated with the Indiana service territory decreased $0.4 million in the quarter and increased $2.3 million year to date. The gas cost portion of bad debt expense in the Indiana service territory is recovered through gas cost recovery mechanisms. All other operating expenses were approximately $0.2 million lower in the quarter and $0.4 million lower year to date.
Depreciation & Amortization
For the three and nine months ended September 30, 2009, depreciation expense was $45.9 million and $134.8 million, which represents increases of $4.3 million and $11.6 million, compared to 2008. Plant additions include the approximate $100 million SO2 scrubber placed into service January 1, 2009 for which depreciation totaling $1.5 million in the quarter and $4.0 million year to date is directly recovered in electric utility margin.
Taxes Other Than Income Taxes
For the three and nine months ended September 30, 2009, taxes other than income taxes were $10.8 million and $46.2 million, which represent decreases of ($0.9) million for the quarter and ($5.6) million year to date, compared to 2008. The decreases are attributable to lower utility receipts, excise, and usage taxes caused principally by lower gas prices. These expenses are tracked in revenues.
Other Income - Net
For the three and nine months ended September 30, 2009, other income - net was $2.1 million and $6.1 million, which represents an increase of $1.4 million in the quarter and $1.2 million year to date compared to 2008. The increases reflect increasing market values associated with investments related to unqualified benefit plans.
Interest Expense
For the three and nine months ended September 30, 2009, interest expense was $20.2 million and $58.9 million, which represents an increase of $0.6 million in the quarter and a decrease of ($0.6) million year to date, compared to 2008. The increase in the quarter reflects the impact of two long-term financing transactions completed in 2009. These transactions involved the second quarter issuance by Vectren Utility Holdings, Inc. (VUHI) of $100 million in unsecured eleven year notes with an interest rate of 6.28 percent to institutional investors and the third quarter completion by Southern Indiana Gas and Electric Company of a $22.3 million debt issuance of 31 year tax exempt first mortgage bonds with an interest rate of 5.4 percent. Both periods in 2009 reflect lower short-term interest rates and lower average short-term debt balances that have been impacted favorably by lower gas prices.
Income Taxes
For the three and nine months ended September 30, 2009, federal and state income taxes were $5.3 million and $40.6 million, which represents decreases of ($3.2) million and ($9.0) million, compared to 2008. The lower taxes are primarily due to lower pretax income.
Nonutility Group Discussion
All amounts included in this section are after tax. Results reported by business group are net of nonutility group corporate expense.
The Nonutility Group's earnings were $3.3 million in the third quarter of 2009, compared to $9.8 million in 2008. Year to date in 2009, Nonutility Group earnings excluding the Liberty charge were $18.7 million compared to earnings of $12.1 million in 2008. Inclusive of the Liberty charge, 2009 year to date Nonutility Group earnings were $6.8 million.
Energy Marketing and Services
Energy Marketing and Services is comprised of the company's gas marketing operations, energy management services, and retail gas supply operations. Results, inclusive of holding company costs, from Energy Marketing and Services for the quarter ended September 30, 2009, were a loss of ($4.8) million compared to earnings of $10.1 million in 2008. The year to date income in 2009 was $6.0 million compared to earnings of $12.4 million in 2008. Operating entities contributing to these results include Vectren Source and ProLiance. Results in the nine months ended September 30, 2009 exclude the Liberty charge of ($11.9) million after tax.
Vectren Source, the company's retail gas marketer, operated at a seasonal loss of ($3.0) million in the third quarter of 2009, compared to a loss of ($0.6) million in 2008. The wider seasonal loss experienced during 2009 is primarily due to increased storage costs due to the increasing number of customers. The third quarter of 2008 also contains a $0.7 million gain associated with the sale of its Georgia customer base as Vectren Source exited that market in 2008. Year to date, Vectren Source earned approximately $4.0 million, compared to $0.2 million in 2008. The higher year to date earnings resulted primarily from favorable market conditions over the course of the first quarter as revenues on variable priced sales contracts fell more slowly than gas costs. Due to the seasonal nature of the retail gas supply business and due to prices charged to customers more fully reflecting the current lower gas prices, as expected such higher first quarter earnings have not continued. Vectren Source's customer count at September 30, 2009 was approximately 186,000 customers, compared to 130,000 customers at September 30, 2008.
During the three months ended September 30, 2009, ProLiance's operating results were a loss of ($1.6) million, compared to earnings of $12.4 million in 2008. The third quarter of 2008 was a record quarter in terms of earnings contribution for ProLiance, a period in which it significantly benefited from wider cash to NYMEX spreads. As previously disclosed, the level of ProLiance's 2008 third quarter earnings was not indicative of its future operating results. During the quarter ended September 30, 2009, ProLiance produced more typical third quarter operating results. During the nine months ended September 30, 2009, ProLiance's earnings were approximately $2.7 million compared to earnings of $15.7 million in 2008. The 2009 year to date results exclude the impact of the Liberty charge. The year to date decrease of ($13.0) million primarily reflects the third quarter reduced earnings volatility. The current year heating season's seasonal spreads are expected to improve over the prior year, and those earnings will be realized in the fourth quarter of 2009 and the first quarter of 2010. ProLiance's storage capacity is 46 BCF compared to 42 BCF at December 31, 2008.
Coal Mining
Coal Mining mines and sells coal to the company's utility operations and to third parties through its wholly owned subsidiary Vectren Fuels, Inc. (Fuels).
Coal Mining, inclusive of holding company costs, earned approximately $4.0 million in the third quarter of 2009, compared to a loss of ($0.5) million in 2008. Year to date, Coal Mining earned $7.4 million compared to a loss of ($1.6) million in 2008. Coal Mining earnings have increased based on new pricing in contracts effective January 1, 2009. The impacts of higher revenues have been somewhat offset by increased costs per ton mined. This anticipated year to date increase in costs is reflective of efforts to reconfigure the mining operation at Prosperity mine in order to improve future productivity. During the current quarter, these improvements began to favorably impact production and operating costs.
The continuing recession has resulted in a recent, but significant, decrease in the demand for and market price of Illinois Basin coal. The lowered demand is resulting in some build up of coal inventories at most customer locations as well as at Vectren Fuels' mines as a result of contracts with minimum delivery provisions, which enable the customers to scale back their deliveries within specified limits. This is expected to result in less 2009 mine production. Further, Vectren Fuels is currently in a dispute with one customer regarding its purchase contract and Vectren Fuels is working to resolve the dispute. The company began 2009 with a limited amount of production that was unsold. Given the current market conditions, as previously reported, expectations for full year 2009 sales are 3.4 to 3.6 million tons, a reduction from the original expectation of 4.6 to 5.2 million tons. Further, the growing customer coal inventory levels will likely cause the current demand and supply imbalance to extend into 2010.
The first of two new underground mines located near Vincennes, Indiana is nearing completion. For testing purposes and to build the initial coal pile, minor coal extraction began early in the third quarter of 2009. Vectren Fuels expects the initial mine to be in service during the first quarter of 2010 with the second mine opening in 2011. However, Vectren Fuels may continue to change this time table as it evaluates the impacts of current market conditions. Reserves at the two mines are estimated at 98 million tons of recoverable number-five coal at 11,200 BTU (British thermal units) and less than 6-pound sulfur dioxide. The reserves at these new mines bring total coal reserves to approximately 129 million tons at September 30, 2009. Once in production, the two new mines are capable of producing about 5 million tons of coal per year.
Energy Infrastructure Services
Energy Infrastructure Services provides underground construction and repair to utility infrastructure through Miller Pipeline Corporation (Miller) and energy performance contracting and renewable energy services through ESG.
