Recession-driven sales declines, particularly among large commercial and industrial customers, are affecting combination Milwaukee-based utility Wisconsin Energy (WE), but the company nevertheless reported increased profits for the first quarter compared to the same period in 2008.
The higher profits in spite of sales decreases across the board are mostly due to a combination of lower fuel and purchased power costs on the electric side, said CEO Gale Klappa during a conference call with financial analysts Tuesday. Klappa said the extent of the sales drops in a very short period of time -- less than six months -- is unprecedented in the utility's history. Similarly, the drop in fuel costs, particularly wholesale natural gas prices, has been "significant," he said, noting that it prompted a filing late in April with Wisconsin regulators to lower retail power rates in the state to reflect the lower fuel costs.
Electricity retail sales overall dropped 8.4% for the first quarter compared to the same period last year, while WE reported net income from continuing operations at $142 million, or $1.20/share, in the first quarter, compared with $123 million, or $1.04/share, for that same period in 2008. The largest retail sales drop occurred among the utility's biggest customers -- 17.8% for the large commercial/industrial group, involving the mining, paper and manufacturing sectors most of all. Small business customer sales dropped 2.3%, and residential 3.5%, Klappa said.
"Overall, the company is weathering the economic downturn well with solid expense control and continuing modest growth in new customers," said Klappa, noting the latest U.S. Department of Energy statistics indicating that Wisconsin utility rates are "significantly below the national average."
In response to questions, Klappa and WE's CFO Allen Leverett said at this point they do not see any "material, sequential improvement" in the national or regional economies. "What we see is a stabilizing effect at a lower level," Leverett said. "We hope we are beginning to scrape the bottom [of the downturn cycle] right now."
"We're trying to be appropriately conservative here," Klappa said. "We're in some uncharted territory because we have looked back in our records -- and this company has kept very good records for decades -- and we have not seen, and I don't think many companies have, the kinds of precipitous declines in sales in this short a period -- ever. That's why we want to be conservative in estimating what the second half of this year might look like."
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