Mild Weather, Impairments Impact Some Utilities While Others Soar

After battling through a third quarter that brought a cooler than normal close to summer and numerous asset impairments, many electric utilities posted lower than expected earnings, while few managed to outdo their results from last year.

Cincinnati-based Cinergy Corp. posted 3Q2003 net income of $111.9 million, or $0.62 per share on a diluted basis, compared to $130.5 million, or $0.77 per share, during 3Q2002. The company said cooler than normal summer weather reduced third quarter earnings by $0.15, as compared with the same quarter a year ago, with cooling degrees days down more than 39% from a year ago.

Despite the setback, Cinergy said it still expects to be within its previously announced 2003 earnings range of $2.55 to $2.70 per share, after taking into consideration the impact of the various charges taken to date. However, due to the milder weather during the third quarter and the dilutive effect of a common stock offering earlier this year, the company said it expects earnings to be in the bottom half of that range.

Columbus, OH-based neighbor American Electric Power (AEP) also blamed the weather in part for its decline in earnings. The company posted ongoing results of $302 million, or $0.76 per share, down from $409 million, or $1.21 a share for the same period last year. In addition to mild weather, losses by gas and UK investments and dilution from additional shares outstanding added to the decreased earnings per share for the quarter.

The company said cooling degree days were down 33% from the same period last year. Ongoing earnings from utility operations for 3Q2003 were $394 million, or $1/share, compared to $432 million, or $1.28/share for 3Q2002.

"This quarter was a challenging one," said E. Linn Draper Jr., AEP's CEO. "The continuation of the mild weather in the Midwest reduced power demand in that area, but our success in wholesale markets helped minimize that effect. We also had severe storms that resulted in unexpected repair expenses. Despite unfavorable conditions, our utility operations performed well. However, we continue to be disappointed by the underperformance of our non-core investments and remain committed to divest these assets."

AEP affirmed 2003 ongoing earnings guidance at the low end of the previously announced range of $2.20 to $2.40 per share. Ongoing earnings for 2004 are expected to be between $2.10 and $2.30 per share.

"We continue to look for opportunities to exit both the gas and UK businesses," Draper said. "We plan to divest of the Houston Pipe Line (HPL) assets sometime after the resolution of the Enron bankruptcy issues. An advisor has been selected for the Louisiana Intrastate Gas (LIG) disposition and the information memorandum is about to be circulated. We have also selected an advisor for the disposition of our UK business."

Akron, OH-based FirstEnergy Corp. posted quarterly net income of $152.7 million, or basic and diluted earnings of $0.51/share, compared to third quarter 2002 net income of $284.8 million, or basic and diluted earnings of $0.97/share. The sizeable decrease was the result of asset impairment charges, rate case trouble and the impact of the company's extended Davis-Besse nuclear reactor outage. Without the charges, the company posted net income of $283.9 million, or $0.95/share for 3Q2003.

FirstEnergy found that electric distribution deliveries for the third quarter were 5% lower than in the third quarter of 2002 due primarily to unusually mild weather and depressed economic conditions. Residential deliveries decreased 7%, commercial deliveries declined 4% and industrial deliveries were down 3%. The company noted that total electric generation sales increased slightly as a 6% decline in retail generation sales was offset by an 18% increase in sales to wholesale customers. FirstEnergy's total revenues for the third quarter of 2003 were $3.44 billion, compared with $3.45 billion from the year-earlier quarter.

Chicago-based Exelon Corp. also blamed the weather and impairment charges, posting a loss of $102 million, or $0.31 per share, compared to a $551 million, or $1.70 per share (diluted), gain for the same period in 2002.

The major charges included $573 million, or $1.74/share, after-tax charge for the impairment of the Exelon Boston Generating (EBG) assets as a result of management's decision to transition out of ownership of those assets and an after-tax severance charge of $104 million or $0.32/share related to The Exelon Way program.

Without including charges, the company posted a $535 million gain, or $1.63/share (diluted). The company said the 3% decrease in year-over-year operating earnings was due primarily to a weather-related decrease in kWh sales and decreased competitive transition charge (CTC) revenue at ComEd, which was only partially offset by higher margins at generation and lower interest expense.

"I am pleased by all that we accomplished during the third quarter," said John W. Rowe, Exelon CEO. "Our operating earnings strength is evidence of our commitment to excellence and the success of The Exelon Way. The completed sale of InfraSource and the announced purchase of British Energy's interest in AmerGen demonstrate our focus on our core strengths. We have revised our earnings guidance for 2003 to $5.05 to $5.20 per share. Based on the current outlook, we believe we are in a position to earn $5.25 to $5.55 per share in 2004."

The company reported that cooling degree-days in the ComEd service territory were down 25% relative to last year and 3% below normal. In the PECO service territory, cooling degree-days were down 11% compared with 2002 but were 13% above normal. Total retail kWh deliveries decreased 5% for ComEd, with a 10% decrease in deliveries to the weather-sensitive residential customer class. PECO's residential deliveries were down 5% and retail kWh deliveries decreased 2% overall.

Able to step out from embattled NRG Energy's shadow, Minneapolis, MN-based Xcel Energy Inc. reported net income for the third quarter of 2003 of $287 million, or $0.69/share, compared with a loss of $2.2 billion, or $5.55/share, for the same period in 2002.

Xcel Energy said 3Q2003 results include an adjustment of previously estimated tax benefits of $0.25/share related to investments in NRG Energy Inc. and exclude NRG's financial results, as required under the equity method of accounting. The company's 3Q2002 results include NRG's loss from continuing operations of $2.5 billion, NRG's loss from discontinued operations of $577 million and tax benefits of $676 million related to NRG investments. NRG filed for bankruptcy in the second quarter of 2003, and since the filing, Xcel Energy no longer consolidates losses or gains recorded by NRG.

Excluding NRG's impact, pro-forma income for Xcel Energy from continuing operations for the third quarter of 2003 was $182 million, or $0.44/share, compared with $174 million, or $0.44/share, for the same period in 2002.

"We are pleased with our third quarter results," said Richard C. Kelly, president of Xcel Energy. "Assuming a normal fourth quarter, I expect that our 2003 results, excluding the impact of NRG and the sale of Viking Gas Transmission Co., will be within our earnings guidance range for continuing operations of $1.15 to $1.20 per share.

"We have received approvals from the Federal Energy Regulatory Commission, the Securities and Exchange Commission and the bankruptcy court to continue with the NRG bankruptcy proceedings," he added. "We believe NRG is on track to emerge from bankruptcy by mid-December. We anticipate this timetable would enable the company to declare and pay the delayed October common dividend prior to year-end and to resume a normal dividend declaration and payment schedule."

Allentown, PA-based PPL Corp. posted net income of $171 million, or $0.97/share, for the third quarter of 2003 compared to $122 million, or $0.80 per share, in the third quarter of 2002. Excluding non-core items, PPL's income was $176 million, or $1/share, in the third quarter of 2003.

By comparison, income from core operations was $145 million, or $0.95 per share, in the third quarter of 2002. Third quarter income from core operations increased by $31 million, or 21% from last year.

"Our performance to date demonstrates that PPL's balanced corporate strategy is providing growth in both cash flow and earnings for our shareowners," said William F. Hecht, PPL's CEO.

PPL also said it has tightened the range of its 2003 forecast of income from core operations. The new range is $3.50-3.70/share, replacing the previous forecast of $3.45-3.75/share. The midpoint remains $3.60 per share. Additionally, the company said it expects its reported earnings per share for 2003 to range between $4.17 and $4.52, a revision from the previous forecast of $3.70 to $4.00 per share.

"Our diversified and low-cost generation portfolio supports our asset- backed marketing and hedging strategy," said Hecht. "Matching generation with customer load under long-term contracts has allowed us to provide value for shareowners."

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