Due to the charges associated with exiting two of its four competitive energy business lines (see NGI, March 14), Berlin, CT-based Northeast Utilities (NU) on Thursday reported a loss of $117.7 million, or $0.91 per share, in the first quarter of 2005, compared with net income of $67.4 million, or $0.53 per share, in the same period of 2004.
NU said that its four regulated businesses earned $53.6 million in 1Q2005, compared with earnings of $53.4 million in the 1Q2004, as retail rate increases at each of NU's four regulated businesses offset lower sales and higher pension, depreciation, and interest expense. The company noted that because its regulated business earnings came in on target, it has reaffirmed its full-year 2005 earnings guidance for its regulated businesses of between $1.22 per share and $1.30 per share. NU also reaffirmed its guidance of 2005 parent company expense of between $0.08 per share and $0.13 per share.
The company stated that the overall loss reported Thursday is primarily non-cash and reflects NU's decision announced March 9 to exit the wholesale energy marketing and energy services business lines of NU Enterprises Inc. (NUEI), the holding company for NU's competitive energy businesses. The company decided to exit the businesses due to a number of factors, including narrowing margins, increased competition, and projections that the wholesale and energy services business lines would not be able to generate the earnings and cash flows that had been previously anticipated within acceptable risk levels.
Charges related to the business exits totaled $175.9 million. Excluding those charges, NU earned $58.2 million, or $0.45 per share, in the first quarter of 2005.
NU CEO Charles W. Shivery said he expects that, with the first quarter charges, NU has recorded "most of the restructuring costs" associated with exiting the wholesale marketing and energy services businesses. However, he noted that because certain of its remaining energy contracts now must be marked to market every quarter, NUEI's earnings are expected to be volatile until those contracts expire or are sold or restructured. Due to that earnings volatility and the variety of methods the company could use to implement its decisions to exit the wholesale marketing and energy services businesses, NU said it will not provide a 2005 earnings range for its competitive energy businesses.
Shivery said NUEI is progressing with the divestiture of the energy services businesses and the exiting of the competitive wholesale marketing business. NUEI is working with the firm of FMI Corp. to complete the divestiture of its performance contracting and electrical, HVAC, telecommunications, and plumbing contracting businesses by the end of 2005. In addition, NU is also continuing to work with the firm of Lazard Freres & Co. LLC on the disposition of its remaining wholesale electric contracts.
"Today's announcement represents an important next step in the transition we are making to focus on our regulated business and on two competitive business lines-retail marketing and generation-that offer appealing opportunities for our shareholders," Shivery said. "By taking these steps, we will be a better company going forward with significant opportunities, more transparent financial performance, and a lower risk profile."
NU operates New England's largest energy delivery system, serving approximately two million customers in Connecticut, New Hampshire and Massachusetts.
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