A $56 million loss in gas trading and marketing despite a 184% increase in sales volumes pulled down the first quarter earnings of American Electric Power. The company reported ongoing earnings of 59 cents per share compared to Wall Street estimates of 61 cents and actual earnings of 71 cents per share in 1Q2001.

“We expected first quarter earnings to be lower than last year’s results, a fact that was included when we calculated our earnings projections for 2002,” said CEO E. Linn Draper Jr. “Earnings from wholesale energy sales and gas trading and marketing were incredibly strong early last year in market conditions that were much more favorable than those of recent months. We didn’t anticipate a repeat of last year’s performance in current market conditions.” Draper reaffirmed AEP’s 2002 ongoing earnings estimate of $3.60 to $3.75 per share, compared to the $3.38 per share earned in 2001.

Low energy demand in the quarter depressed wholesale prices and margins, a continuation of market conditions that developed in late 2001. The low demand was driven largely by mild weather (13% fewer heating degree days) and the slow recovery from the economic recession.

Earnings from power trading and marketing were up $31 million to $54 million and volumes rose 35% to 187 million MWh. Wholesale domestic gas sales rose 184% to 1,477 Bcf (or 16.4 Bcf/d). However, electricity sales to industrial customers decreased 7.1% from the same period last year.

“Margins increased in the first quarter for electricity sales to retail customers, reflecting the spread between capped or frozen retail rates and weak wholesale energy prices,” Draper said. “But the weak wholesale prices that benefited our retail sales resulted in lower margins and reduced earnings from wholesale energy sales. The retail margin improvement helped to offset the decline in gas marketing and trading. We are beginning to see wholesale prices improve and, depending on weather conditions in the summer and the economic recovery, see value returning to the wholesale side. This validates our balanced portfolio strategy.

“The point of profit in the industry moves up and down the energy chain, depending on market conditions,” he noted. “At times, the profit may shift to power generation, mining, fuel transportation by pipeline or barge, power or gas marketing, or — as it did in the first quarter — sales to retail customers. We are involved in all areas of the energy chain, which helps us in market conditions that are unfavorable for less diversified competitors.”

Draper said AEP plans to spend about $1 billion a year on acquisitions “for the foreseeable future, which will help us meet our earnings growth target of 6-8% per year. The acquisitions will fit our wholesale-focused strategy while maintaining our balanced portfolio approach.”

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.