Adjusted net income for the first quarter of 2009 excludes a net unrealized pre-tax gain of $32.4 million from economic hedges that do not qualify for hedge accounting. There were no adjustments for the year-ago quarter.
First Quarter Consolidated Results:
Adjusted net income for the first quarter of 2009 decreased by $22.0 million compared with the year-ago quarter. Key factors contributing to the results include:
Adjusted operating revenues increased by $49.8 million, reflecting higher generation rates in Pennsylvania and Maryland, increased purchased power cost recovery in Virginia and higher sales to third parties. These benefits were partially offset by reduced generation volume due to lower power plant availability and less demand.
Fuel and deferred energy expense increased by $2.6 million, reflecting higher coal prices, partially offset by reduced generation volume and a change in Maryland PURPA generation cost recovery.
Purchased power costs were higher by $36.5 million, mainly due to improved purchases from third parties.
Operations and maintenance costs reduced by $1.5 million, reflecting cost control efforts, partially offset by higher special maintenance at power plants and improved work to restore service following a severe windstorm in February 2009.
Adjusted income tax expense increased by $30.0 million, reflecting an effective tax rate of 44% for the first quarter of 2009 compared to 30% in the same period a year ago. In the first quarter of 2009, the company recorded a non-cash charge of $9.5 million reflecting lower estimated future benefits from net operating loss carry forwards under Pennsylvania tax rules. In the first quarter of 2008, the effects of favorable audit settlements and West Virginia tax law changes reduced income taxes by $15.2 million.
Adjusted EBITDA for the first quarter of 2009 was $328.2 million, an increase of $5.1 million compared to the year-ago quarter. EBITDA and adjusted EBITDA are non-GAAP financial measures.
First Quarter Segment Results:
Adjusted net income for the Generation and Marketing segment in the first quarter of 2009 excludes the net unrealized gain previously discussed. There were no adjustments in the Delivery and Services segment for the first quarter of 2009, or in either segment for the year-ago quarter.
Generation and Marketing: Adjusted net income for the quarter decreased by $34.5 million compared to the year-ago quarter. Results were adversely impacted by reduced generation volume and the elimination of an intercompany transfer payment, partially offset by benefits from marketing contracts, hedging activities and capacity prices. The effect of higher coal prices was offset by lower coal consumption. Income taxes increased, reflecting the non-cash charge previously mentioned.
Delivery and Services: Net income for the quarter improved by $12.5 million compared to the year-ago quarter. Key factors contributing to the improved results include increased cost recovery in Virginia, revenues from transmission expansion, lower operations and maintenance expense and the elimination of an inter company transfer payment. These benefits were offset by the expiration of an earnings benefit associated to stranded cost recovery, and higher income taxes due to an increase in pre-tax income and a higher effective tax rate.
“We had solid financial performance in the quarter. Adjusted pre-tax income increased $8 million due to increased cost recovery in Virginia and higher generation rates, but earnings per share were down due to higher income taxes,” said Paul J. Evanson, chairman, president and chief executive officer of Allegheny Energy. “In these tough economic and financial times, we’re staying focused on the fundamentals of running our business, especially controlling costs and maintaining a strong liquidity position.”
