Integrys Energy Services Sees Lower Unit Margins Offset by Volume; Strategic Inorganic Acquisitions Remain Part of Growth Strategy

Integrys Energy Services saw lower unit margins during the second quarter of 2013, though total margin was lifted by increased volumes, as executives also said that inorganic acquisitions remain a key part of Integrys Energy Services' growth strategy.

During an analyst day held yesterday, Dan Verbanac, President of Integrys Energy Services, said that the retail business has a goal of growing market share through three strategies.

The first is increasing customer retention; Integrys Energy Services has improved C&I retention, on a volumetric basis, from 80% in 2012 to 85% in 2013.

Second, Integrys Energy Services is focused on expanding its product line in its existing markets and expanding service to new territories. As part of this strategy, Verbanac listed "strategic" acquisitions as a component, citing in particular Integrys Energy Services' recent acquisition of Compass Energy Services. Integrys Energy Services also recently acquired responsibility for serving a book of Pepco Energy Services customers in Maryland and D.C.

Finally, Integrys Energy Services is focused on organic growth, which Verbanac said is the company's "primary" focus, and for which the company is targeting 80% of growth.

Verbanac noted that the current retail environment is one of low commodity prices, low volatility, and low capital cost, which create a low barrier to entry and, accordingly, fierce competition and shrinking margins.

During the second quarter, Integrys Energy Services saw realized per unit electric margins decline to $5.50/MWh, from $7.23/MWh a year ago.

Realized per unit natural gas margins declined to $0.16/dekatherm for the second quarter of 2013, from $0.28/dekatherm a year ago.

However, total margin was lifted by higher electric volumes. Realized retail electric margin was $26.6 million for the second quarter of 2013, versus $22.3 million a year ago. Realized natural gas margin, prior to a lower-of-cost-or-market impact, was flat at $5.9 million.

Retail electric volumes were 4,838.1 GWh for the second quarter of 2013, versus 3,082.7 GWh a year ago.

Retail natural gas volumes were 37.1 bcf for the second quarter of 2013, versus 21.4 bcf a year ago.

Integrys Energy Services reported a loss for the quarter of $1.0 million, versus earnings of $3.7 million in the year-ago quarter.