Integrys Energy Services Discusses Impact from January Weather, Parent Affirms Retail Strategy

Integrys Energy Services performed as expected during the extreme cold in January, with negative impacts from load following electric contracts offset on the natural gas side, executives said during an earnings call last week.

While there were a few days where Integrys Energy Services had to buy small amounts of power in the open market for its full requirements electric contracts, the biggest issue, "was really the unexpected high ancillary cost that occurred in the last 10 days of January in one of the ISO's," said Dan Verbanac, President of Integrys Energy Services

However, offsetting these negative drivers was Integrys Energy Services' natural gas business. "Because we have few full requirements contracts on the natural gas side, this business performed well with the higher demand and volatility. So for the most part, these two offset in January," Verbanac said.

Parent Integrys Energy Group is not forecasting growth for the Integrys Energy Services unit in 2014.

Asked by an analyst about the competitive business segment in light of the polar vortex and divestiture announcements from peers, Integrys Energy Group CEO Charles Schrock affirmed that Integrys Energy Services remains a part of the company's strategy.

"[O]ur strategy is really built around our regulated operations. So our regulated businesses are our core, and as you've seen, they continue to perform well and provide the vast majority of our earnings and our growth. But we do like, as part of our strategy, having a diversified portfolio, and in this sense, some non-utility investments, which I think provides opportunities or value in the form of some incremental income, as well as some of the intangible things ... with respect to risk management, line of sight into different markets and those sorts of things. So that's our overall strategy. We're always looking at all of our assets but that's how we look at it today."

For the fourth quarter of 2013, Integrys Energy Services recorded adjusted earnings of $5.2 million, down from $8.2 million a year ago, on lower unit margins due to competitive pressures.

Realized retail electric unit margins in the fourth quarter were $4.43/MWh, versus $7.48/MWh a year ago.

Fourth quarter retail electric volumes were 5,887.1 GWh, versus 3,330.9 GWh a year ago.

Realized retail natural gas unit margins in the fourth quarter were $0.26/dekatherm, versus $0.38/dekatherm a year ago.

Fourth quarter retail natural gas volumes were 61.0 bcf, versus 36.2 bcf a year ago.