Power Markets Week

Retail marketer Pepco Energy Services increased its sales in the most recent quarter, but an impairment charge and higher costs hindered earnings during 2006, the company said last week.

PES is a subsidiary of Pepco Holdings, which also operates a utility and a competitive wholesale power supplier. PES focuses on large commercial and industrial customers, which increased purchases following utility rate hikes in several territories, officials said in an earnings conference call.

During the fourth quarter of 2006, PES sold 3,990 GWh, compared with 2,801 GWh in the fourth quarter of 2005. For all of 2006, PES had increased its load to 3,544 MW, up 74% from the 2,034 MW it had under contract in 2005.

PES’ new business was partly due to expanding into new areas, including New York, Massachusetts and Illinois, CEO Dennis Wraase said during a conference call with analysts. But the company saw the most growth in the PJM Interconnection, and benefited from rate increases that affected customers in early 2006, said Kimberly Price, vice president of marketing. Those rate hikes caused more C&I customers to shop in the competitive market.

PES’ net income was $20.6 million for 2006, compared with $25.7 million in 2005. It did not give net income for the fourth quarter.

Operating revenue for 2006 was $1.669 billion, compared with $1.488 billion in 2005. But “costs of goods sold” rose to $1.53 billion, from $1.36 billion, so gross margins were only $137.8 million for the year, compared with $130 million.

PES incurred an $18.9 million impairment loss on some assets, reducing operating income to $37.7 million, compared with $42.4 million in 2005. The impairment loss resulted from the sale of four “underperforming” businesses involved in mechanical contracting, building controls and electrical testing, PES said.