Power Markets Week

Pepco Energy Services has doubled its electric load over the last year, due largely to the end of restructuring transition periods in Maryland and the District of Columbia, PES said last week when parent company Pepco Holdings Inc. released first quarter results.

PES President Ed Mayberry said the transition periods had kept utility rates artificially low.

From the first quarter of 2004 to the first quarter of 2005, PES increased the amount of load under contract from 1,231 MW to 2,490 MW, Mayberry said. He noted that in Maryland and D.C., the end of transition periods raised utility rates, spurring many large customers to seek contracts with marketers (PMW, 8 Nov '04, 19).

PES, based in Arlington, Va., also has aggressively marketed to customers in other states. The company sells electricity and gas to commercial and industrial users, as well as energy efficiency services and operations and maintenance services. PES also sells some renewable power to small and large customers.

In D.C., PES' sales have grown from less than 50 MW to more than 800 MW in the last year. The company also has more than 500 MW of contracts in Maryland, 500 MW in New Jersey and more in New York, Illinois, Pennsylvania and Delaware.

PES offers different types of contracts, Mayberry said, including fixed-price deals with terms up to three years and contracts that guarantee discounts from standard-offer rates of utilities.

Mayberry said he does not expect the same increase over the next year, but he does see continued growth as large users realize they can improve on utilities' rates. Budget certainty is also a motivation for very large customers that face fluctuating market prices if they remain with their utilities, he added.

Mayberry expects PES' annual revenues to run about $1 billion for electric and gas sales, $50 million for efficiency services and $40 million for O&M services. But profit margins are much thinner on energy sales than on services, he noted.

PES reported net income of $2.4 million for the quarter, compared with about $3 million for the first quarter of 2004, but PES enjoyed a one-time tax benefit in last year that boosted earnings by $1 million.

Furthermore, in the first quarter of 2005, PES lost about $2 million on two D.C. peaking plants, representing about 850 MW. Mild weather in the first quarter kept those from running frequently, while PES continued to incur O&M and depreciation costs, he said. PES took over those plants, which originally belonged to utility Pepco, in the restructuring process.