Natural Gas Hedges Bring Large Quarterly Income for Energy Future Holdings

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Researched by Industrial Info Resources (Sugar Land, Texas)--Texas-based power producer and distributor Energy Future Holdings (EFH) (Dallas), formerly TXU Corporation, announced third-quarter and year-to-date profits for 2008. Significant hedging of natural gas has caused EFH's earnings to become quite volatile. The company posted a net income of $3.62 billion for the quarter, up from $992 million in 3Q07, and while this would seem to be good, in the previous fiscal quarter, the company posted net losses of $3.3 billion. For more information, see related August 20, 2008, news article - Energy Future Holdings Loses Billions by Playing It Safe in the Natural Gas Market. The company's year-to-date net income is negative $983 million, compared to a positive $615 million from the same period last year.

In an attempt to reduce electricity price changes caused by fluctuating natural gas prices, EFH has hedged approximately 77% of the natural gas needed from now through 2014. With its current holdings, EFH estimates that a change of $1.00 per million British thermal units of natural gas prices through 2014 could cause up to $2.1 billion of mark-to-market gains or losses. Decreases in forward natural gas prices brought the company a gain of $6.2 billion for the quarter, but only $133 million year-to-date.

EFH was formed last year and consists of three subsidiaries: TXU Energy, Oncor and Luminant. Oncor and TXU are both energy distributors, delivering electrical power to a combined 9.5 million customers in Texas. Luminant is a power provider with 19 operational power plants providing more than 18,300 megawatts (MW) of power generation. In addition to its earnings, EFH also announced the sale of a minority ownership of Oncor. An arm of the OMERS pension plan company (Toronto, Ontario) purchased a 19.75% interest in Oncor for $1.254 billion.

Since June 2006, the company has been constructing a 500-MW coal-fired unit addition at its Sandow Power Station near Rockdale, Texas. The estimated $750 million is scheduled to be complete in June 2009. Information on this and other EFH projects can be found in Industrial Info's North American Industrial Database.

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