Westar Energy Sees Strong Retail Sales in Second-Quarter 2012, but Tames Outlook for Full Year

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Researched by Industrial Info Resources (Sugar Land, Texas)--Energy company Westar Energy Incorporated (NYSE:WR) (Topeka, Kansas), which is the largest electric utility in Kansas, saw solid gains in the second quarter of 2012 as higher prices and stronger energy sales, driven by warmer weather, far outpaced higher operating costs and weaker Wholesale segment results. Net income was reported to be $61.36 million for the quarter, a 39.82% increase from second-quarter 2011.

Total revenues stood at $566.26 million, a 7.88% increase from the same period last year. Among the biggest factors influencing the gains in revenues were a 3% increase from megawatt-hour (MWh) Retail sales, including a more than 5% increase in Residential sales, and a decline in fuel and purchased power expenses, including lower natural gas costs that reduced generation fuel costs by almost 19%. These gains more than offset a decline in Wholesale MWh sales of almost 10%, driven by weaker demand, and an $11 million increase in pension and other employee benefit costs.

Industrial Info is tracking $791 million in active projects involving Westar, including two projects in units 4 and 5 at the Lawrence Energy Center in Lawrence, Kansas: the $250 million rebuild of scrubbers, and the $125 million construction of particulate control features. The scrubber project involves rebuilding existing wet Alstom CE flue gas desulfurization scrubbers on 114-megawatt (MW) and 448-MW tangential-fired dry bottom boilers by installing baghouses and replacing duct work, recycling pumps, absorbers and auxiliary equipment. The particulate control project involves installing pulse jet baghouses on the boilers. The projects are expected to be completed in November 2012 and April 2013, respectively.

"Weather for the quarter was significantly warmer than normal, and about 20% warmer than last year, although a good portion of that was in April and May, which doesn't have the same effect on sales that hot summer weather does," said Tony Somma, the chief financial officer of Westar, in a conference call.

"All of our large projects remain on schedule, and on or better than budget," he later added.

The Wholesale segment was the only major segment to report a decline in revenues for the quarter:

• Retail segment revenues were reported to total $440.62 million for the quarter, a 10.3% increase from second-quarter 2011:
• Residential business revenues were reported to be $176.89 million for the quarter, a 12.58% increase from the same period last year.
• Commercial business revenues were reported to be $170.13 million for the quarter, a 10.8% increase from second-quarter 2011.
• Industrial business revenues were reported to be $95.96 million for the quarter, a 5.17% increase from the same period last year.
• All other retail business revenues totaled a loss of $2.36 million for the quarter, compared with a $2.44 million loss in second-quarter 2011.
• Wholesale segment revenues were reported to be $68.97 million for the quarter, an 11.02% decrease from the same period last year.
• Transmission segment revenues were reported to be $49.38 million for the quarter, a 26.1% increase from second-quarter 2011.
• All other segment revenues totaled $7.29 million for the quarter, a 16.58% increase from the same period last year.

Chief Executive Officer Mark Ruelle said that Westar executives have revised the company's outlook for 2012 retail sales to "flat," as opposed to February's estimate of 1% growth. He cited that there was a "still-softening economy, psychological belt-tightening, energy efficiency and price elasticity."

In response to a question during the conference call about upcoming capital spending projects, Ruelle said: "The only major environmental projects we see in front of us are already under construction, and that's the lysine retrofit, which will be concluded in the spring of 2015, and then a SCR [selective catalytic reduction] project at one of the Jeffery units, which we expect to conclude at the end of next year."

He added: "We continue to see a need for additional transmission, but I don't think you'll see those big, lumpy projects that are difficult to finance--just a nice run rate of very good, smaller projects additions, maybe 100 or so a year. Right now, we don't have any identified needs for new generation other than the wind projects that are under development and are not going to be on our balance sheet."

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.