Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TEG > SEC Filings for TEG > Form 10-Q on 6-Aug-2013All Recent SEC Filings

Show all filings for INTEGRYS ENERGY GROUP, INC.

Form 10-Q for INTEGRYS ENERGY GROUP, INC.


6-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the accompanying financial statements and related notes and our Annual Report on Form 10-K for the year ended December 31, 2012.

SUMMARY

We are a diversified energy holding company with regulated natural gas and electric utility operations (serving customers in Illinois, Michigan, Minnesota, and Wisconsin), an approximate 34% equity ownership interest in ATC (a federally regulated electric transmission company), and nonregulated energy operations.

                             RESULTS OF OPERATIONS

Earnings Summary
                                          Three Months Ended June 30        Change in 2013      Six Months Ended June 30      Change in 2013
(Millions, except per share amounts)        2013               2012           Over 2012            2013           2012          Over 2012
Natural gas utility operations         $        1.5       $      (11.2 )        N/A           $       91.2     $    67.4         35.3  %
Electric utility operations                    23.7               20.9         13.4  %                52.3          45.2         15.7  %
Electric transmission investment               13.6               13.1          3.8  %                27.0          26.4          2.3  %
Integrys Energy Services' operations          (41.8 )             30.9          N/A                    9.6          10.8        (11.1 )%
Holding company and other operations           (2.4 )             (4.9 )      (51.0 )%                 2.0          (2.1 )        N/A

Net income (loss) attributed to
common shareholders                    $       (5.4 )     $       48.8          N/A           $      182.1     $   147.7         23.3  %

Basic earnings per share               $      (0.07 )     $       0.62          N/A           $       2.31     $    1.88         22.9  %
Diluted earnings per share             $      (0.07 )     $       0.62          N/A           $       2.29     $    1.86         23.1  %

Average shares of common stock
Basic                                          79.4               78.5          1.1  %                79.0          78.5          0.6  %
Diluted                                        79.4               79.3          0.1  %                79.7          79.3          0.5  %

Second Quarter 2013 Compared with Second Quarter 2012

The $54.2 million decrease in our earnings was driven by a $69.3 million after-tax non-cash decrease in Integrys Energy Services' margins related to derivative and inventory fair value adjustments.

This decrease was partially offset by:

A $9.0 million after-tax increase in natural gas utility margins in 2013 due to lower sales volumes in 2012, combined with the absence of decoupling at PGL, NSG and MERC in 2012.

A $7.9 million after-tax increase in natural gas utility margins due to the positive quarter-over-quarter impact of reserves recorded against decoupling amounts at PGL and NSG in the second quarter of 2012 related to prior periods. At that time, an ICC revised amendatory order stated that revenues to be collected under the decoupling mechanisms were subject to refund. See Note 21, "Regulatory Environment," for more information.

Six Months 2013 Compared with Six Months 2012

The $34.4 million increase in our earnings was driven by:

A $21.9 million after-tax increase in natural gas utility margins in 2013 due to lower sales volumes in 2012, combined with the absence of decoupling at PGL, NSG and MERC in 2012.

A $9.9 million after-tax increase in natural gas utility margins due to the first quarter 2013 reversal of reserves recorded in 2012 against decoupling accruals at PGL and NSG. In March 2013, the Illinois Appellate Court affirmed the ICC's authority to approve the permanent decoupling mechanisms. See Note 21, "Regulatory Environment," for more information.


Table of Contents

Regulated Natural Gas Utility Segment Operations
                                            Three Months Ended June 30        Change in 2013        Six Months Ended June 30         Change in 2013
(Millions, except heating degree days)        2013               2012           Over 2012             2013              2012            Over 2012
Revenues                                 $      369.9       $      253.7         45.8  %        $     1,163.8       $     919.4          26.6  %
Purchased natural gas costs                     167.5               92.7         80.7  %                591.6             439.2          34.7  %
Margins                                         202.4              161.0         25.7  %                572.2             480.2          19.2  %

Operating and maintenance expense               147.9              127.0         16.5  %                310.0             262.3          18.2  %
Depreciation and amortization expense            32.3               32.7         (1.2 )%                 64.5              65.1          (0.9 )%
Taxes other than income taxes                     9.5                8.6         10.5  %                 19.4              18.1           7.2  %
Operating income (loss)                          12.7               (7.3 )        N/A                   178.3             134.7          32.4  %

Miscellaneous income                              0.2                0.3        (33.3 )%                  0.4               0.5         (20.0 )%
Interest expense                                (11.9 )            (11.4 )        4.4  %                (24.6 )           (23.4 )         5.1  %
Other expense                                   (11.7 )            (11.1 )        5.4  %                (24.2 )           (22.9 )         5.7  %

Income (loss) before taxes               $        1.0       $      (18.4 )        N/A           $       154.1       $     111.8          37.8  %

Retail throughput in therms
Residential                                     243.0              171.0         42.1  %              1,018.9             777.4          31.1  %
Commercial and industrial                        78.9               51.0         54.7  %                315.7             234.4          34.7  %
Other                                            10.8               14.2        (23.9 )%                 30.8              32.9          (6.4 )%
Total retail throughput in therms               332.7              236.2         40.9  %              1,365.4           1,044.7          30.7  %

Transport throughput in therms
Residential                                      39.1               31.3         24.9  %                150.4             118.4          27.0  %
Commercial and industrial                       340.1              334.3          1.7  %                891.7             811.0          10.0  %
Total transport throughput in therms            379.2              365.6          3.7  %              1,042.1             929.4          12.1  %

Total throughput in therms                      711.9              601.8         18.3  %              2,407.5           1,974.1          22.0  %

Weather
Average heating degree days                       943                613         53.8  %                4,449             3,202          38.9  %

Second Quarter 2013 Compared with Second Quarter 2012

Margins

Natural gas utility margins are defined as natural gas utility operating revenues less purchased natural gas costs. Management believes that natural gas utility margins provide a more meaningful basis for evaluating natural gas utility operations than natural gas utility revenues since we pass through prudently incurred natural gas commodity costs to our customers in current rates. There was an approximate 27% increase in the average per-unit cost of natural gas sold during the second quarter of 2013, which had no impact on margins.

Regulated natural gas utility segment margins increased $41.4 million, driven by:

An approximate $28 million net increase in margins due to the impact of our decoupling mechanisms and sales volumes variances.

? In the second quarter of 2012, margins were lower due to unusually warm weather, resulting in an approximate $15 million increase in margins quarter over quarter. In 2012, decoupling accruals at PGL and NSG were offset by reserves, and MERC did not have decoupling. Therefore, in 2012, margins for PGL, NSG, and MERC were more sensitive to volume variances. See Note 21, "Regulatory Environment," for more information. In addition, decoupling across the natural gas utilities does not cover all jurisdictions or customer classes.

? In the second quarter of 2012, PGL and NSG recorded a reduction to revenues of approximately $13 million when reserves were established against regulatory assets related to decoupling from a prior period. The reserves were established after a 2012 ICC revised amendatory order stated that revenues to be collected under the decoupling mechanism were subject to refund.


Table of Contents

An approximate $10 million net increase in margins related to certain riders at PGL and NSG. This increase was offset by an equal increase in operating expenses, resulting in no impact on earnings.

? PGL and NSG recovered approximately $5 million more for environmental cleanup costs at their former manufactured gas plant sites related to an increase in remediation activity during 2013. See Note 12, "Commitments and Contingencies," for more information about the manufactured gas plant sites.

? PGL and NSG billed approximately $5 million more to customers for energy efficiency programs in 2013.

Operating Income

Operating income at the regulated natural gas utility segment increased $20.0 million. This increase was driven by the $41.4 million increase in margins discussed above, partially offset by a $21.4 million increase in operating expenses.

The increase in operating expenses was primarily due to:

An approximate $10 million increase at PGL and NSG driven by higher amortization of regulatory assets related to environmental cleanup costs for manufactured gas plant sites and an increase in regulatory liabilities related to energy efficiency programs. Margins increased by an equal amount, resulting in no impact on earnings.

A $4.9 million increase in natural gas distribution costs, primarily at PGL. The increase was partially due to increased labor and contractor costs driven by additional employees and contractors needed for compliance work. A portion of the compliance work was driven by new local regulations related to natural gas distribution main openings, construction, and repairs in the public way. Natural gas distribution costs also increased due to a plastic pipe fittings replacement project.

A $3.3 million increase in energy efficiency program expenses at certain of the natural gas utilities, driven by MERC's conservation improvement program.

A $1.8 million increase in net employee benefit costs. The increase was partially due to higher pension expense, primarily at PGL, driven by a lower discount rate in 2013. The lower discount rate did not significantly impact the other natural gas utilities due to an increase in contributions to those plans in prior years, which increased plan assets. Amortization of negative investment returns from prior years also increased pension expense in the second quarter of 2013. Increases in WPS's pension and other employee benefit costs have been deferred and will be recovered in a future rate proceeding as a result of its 2013 rate order. See Note 21, "Regulatory Environment," for more information.

The increase in operating expenses was partially offset by:

A $3.0 million decrease in workers compensation expense related to both fewer incidents and less severe injuries during the second quarter of 2013, primarily at PGL.

A $0.4 million decrease in depreciation and amortization expense. The decrease was driven by a $3.4 million reduction in expense at MERC. In June 2013, the MPUC Staff issued a briefing report on the MERC depreciation study, which was representative of the order approved by the MPUC on July 29, 2013, and is retroactive to January 1, 2012. The study included changes to salvage values and costs of removal, as well as extensions to the service lives of certain assets. This decrease was partially offset by an increase in depreciation and amortization expense resulting from increased investment in property and equipment, primarily driven by the AMRP at PGL.

Six Months 2013 Compared with Six Months 2012

Margins

Natural gas utility margins are defined as natural gas utility operating revenues less purchased natural gas costs. Management believes that natural gas utility margins provide a more meaningful basis for evaluating natural gas utility operations than natural gas utility revenues since we pass through prudently incurred natural gas commodity costs to our customers in current rates. There was an approximate 3% increase in the average per-unit cost of natural gas sold during 2013, which had no impact on margins.


Table of Contents

Regulated natural gas utility segment margins increased $92.0 million, driven by:

An approximate $53 million net increase in margins due to our decoupling mechanisms and sales volumes variances.

? In 2012, margins were lower due to unusually warm weather, resulting in an approximate $36 million increase in margins period over period. In 2012, decoupling accruals at PGL and NSG were offset by reserves, and MERC did not have decoupling. Therefore, in 2012, margins for PGL, NSG, and MERC were more sensitive to volume variances. See Note 21, "Regulatory Environment," for more information. In addition, decoupling across the natural gas utilities does not cover all jurisdictions or customer classes.

? In 2013, PGL and NSG recorded an increase in revenues of approximately $17 million when reserves established against regulatory assets related to decoupling from a prior period were reversed. The reversal was recorded after the Illinois Appellate Court issued an opinion in March 2013 that affirmed the ICC's order approving the decoupling mechanisms.

An approximate $32 million net increase in margins related to certain riders at PGL and NSG. This increase was offset by an equal increase in operating expenses, resulting in no impact on earnings.

? PGL and NSG recovered approximately $18 million more for environmental cleanup costs at their former manufactured gas plant sites related to an increase in remediation activity during 2013. See Note 12, "Commitments and Contingencies," for more information about the manufactured gas plant sites.

? PGL and NSG billed approximately $14 million more to customers for energy efficiency programs in 2013.

An approximate $5 million net increase in margins due to rate orders. See Note 21, "Regulatory Environment," for more information.

? The rate increases at PGL and NSG, effective June 27, 2013, and January 21, 2012, and other impacts of rate design, had an approximate $6 million positive impact on margins.

? MERC had an approximate $2 million increase in margins primarily driven by the impact of a preliminary July 2012 rate order from the MPUC. Customer refunds were accrued in 2012 as a result of 2011 interim rates that were in effect.

? A reduction in rates at WPS, effective January 1, 2013, resulted in an approximate $3 million negative impact on margins.

Operating Income

Operating income at the regulated natural gas utility segment increased $43.6 million. This increase was driven by the $92.0 million increase in margins discussed above, partially offset by a $48.4 million increase in operating expenses.

The increase in operating expenses was primarily due to:

An approximate $32 million net increase at PGL and NSG driven by higher amortization of regulatory assets related to environmental cleanup costs for manufactured gas plant sites and an increase in regulatory liabilities related to energy efficiency programs. Margins increased by an equal amount, resulting in no impact on earnings.

A $5.7 million increase in net employee benefit costs. The increase was partially due to higher pension expense, primarily at PGL, driven by a lower discount rate in 2013. The lower discount rate did not significantly impact the other natural gas utilities due to an increase in contributions to those plans in prior years, which increased plan assets. Amortization of negative investment returns from prior years also increased pension expense in 2013. Increases in WPS's pension and other employee benefit costs have been deferred and will be recovered in a future rate proceeding as a result of its 2013 rate order. See Note 21, "Regulatory Environment," for more information.

A $5.0 million increase in energy efficiency program expenses at certain of the natural gas utilities, driven by MERC's conservation improvement program.

A $4.4 million increase in natural gas distribution costs, primarily at PGL. The increase was partially due to increased labor and contractor costs driven by additional employees and contractors needed for compliance work. A portion of the compliance work was driven by new local regulations related to natural gas distribution main openings, construction, and repairs in the public way. Natural gas distribution costs also increased due to a plastic pipe fittings replacement project.

The increase in operating expenses was partially offset by:

A $3.2 million decrease in workers compensation expense related to both fewer incidents and less severe injuries during 2013, primarily at PGL.


Table of Contents

A $0.6 million decrease in depreciation and amortization expense. The decrease was driven by a $3.4 million reduction in expense at MERC related to a new depreciation study approved by the MPUC on July 29, 2013, retroactive to January 1, 2012, as discussed above. The decrease was also driven by a $2.5 million reduction in expense at MGU. In January 2013, the Michigan Court of Appeals issued an order reversing the MPSC's previously ordered disallowance associated with the early retirement of certain MGU assets in 2010. See Note 21, "Regulatory Environment," for more information. The decreases were partially offset by an increase in depreciation and amortization expense resulting from increased investment in property and equipment, primarily driven by the AMRP at PGL.

Regulated Electric Utility Segment Operations
                                 Three Months Ended June 30           Change in 2013        Six Months Ended June 30        Change in 2013
(Millions, except degree days)        2013               2012            Over 2012            2013             2012            Over 2012
Revenues                         $      327.0       $      311.8           4.9  %        $     658.8       $     618.8           6.5  %
Fuel and purchased power costs          131.3              135.5          (3.1 )%              274.5             263.0           4.4  %
Margins                                 195.7              176.3          11.0  %              384.3             355.8           8.0  %

Operating and maintenance
expense                                 111.5               99.8          11.7  %              212.9             200.1           6.4  %
Depreciation and amortization
expense                                  25.8               22.1          16.7  %               47.3              44.1           7.3  %
Taxes other than income taxes            12.1               11.7           3.4  %               24.9              24.6           1.2  %
Operating income                         46.3               42.7           8.4  %               99.2              87.0          14.0  %

Miscellaneous income                      2.2                0.5         340.0  %                3.8               0.6         533.3  %
Interest expense                         (8.5 )             (9.0 )        (5.6 )%              (17.6 )           (18.2 )        (3.3 )%
Other expense                            (6.3 )             (8.5 )       (25.9 )%              (13.8 )           (17.6 )       (21.6 )%

Income before taxes              $       40.0       $       34.2          17.0  %        $      85.4       $      69.4          23.1  %

Sales in kilowatt-hours
Residential                             692.6              687.4           0.8  %            1,516.4           1,462.6           3.7  %
Commercial and industrial             2,103.7            2,137.2          (1.6 )%            4,175.7           4,225.0          (1.2 )%
Wholesale                             1,138.1            1,118.7           1.7  %            2,184.7           2,041.8           7.0  %
Other                                     7.7                7.6           1.3  %               18.4              18.5          (0.5 )%
Total sales in kilowatt-hours         3,942.1            3,950.9          (0.2 )%            7,895.2           7,747.9           1.9  %

Weather
WPS:
Heating degree days                     1,107                748          48.0  %              4,910             3,612          35.9  %
Cooling degree days                       131                264         (50.4 )%                131               275         (52.4 )%

UPPCO:
Heating degree days                     1,629              1,182          37.8  %              5,716             4,464          28.0  %
Cooling degree days                        36                 99         (63.6 )%                 36                99         (63.6 )%

Second Quarter 2013 Compared with Second Quarter 2012

Margins

Electric margins are defined as electric operating revenues less fuel and purchased power costs. Management believes that electric utility margins provide a more meaningful basis for evaluating electric utility operations than electric operating revenues. To the extent changes in fuel and purchased power costs are passed through to customers, the changes are offset by comparable changes in operating revenues.

Regulated electric utility segment margins increased $19.4 million, driven by:

An approximate $10 million increase in margins from WPS's fuel and purchased power costs that are not included in the fuel window. The margin increase was primarily due to a decline in purchased power costs as a result of the acquisition of Fox Energy Company LLC.

An approximate $5 million increase in margins due to a retail electric rate increase at WPS, effective January 1, 2013. For more information on the 2013 PSCW rate order, see Note 21, "Regulatory Environment."

An approximate $5 million net increase in margins from residential and commercial and industrial customers due to variances related to sales volumes, including the impact of decoupling. The quarter-over-quarter impact of decoupling does not directly correlate with the quarter-over-quarter impact of the change in sales volumes, as WPS's decoupling mechanism was changed in 2013, and UPPCO did not have decoupling in 2012. See Note 21, "Regulatory Environment," for more information.


Table of Contents

Operating Income

Operating income at the regulated electric utility segment increased $3.6 million. The increase was driven by the $19.4 million increase in margins discussed above, partially offset by a $15.8 million increase in operating expenses. The increase in operating expenses was driven by:

A $4.4 million increase due to WPS's deferral of the net difference between actual and rate case-approved costs resulting from the purchase of Fox Energy Company LLC. The 2013 PSCW rate order did not reflect this purchase or the related termination of the power purchase agreement. However, WPS did receive approval from the PSCW to defer ownership costs above or below its power purchase agreement expenses for recovery or refund in a future rate case.

A $3.7 million increase in depreciation and amortization expense due to the acquisition of the Fox Energy Center, partially offset by a reduction in the depreciable basis of WPS's Crane Creek Wind Project. The reduction is the result of WPS's election to claim a Section 1603 Grant for the project in lieu of production tax credits.

A $2.1 million increase in maintenance expense due to a greater number of planned outages for certain WPS generation plants during 2013, as well as maintenance costs related to the Fox Energy Center.

A $2.1 million increase in various other costs associated with the acquisition and operation of the Fox Energy Center.

A $1.9 million increase in electric transmission expense.

Other Expense

Other expense decreased $2.2 million, driven by an increase in AFUDC, primarily related to environmental compliance projects at the Columbia plant.

Six Months 2013 Compared with Six Months 2012

Margins

Electric margins are defined as electric operating revenues less fuel and purchased power costs. Management believes that electric utility margins provide a more meaningful basis for evaluating electric utility operations than electric operating revenues. To the extent changes in fuel and purchased power costs are passed through to customers, the changes are offset by comparable changes in operating revenues.

Regulated electric utility segment margins increased $28.5 million, driven by:

An approximate $9 million increase in margins due to a retail electric rate increase at WPS, effective January 1, 2013. For more information on the 2013 PSCW rate order, see Note 21, "Regulatory Environment."

An approximate $9 million net increase in margins from residential and commercial and industrial customers due to variances related to sales volumes, including the impact of decoupling. The period-over-period impact of decoupling does not directly correlate with the period-over-period impact of the change in sales volumes, as WPS's decoupling mechanism was changed in 2013, and UPPCO did not have decoupling in 2012. See Note 21, "Regulatory Environment," for more information.

An approximate $8 million increase in margins from WPS's fuel and purchased power costs that are not included in the fuel window. The margin increase was primarily due to a decline in purchased power costs as a result of the acquisition of Fox Energy Company LLC.

A $1.5 million increase in margins due to the period-over-period impact of the first quarter 2012 write-off of UPPCO's net regulatory asset related to its 2010 and 2011 decoupling deferrals. The write-off was reversed in the third quarter of 2012.

Operating Income

Operating income at the regulated electric utility segment increased $12.2 million. The increase was driven by the $28.5 million increase in margins discussed above, partially offset by a $16.3 million increase in operating expenses. The increase in operating expenses was driven by:

A $4.0 million increase in employee benefit related expenses. The increase was driven by the amortization of negative investment returns from prior years, which increased both the pension and other postretirement benefit expenses.

A $3.9 million increase in electric transmission expense.


Table of Contents

. . .

  Add TEG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TEG - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.