Despite racking up huge natural gas costs from a historic storm in February, CenterPoint Energy and Xcel Energy both posted strong profits during the first quarter.
In fact, Xcel's earnings included $27 million in commodity trading profits stemming from the storm. The company said its power-trading operations also saved its customers about $190 million during the big freeze, which paralyzed major gas producing regions and sent prices skyrocketing. Gas is a major fuel for both home heating and electricity generation.
CenterPoint tallied $2.2 billion in extra gas costs — including about $500 million in Minnesota — while Xcel incurred $965 million, with $215 million from Minnesota. Consumers in Minnesota and other states will likely pay those costs, adding potentially hundreds of dollars to their annual gas bill.
That's because Minnesota and most other states treat wholesale gas costs as a pass-through to consumers.
"Because the higher natural gas costs are passed through, they did not impact this quarter's results," CenterPoint CEO David Lesar told analysts in a conference call Thursday. "We are off to a great start for the year, so let's check the utility earnings box as being on track."
With a pass-through, utilities don't mark up the price of gas. Consumers benefit from lower prices and are hurt by higher prices. Usually, gas price swings basically even out; but not this time, leaving many consumers outraged, judging from comments filed with the Minnesota Public Utilities Commission (PUC). Both CenterPoint and Xcel recently reported first-quarter profits that were comfortably higher than Wall Street forecasts.
Houston-based CenterPoint is Minnesota's largest gas utility; it also has gas and electricity operations in several other states, particularly Texas, which was blasted by the February storm. Minneapolis-based Xcel is Minnesota's second-largest gas provider and its largest electric utility. Minnesota and Colorado are its primary markets, and the latter was hit harder by soaring gas costs. Xcel's Texas operations also were hit.
During the first quarter, Xcel's electricity income gains were anchored by an $88 million increase in electricity rates and riders — its main source of earnings as a regulated utility.
But in the first quarter, Xcel also booked $27 million in net gains from "proprietary trading," according to a federal securities filing. Sizable proprietary trading gains — or losses — are unusual for Xcel.
Like all large utilities, Xcel hedges against swings in commodity prices, a strategy approved by the PUC and one that is primarily aimed at protecting ratepayers. But Xcel also does some in-house or proprietary trading.
A "small percentage" of those in-house trading profits flow to customers, Xcel said in a statement. Most gains go to shareholders — though shareholders also bear any losses from proprietary trading, the company said. The $27 million trading gain came primarily from Xcel's "structured origination positions" in electricity trading markets, the company said.
Essentially, Xcel had electricity generation capacity beyond its customers' needs, thus selling excess power as prices rose during the storm, which provided profits while also reducing consumers' bills.
CenterPoint does not do proprietary trading, but the practice isn't unique to Xcel. "There are some utilities that have a small trading business, though many have sold them off," said Michael Doyle, a stock analyst at Edward Jones.
The big price run-up is rooted in failures in gas-producing regions such as Texas, where temperatures plunged and equipment froze. Supply cratered as demand soared.
But the gas-supply plans of utilities in Minnesota and many other states also came up short during the crisis.
The PUC is investigating the gas-price spike, which will cost Minnesota consumers around $800 million. The average CenterPoint customer would get hit the hardest, paying $354 for storm-related gas costs, more than 50% of a typical annual gas bill. The average Xcel gas customer would pay $270.
By law, those costs would be recovered from ratepayers over 12 months starting in September. Both companies have asked the PUC to extend that period to 24 months to ease the sticker shock. CenterPoint initially proposed a finance charge of $40 per month for its average Minnesota customer. The Minnesota Attorney General's Office sharply criticized the charge, which CenterPoint said is needed to cover its own gas financing costs.
On April 30, the company told the PUC it had lined up financing, and that it would cost $50 million less than initially estimated. CenterPoint said that equates to a $4 per-month financing charge for consumers. Xcel has not proposed a financing fee.
Mike Hughlett • 612-673-7003