NewPower reports losses, stock closes higher

Ann de Rouffignac
OGJ Online

HOUSTON, Nov. 8, 2001 — National electricity marketer NewPower Holdings Inc., parent of New Power Co., said fourth quarter earnings will be reduced by $10-12 million because of delays in the Texas market.

The Purchase, NY-based company also acknowledged it had to cancel forward purchases of power in Texas, resulting from delays at the Electric Reliability Council of Texas in switching customers to New Power from the incumbent utilities. The contract cancellations also contributed to third quarter losses, too.

The company reported a third quarter net loss of $67.1 million, or $1.15/share, on $54.7 million in revenue, compared to a net loss of $69.9 million, or $2.96/share, on $18.2 million in revenue, for the comparable quarter last year. The stock closed up 51.85% Thursday at $1.23.

New Power had forecast that its Texas customers would be receiving power by the fourth quarter. New Power has 60,000 customers in the market served by ERCOT, the Texas grid operator. But only 30,000 customers were receiving power at the end of October, said Eugene Lockhart, CEO of NewPower in a conference call.

“Not having the Texas revenue when we we’re building inventory put us out of whack,” said Lockhart. NewPower projects losses of $100 million-$125 million in 2002 and believes it will turn a profit in 2003.

The profit is predicated on a customer base of 1.5 million. Currently, the company has 860,000 customers. The growth will be accomplished by focusing marketing on high-density, high-margin markets and on small commercial customers, he said. Lockhart said customer acquisition costs had fallen to $120 from $140 each.

New Power also is reducing general and administration costs and putting new emphasis on selling variable priced electricity products that would protect the company from the volatility of commodity prices. The arrangement will help the company reduce risks associated with over or under estimating customer demand.

The company’s stock has been under considerable pressure because of the timing of cash flow, delays in the Texas market, and worries about deregulation of electricity in general. New Power incurs expenses acquiring electricity before the revenue flows, causing a problem with the timing of cash flow, the company said. The company said it had $33.4 million in available cash to fund working capital as of end of third quarter.

NewPower will have to come up with $50 million of new asset-based financing in 2002 probably by the second quarter, the company said. The assets will consist of accounts receivable and customer counts. An additional $50 million in asset-based financing also will have to be arranged in 2003.

But the company said revenue growth will strengthen when the ERCOT market opens in January 2002. Lockhart said officials in Texas “confirmed” that ERCOT will be ready to open on Jan. 1, 2002.

But as recently as last week, the subject was still being debated in a legislative oversight committee hearing. The Texas Public Utility Commission said it will make a final determination in midDecember.

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