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Energy Future Holdings Reports First Quarter 2011 Results

04-29-2011

DALLAS –

Energy Future Holdings Corp. (EFH) today reported consolidated financial results for the first quarter ended March 31, 2011. The quarter results were reported in EFH’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (SEC) this morning.

“Our company had solid operational performance during the quarter, despite the severe winter weather and continues to serve a rapidly improving Texas economy.” said John Young, CEO, Energy Future Holdings.

First Quarter GAAP Results

For the first quarter 2011, EFH reported a consolidated net loss (in accordance with GAAP) of $362 million compared to reported net income of $355 million for the first quarter 2010. The first quarter 2011 reported net loss included (all after tax) $203 million in commodity-related unrealized mark-to-market net losses largely related to positions in EFH’s natural gas hedging program, partially offset by $92 million in unrealized mark-to-market net gains on interest rate swaps that hedge our variable-rate interest expense and a $14 million gain related to a counterparty bankruptcy settlement.

The first quarter 2010 reported net income (in accordance with GAAP) included (all after tax) $639 million in unrealized commodity-related mark-to-market net gains and a $9 million debt extinguishment gain resulting from a first quarter 2010 debt exchange, partially offset by $70 million in unrealized mark-to-market net losses on interest rate swaps and an $8 million deferred income tax charge recorded as a result of the health care legislation enacted by Congress in March 2010.

First Quarter Adjusted (Non-GAAP) Operating Results

Adjusted (non-GAAP) operating results for the first quarter 2011 totaled a net loss of $265 million compared to a net loss of $215 million for the first quarter 2010. For a reconciliation of reported GAAP results to adjusted (non-GAAP) operating results for the first quarter 2011 and 2010, see Tables A1 and A2.

First quarter 2011 adjusted (non-GAAP) operating results from the competitive business declined $37 million (after tax) as compared to first quarter 2010. The decrease reflected (all after tax) a $70 million decline in contribution margin driven by lower net margin from commodity hedge prices, asset management and retail activities, a severe winter weather event that resulted in the unavailability of certain of our generation units in February 2011, lower retail consumption primarily due to milder weather, higher fuel expense at the legacy baseload generation units (primarily due to increased coal transportation expenses and higher uranium and conversion costs) and lower production from the legacy baseload generation units. Factors favorably impacting contribution margin include incremental output from the three new lignite-fueled generation units at Sandow and Oak Grove and lower amortization of intangible assets arising from purchase accounting. Other factors contributing to the lower operating results were a $17 million increase in depreciation reflecting the three new lignite-fueled generation units as well as reinvestment in the legacy baseload units and a $6 million increase in operating costs related to the three new generation units. These results were partially offset by $35 million in lower interest expense driven by EFH’s liability management program, $14 million lower retail bad debt expense and $8 million in lower accrued interest on uncertain income tax positions.

First quarter 2011 adjusted (non-GAAP) operating results related to the regulated business declined $13 million (after tax) as compared to first quarter 2010. The results reflected (all after tax) a $10 million decrease in revenues from lower consumption primarily due to milder weather, $7 million in higher depreciation reflecting infrastructure investment, and $6 million in higher operating costs. These improvements were partially offset by $13 million in higher revenues from transmission rate and distribution tariff increases and growth in points of delivery.

Long-Term Hedging Program

The EFH long-term hedging program is designed to reduce exposure to changes in future wholesale electricity prices due to changes in the price of natural gas. Under the program, subsidiaries of EFH have entered into market transactions involving natural gas-related financial instruments. As of March 31, 2011, these subsidiaries have sold forward approximately 1.0 billion MMBtu of natural gas (equivalent to the natural gas exposure of approximately 121,000 GWh at an assumed 8.0 market heat rate) for the period April 1, 2011 through December 31, 2015 at weighted average annual hedge prices ranging from $7.19 per MMBtu to $7.80 per MMBtu. These forward natural gas sales include related put and call transactions (referred to as collars), primarily for year 2014 of the program, that effectively hedge natural gas prices within a range. Collars represented approximately 15% of the positions in the long-term hedging program at March 31, 2011, with the approximate weighted average strike prices under the collars being a floor of $7.80 per MMBtu and a ceiling of $11.75 per MMBtu. Taking into consideration the positions in the long-term hedging program and forward retail and wholesale power sales, EFH has effectively hedged an estimated 48% of the natural gas price exposure related to its expected generation output for the period April 1, 2011 through December 31, 2015 (on an average basis for such period and assuming an 8.0 market heat rate).

Based on the size of the long-term hedging program as of March 31, 2011, a $1.00/MMBtu change in natural gas prices across the hedged period would result in the recognition by EFH of up to $1.0 billion in pretax unrealized mark-to-market gains or losses. The effects of changes in forward natural gas prices on the values of positions in the program are reflected in net income (GAAP) as discussed above. Reported unrealized mark-to-market net losses (pretax) associated with the long-term hedging program totaled $342 million for first quarter 2011, primarily reflecting the reversal of previously recorded unrealized net gains on positions settled in the period. Given the volatility of natural gas prices, it is not possible to predict future reported unrealized mark-to-market net gains or losses and the actual net gains or losses that will ultimately be realized upon settlement of the hedge positions in future years. If natural gas prices at settlement are lower than the prices of the hedge positions, the hedges are expected to mitigate the otherwise negative effect on earnings of lower wholesale electricity prices. However, if natural gas prices at settlement are higher than the prices of the hedge positions, the hedges are expected to dampen the otherwise positive effect on earnings of higher wholesale electricity prices and will in this context be viewed as having resulted in an opportunity cost. The cumulative unrealized mark-to-market net gain (pretax) related to positions in the long-term hedging program totaled $2,801 million and $3,143 million at March 31, 2011 and December 31, 2010, respectively.

Additional Information

Additional information, including the calculation of Adjusted EBITDA, one of the key metrics used for purposes of certain covenants contained in the EFH senior secured notes indenture, is available in the EFH Form 10-Q on the EFH website at www.energyfutureholdings.com.

Investor Call

EFH will host a conference call to discuss its first quarter 2011 results with its investors on Friday, April 29, 2011 at 10:00 a.m. Central (11:00 a.m. Eastern). The telephone number to participate in the conference call is (888) 825-4458 in the United States and Canada and (973) 638-3323 internationally, with conference code 58142029. The teleconference also will be webcast live in the Investor Relations section on EFH’s website.

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About Energy Future Holdings

EFH is a Dallas-based holding company engaged in competitive and regulated energy market activities, primarily in Texas. Its portfolio of competitive businesses consists primarily of TXU Energy, a retail electricity provider with approximately 2 million customers in Texas, and Luminant, which is engaged largely in power generation and related mining activities, wholesale power marketing and energy trading. Luminant has approximately 15,400 MW of generation in Texas, including 2,300 MW fueled by nuclear power and 8,000 MW fueled by coal. Luminant is also the largest purchaser of wind-generated electricity in Texas and fifth largest in the United States. EFH’s regulated operations consist of Oncor, which operates the largest electricity distribution and transmission system in Texas with more than three million delivery points and 118,000 miles of distribution and transmission lines. While EFH indirectly owns approximately 80 percent of Oncor, the management of Oncor reports to a separate board with a majority of directors that are independent from EFH.

Forward Looking Statements

This release contains forward-looking statements, which are subject to various risks and uncertainties. A discussion of the risks and uncertainties that could cause actual results to differ materially from management’s current projections, forecasts, estimates and expectations is contained in EFH’s filings with the SEC. In addition to the risks and uncertainties set forth in EFH’s SEC filings, the forward-looking statements in this release regarding the company’s long-term hedging program could be affected by, among other things: any change in the ERCOT electricity market, including a regulatory or legislative change, that results in wholesale electricity prices not being largely correlated to natural gas prices; any decrease in market heat rates as EFH’s long-term hedging program generally does not mitigate exposure to changes in market heat rates; the unwillingness or failure of any hedge counterparty or the lenders under the company’s collateral revolving credit facility to perform their respective obligations; or any other unforeseen event that results in the inability to continue to use a first lien to secure a substantial portion of the hedges under EFH’s long-term hedging program.

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Additional Document(s): Click here for the complete news release with tables.

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