A shift in marketing strategy and a new way of buying power supplies delivered "sustainable growth" to Strategic Energy in the second quarter.
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for details         That's what Shahid Malik, CEO of Great Plains Energy's competitive retailer told analysts.
        What accounts for Strategic's upturn?
        Malik credits a shift in customer strategy, partly.
        The firm has been going after smaller C&Is who may be more expensive to sign up and manage but they've proved to be a fertile market.
        Smaller customers have higher credit risks too so the firm has adjusted its pricing accordingly. And of course it's getting higher margins from smaller C&Is.
        Add to that better portfolio management -- a basic change in the way the company buys power, Malik explained.
        It's working directly with power producers -- a shift away from traders -- and using those new relationships to discover price in a different way.
        Strategic is even looking at transmission paths, buying and selling contracts to take advantage of volatility.
        Is this a strategy that works in high and low-price environments?
        It's more about volatility, Malik noted, but the higher the price, the more opportunity to benefit.
        Great Plains Energy CEO Michael Chesser raised the parent firm's earnings guidance based on Strategic's strong quarter.
        The marketer reported core earnings -- excluding mark-to-market losses and gains -- of $4.2 million, up from $3.7 million in last year's quarter.
        The end of the seams elimination charge (SECA) in April helped, Malik told analysts, boosting gross margins on power sales.
        Margins returned to something like Strategic's historical highs, jumping to $5.32/mwh compared with $3.87 last year, Malik reported.
SECA charges accounted for $2.22 of the margin gain.
        New sales averaged margins of $3.74 in the quarter so margins likely will go down again, Malik warned.
        Strategic's revenues fell to $350 million, down from $359 million in the second quarter of last year as power sales dipped to 3.9 million mwh from 5.1 million last year.
        But lower power costs drove earnings up by half a million.
        Strategic's backlog for future deliver grew by 40% to 25.7 million mwh and its new sales volume jumped to 7.6 million mwh compared with 3.9 million in last year's second quarter.
        Delivered volumes -- combined with backlog from earlier sales -- rose to 16.1 million kwh from 13.8 million mwh at the end of the first quarter.
        A positive sign is a lengthening of contracts with customers to 16 months from 14 months in last year's quarter but that's down from 18 months in this year's first quarter.
        Originally published in Restructuring Today on August 4, 2006