GMP announces thrid quarter earnings increase

GMP ANNOUNCES THIRD QUARTER EARNINGS
COLCHESTER, VT&Green Mountain Power Corporation (NYSE: GMP) has announced consolidated earnings of $0.54 per share of common stock, diluted, for the third quarter of 2006 compared with consolidated earnings of $0.48 per share of common stock, diluted, for the same period in 2005. Year to date earnings for 2006 are $1.60 per share, diluted, compared with earnings of $1.50 per share, diluted, for the first nine months of 2005.
Earnings increased in the third quarter of 2006 primarily as a result of lower power supply costs and transmission expenses, which were partially offset by a reduction in retail revenues of $3.3 million consistent with a restriction on earnings required in the rate agreement approved by the Vermont Public Service Board in 2003 in the Companys last retail rate case. This earnings restriction calculation is reviewed by the Vermont Public Service Board and is subject to change.
The Companys regulated earnings are capped at its allowed rate of return on equity of 10.5 percent for 2006. Costs that are not allowed for rate setting purposes reduce the Companys earning potential under the rate agreement and limit the Companys ability to achieve its allowed rate of return on equity for its operations as a whole. Despite the recording of this earnings restriction reserve in the third quarter of 2006 and an additional reserve anticipated at year end, we expect our earnings per share for the year to range between $2.00 and $2.15, said Christopher L. Dutton, President and Chief Executive Officer.
Retail operating revenues for the third quarter of 2006 decreased by $3.0 million compared with the same period in 2005, reflecting the effects of the $3.3 million restriction on earnings and milder summer weather. This was partially offset by an increase in sales of utility services to other municipalities and utilities, a 0.9 percent rate increase that took effect in January 2006 and an increase in the number of customers. Total retail megawatt hour sales of electricity decreased by 3.9 percent in the third quarter of 2006 compared with the same period in 2005. Sales to residential, small commercial and industrial, and large commercial and industrial customers decreased by 3.6, 4.8 and 3.2 percent, respectively, compared with the third quarter in 2005, which was affected by last years unusually hot weather. Increased revenues from the sale of utility services to other utilities and large industrial customers in the third quarter of 2006 contributed approximately $1.7 million more to retail revenue growth than the same period last year. Other operating expenses increased by $1.9 million in the third quarter of 2006, reflecting an increase of $1.3 million in utility services expense, compared with the third quarter of 2005. These sales of services are intended to allow the Company to recover some of its administrative and general and staffing costs from other parties and ultimately reduce costs to retail customers. The remaining $600,000 increase in other operating expenses related to additional costs associated with the proposed acquisition of the Company by Northern New England Energy Corporation, an affiliate of GazMétro Limited Partnership, and an increase in employee benefits.
Power supply expenses decreased by $4.3 million in the third quarter of 2006 compared with the same period last year. Increased 2006 entitlements to power under a long-term contract with Hydro-Quebec and a temporary increase in the Companys entitlement from the Vermont Yankee nuclear power plant reduced the Companys reliance on wholesale market purchases of electricity. The additional 2006 entitlements under the Hydro-Quebec contract and the Vermont Yankee output were purchased, on average, at prices below the wholesale market price for the third quarter of 2006 and substantially below 2005 wholesale market prices. Market prices for Company purchases in the third quarter of 2006 were substantially lower than 2005, reflecting the interruption of gas supplies in the Gulf caused by hurricane activity coupled with warmer than normal summer temperatures in 2005.
Transmission expenses decreased by $1.1 million in the third quarter compared to the same period last year, primarily as a result of regional transmission credits from ISO New England to VELCO.
Income tax expense increased by $600,000 in the third quarter of 2006 compared to the third quarter of 2005 due to an increase in pretax book income and an increase in the effective tax rate due to nondeductible merger expenses, which were partially offset by a decrease in the Vermont state income tax rate.