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Dynegy reports record year despite California woes

Jan. 23, 2001 — A boost in wholesale trading and marketing profits contributed to Dynegy Inc.�s 210% increase in net income for 2000.

Income jumped to $452 million, or $1.43/share, compared to 1999 income of $146 million, or 63 cents/share. Company officers attributed the record year to the performance of Dynegy Marketing and Trade which focuses on commodities marketing and trading and risk management around the ownership or control of physical assets. This segment contributed 80% to the bottom line of the entire company.

Looking towards 2001, Dynegy said it will achieve a growth rate of about 30% and revised its forecast of earnings slightly. Dynegy expects to earn $1.80-$1.87/share for 2001, compared to a previous estimate of $1.80-$1.85/share.

California Impact
Dynegy said 15% of its total operations are in California. Power sales from generation and trading in the state contributed positively to results until the fourth quarter when the financial crisis of utilities, California Power Exchange, and Independent System Operator interrupted payments for power delivered.

Dynegy executives said reserves were set aside to cover the eventuality that California entities don�t pay these bills. But they did not disclose the amount of reserves or receivables still outstanding.

�It is our intention that the California reserves won�t be required,� said Chuck Watson, chief executive officer, in a conference call. �We have reserved because it is prudent at this time.�

For 2001, California�s share of Dynegy�s �general portfolio� will be only 10%, said Watson. The company has announced acquisitions totaling 3,000 MW and 1,200 MW of new merchant generation in other states—mostly in the Northeast.

�California is not our primary focus. We have a portfolio that is diversified in geography and feedstock,� he said.

At the same time, Dynegy still expects to make money from its California energy business in 2001. The commodity environment will remain strong in that state as elsewhere, the company said.

Steve Bergstrom, president and chief operating officer, offered the following suggestions for a long-term solution to the problems in California:

• Credit assurances going forward.

• Securitization of past receivables for delivered power in November, December, and January but not paid.

• Bilateral contracts that will remove some volatility from the power markets.

• Long-term rate structure that reflects the true cost of power to consumers.

• Elimination of roadblocks to new generation.

• Conservation efforts.

Dynegy said that until the crisis is resolved it will not invest any more in that state.

�No new capital there until we�re comfortable that this is behind us,� said Bergstrom. �We won�t build any new greenfield power plants because there are better opportunities in other states where rules are consistent.�

At the same time, Bergstrom observed, California needs an additional 3,000 -5,000 MW to be built in the state.

Income reported for Dynegy�s Midstream Services increased 21% to $55 million, compared to recurring net income of $45 million in 1999. Strong natural gas liquids marketing activities and favorable commodity pricing buoyed the segment, in addition to ongoing cost savings.

Dynegy�s transmission and distribution business, consisting mostly of the utility Illinois Power, reported income of $55 million from operational efficiencies and higher than expected natural gas and power demand in the fourth quarter.

The company�s new communications business Dynegy Global Communications reported a quarterly loss of $12 million attributed to start-up investments.