Dynegy reports first quarter net income up 73%

By the OGJ Online Staff

HOUSTON, Apr. 17—Gas and power markets look “tight and strong” for the rest of the year, Dynegy Inc. Chairman Chuck Watson said Tuesday during a first quarter earnings conference call.

However, executives with the Houston energy wholesale gas and power marketer, conceded high prices have caused some reduction in demand at the company’s Illinois utility.

Tuesday Dynegy reported a 73% increase in first quarter 2001 recurring net income to $137.5 million, or 41 cents/diluted share, up from $79.4 million, or 26 cents/diluted share in the comparable 2000 quarter. First quarter revenue rose to $14.2 billion from $5.3 billion in the year ago quarter, due in part to Dynegy’s acquisition of Illinova Corp.

Analysts surveyed by Thomson Financial/First Call expected Dynegy’s first quarter earnings to be 40 cents/share. Dynegy’s stock closed up 5.27% at $55.95/share.

Dynegy executives said they could tell the market is tight based on the number of calls they are receiving from utilities and from the high number of calls for origination packages they are getting.

Origination deals are “pouring in the door,” said Dynegy Pres. Steve Bergstrom, as people become convinced tight market conditions are a more long-term situation and they look for help managing price volatility.

“The volatility characterizing the current energy environment has created an even more pronounced `flight to quality’ by companies recognizing the need to align with a proven provider of products, services, and risk mitigation,” Watson said.

With respect to its California operations, Watson declined to say how much the company has said aside in reserves to cover possible losses there. But, he said, the amount is enough to “cover almost every conceivable event.”

A return to seasonal winter weather in North America helped boost gas demand in the 2001 first quarter to 10.7 bcfd, up from 9.6 bcfd in the first quarter 2000. The increase was also driven by growing market share by Dynegy’s retail alliances, and incremental sales volumes on Dynegydirect, the company said.

Watson said Dynegydirect, the company’s electronic commerce portal, recorded nearly $9 billion in notional transactions during the first quarter 2001.

The electronic system “is providing our people with unequaled market intelligence,” Watson said.

Total power produced and sold increased 19% to 26.1 million MW-hr in the first quarter 2001, compared to 21.9 million MW-hr in the first quarter 2000. Dynegy attributed the increase to the addition of nearly 1,100 MW of new generation that began commercial operation during the latter half of 2000, the acquisition of 1,700 MW in the Northeast in the first quarter 2001, and greater merchant sales opportunities.

West Coast Power LLC—a 50-50 joint venture between Dynegy and NRG Energy Inc.—generation operations, net of reserves, did not make a material contribution during the quarter, Dynegy said. It added West Coast Power has mitigated substantially all of its prospective credit exposure in the California market through its agreement with the California Department of Water Resources to provide the state with up to 2,300 MW of energy through 2004.

Executives said they were reluctant to sign longer term contracts because the plants are aging and because of the uncertainty gripping the California gas and power markets.