Dynegy had a whopper of a first quarter, posting a 66% increasein operating income from wholesale gas and power marketingoperations and a 20% jump to $22.3 million in net income from alloperations, excluding special items.

Marketing brought in $82.7 million in operating income led by300% growth in earnings from power marketing and generation, whichjumped to $46.2 million from $14.2 million in 1Q98 despite a dropin wholesale power marketing volumes.

“Power generation is dramatically changing the make-up ofDynegy’s earnings,” said CEO Chuck Watson. “Our power marketing andgeneration businesses have been combined to maximize earningscapabilities and capitalize on the synergies that exist between thetwo-Dynegy’s ‘merchant leverage effect.'”

Power marketing volumes fell during the quarter to 13.1 millionMWh, compared to 25 MM MWh in 1Q98, because of unseasonably warmweather and a lack of attractive trading opportunities, Dynegysaid. But since the first quarter 1998, the company has increasedits ownership in three power plants and increased owned grossmegawatts in operation by 54%.

“Our power generation franchise will be strengthened by theaddition of 1,468 MW in the second quarter with projects inCalifornia and Illinois in operation for the peak summer season,”said Watson. By the end of the second quarter, Dynegy will havemore than 6,800 MW owned, pending acquisition or under constructionat 31 facilities in 9 states.

Dynegy reported first quarter net income from all operations of$28.1 million, or $0.17 per diluted share, including a one-time netgain on an investment sale of $5.8 million, or $0.03 per dilutedshare. This compares to first quarter 1998 reported net income of$12.3 million, or $0.07 per diluted share, including a 1998severance charge of $6.3 million, or $0.04 per diluted share.

“We are pleased with our first quarter results and anticipateeven stronger performance throughout the year as new powergeneration assets are placed in service and the crude oil andnatural gas liquids pricing environment continues its recovery,”said Watson.

Gas marketing contributed an operating margin of $32.7 millionfor the quarter compared to $32.1 million in 1998. Global gasmarketing volumes increased 17% to 10.9 Bcf/d led primarily by U.K.operations. The company sold 9.3 Bcf/d in North America comparedwith 8.6 Bcf/d in 1Q98.

Liquids operations, however, continued to struggle. Operatingincome from the division fell to $52.4 million from $62.9 millionin 1Q98, primarily because of a 20% decline in average gas liquidsprices. Processing volumes decreased to 117 thousand b/d from 128Mb/d in the 1998 quarter.

During the second quarter, Nova Corp., formerly Nova Chemicals,is expected to complete its previously announced sale of its 25%stake in Dynegy. Watson said during a conference call the companydoes not expect a change in strategy as a result of the sale.”Dynegy will continue to execute its strategic plan indifferent toits ownership, and any transaction would have to be consistent withand enhance Dynegy’s existing strategic plan. Secondly, anytransaction would have to add value to all of Dynegy’sshareholders. In any transaction, we will endeavor to increase theliquidity in Dynegy’s stock.”

Several analysts have commented that they would prefer to seemore of Dynegy’s stock in the public’s hands, and Watson agreedmore “float” would be an improvement. Currently only 20% ofDynegy’s stock is owned by the public. “I would certainly like tosee that well into the 30s and 40s, and it wouldn’t hurt myfeelings at all if it was greater than 50%. I think this companyneeds to increase its float. It’s something I’ve committed to do inthe last year and we hope to accomplish that in this [Nova]transaction.”

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