Dynegy Sees Higher Earnings Across the Board

Dynegy Inc. CEO Chuck Watson said last week he had "never been so excited" about his company's fourth quarter and yearend earnings, because across the board, every business segment of the Houston-based company was up. Referring to California, Watson said Dynegy had taken steps "months ago," in anticipation of today's problems, and now was actively supporting planned changes there.

For 2000, Dynegy reported a 210% increase in its recurring net income, up to $452 million, or $1.43 a diluted share, compared with 1999 recurring net income of $146 million, or $0.63 per share. The 2000 results represented a 157% increase over 1999 net income of $176 million, or $0.53 per share. For the year, Dynegy's common stock "leads the industry," said Watson, who reported that it had a 218% total shareholder return.

Watson, who called 2000 an "exceptional year," said Dynegy had leveraged its assets and that its "core convergence segment achieved particularly outstanding results, with a 252% increase in 2000 recurring net income to $355 million." The company's competitive position was advanced with the Illinova merger and the completion of three greenfield power plants totaling 1,055 MW.

"The closing of two acquisitions totaling more than 3,000 MW during the first half of this year and the development of three additional greenfield power projects totaling 1,165 MW by this summer will ensure that our growth performance will continue into 2001 and beyond," said Watson.

The CEO waxed poetic about the company's future, saying he had never been more enthusiastic about fourth quarter or year end results than he was with the most recent numbers.

With less than 10% of its generation portfolio in California, Watson said California was "not the focus of Dynegy," but added that his company was "publicly committed" to solving the state's energy problems. "Dynegy has been and will continue to be a player in California," he said. Speaking to analysts during an earnings conference call, Watson said everything that could go wrong with California had gone wrong, but insisted the state was not in an energy crisis, but rather a financial one.

Dynegy's COO Steve Bergstrom, who has led the company's participation in California energy discussions, said, "for many months, Dynegy tried to get into a discussion" with state officials about price caps, because Dynegy recognized that problems were looming.

"California's energy crisis is real and it was not caused by deregulation," said Bergstrom. However, both he and Watson acknowledged that there are "solutions to stop the bleeding" if state officials recognize the problems are all financial, and are not related to deregulation. Watson said the California governor (Gray Davis) might not understand "Economics 101" but "he understands Black Out."

Dynegy officials think there are several "must haves" for the California market to remain viable: credit assurances for going forward, securitization of past receivables owed, bilateral contracts, a long-term rate structure and the removal of roadblocks to build new generation.

"All of us in industry are trying to make it happen and we are committed to making it happen," Watson said.

Carolyn Davis, Houston

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