Dynegy Inc.’s share price continued to show small gains on Friday, following an upbeat speech a day earlier by CEO Bruce Williamson, in which he told analysts that the company has shifted its focus from “stabilizing the company to running the company strategically.”

Since the company shifted its core strategy in October 2002, Williamson noted the “tremendous amount of change.” He said the company went through a period where it was trying to “protect the value” of what it had 11 months ago. Today, however, Williamson said “we are going to begin to create a lot of value.”

Dynegy still expects to report a 7 cent/share loss this year and only a penny profit, but down the road, Williamson offered proof positive of long-term cash flow in Dynegy’s main business segments: power generation, natural gas liquids and regulated energy delivery during a speech at Lehman Brothers CEO Energy/Power Conference on Thursday.

“Our operating businesses have performed well this year,” he said. “Natural gas liquids (NGLs) have benefited from high gas prices and our generation unit has done well despite low spark spreads form baseload and dual fuel plants.” Williamson noted there still “is a lot of noise in the income statement, but the core units continue to perform well with our refinancing.”

However, the job is far from complete. Dynegy wants to “continue to strengthen our overall cost structure and bring overall costs down to reflect a much smaller, mid-cap size company.” Although he did not address the rumor that its regulated utility, Illinois Power (IP), may be up for sale, Williamson said Dynegy was working to “address duplication of costs between Houston and Decatur [IL, where IP is located]. There are a number of areas where there are duplication of costs and we want to wring those out of the system.”

Some assets are for sale, however. Williamson said Dynegy is “continuing to review our portfolio and explore opportunities to monetize assets. We will always do this.” He said the company is considering selling off its qualifying facility portfolio, which includes stakes in several small international power plants.

Williamson offered analysts a “low case” as well as a “high case” scenario for earnings in each of business segments through 2008. Even in a depressed U.S. market, Dynegy’s generation unit is forecast to have cash flow of between $350 million and $425 million. With a recovery in power markets, Dynegy forecasts cash flow of between $650 million and $875 million.

Its diversified power portfolio includes 36% baseload, 17% intermediate and 47% peaking units. Nearly 70% of its 2003/2004 earnings are contracted in its power generation segment, and the segment also has “strong eastern New York fundamentals.” Williamson noted there also were no remaining new construction projects to tie up capital.

Dynegy predicts “predictable” NGL unit on the low end will earn $125 million, and on the high end, it will earn about $225 million after subtracting $50 million for upkeep. Williamson noted that the company’s NGL relationship with ChevronTexaco Corp. remains strong, and the contract to take care of the oil major’s U.S. gas processing, NGL marketing and feedstock supply remains intact.

Regulated energy delivery, in which IP serves 530,000 electric customers and 415,000 gas customers, also offers predictable earnings for cash flow, said Williamson. Retail rates are frozen in Illinois through 2006 for electric customers, while the gas price risk is passed through to customers. “This unit offers us predictable earnings and cash flow,” he added, and is only “sensitive” to the weather.

Overall, in a low case environment, he explained that Dynegy’s earnings overall would be about $475 million a year, while on the high end, it will be “greater than $1 billion.” He said, “even in a low price world, we’re break even.”

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