For Dynegy Inc., it’s way too early to party down, but the shunned wallflower of the energy merchant sector regained some of its former appeal to investors last week following some straight talk from the new CEO. Bruce Williamson, who assumed the helm just last month, offered a salve to the ailing company in his first conference call with analysts, inspiring confidence lacking for months in the former powerhouse energy merchant.

Williamson held court on Tuesday with analysts and investors to explain the company’s quarterly earnings, and later in the week, he also opened up on a wide range of subjects with the media. Among other things, the former Duke Energy executive noted that Dynegy had already taken some “tough steps…some tough actions with job reductions,” but believes the 4,600 current employees can rest easy. “We don’t anticipate needing to do that,” when asked about further reductions.

Dynegy, which no longer will participate in speculative energy trading, something which took it to prominence in the 1990s, will become a “manufacturing model” going forward, Williamson said. Using this type of platform, he believes that investors will be able to understand exactly what the company is doing, whether it be producing power or natural gas liquids, and also be able to look at the operating costs for each business unit. The new plan ultimately will be used to focus on paring down billions in debt while retaining its generation and liquids assets.

Williamson acknowledged that the new model was not the “norm” for the energy business, “because of the fog or the lack of clarity” under energy trading and marketing results. By exiting all but proprietary trading, Dynegy will be much more transparent, he said.

Although it so far has not offered earnings guidance going forward, Williamson promised it would be issued by the end of the year. However, he declined to speculate on what the forecast will reveal.

Last week was the first public look at the new CEO’s style, and his ease in laying out the “new” Dynegy proved succinct and knowledgeable. Answering critics who had questioned his reticence for not holding a conference call when Dynegy’s third quarter earnings were released, Williamson explained that he thought it was best for him to first “drill in on the numbers and have a better understanding of the company, people and priorities” before he attempted to speak publicly with analysts. “We start that understanding now with this conference call,” which he said had been “scheduled by design” to follow Dynegy’s Form 10-Q and 8-K statements filed with the Securities and Exchange Commission last week.

Williamson acknowledged Dynegy’s losses in the past few months, stating that he didn’t think “it would be beneficial to talk [before Tuesday] with only a few days on the job.” Instead, he said, he wanted to “discuss more than the book earnings results,” which he could not do without first meeting with the employees and customers. That said, the CEO then detailed what he wants to company to become, focusing on its key five stakeholder groups, which he said included:

Williamson then detailed what is already public, Dynegy’s third quarter earnings, as well as its income restatements for 1999 through 2001. “In the past few months, we have executed on the principal elements of our capital liquidity plan,” he said, adding, “We are not in a bankruptcy mode. We are in a restructuring mode, outside of bankruptcy.”

Dynegy has “significant maturities for the second quarter of 2003,” said Williamson, but like any other time in its history, Dynegy now is “working closely with the banks, and [is] moving forward” and expects to complete its refinancing in time. “However, in the spirit of disclosure,” Williamson acknowledged that there remains “substantial risk in our position,” and “investors need to be apprised of this.”

Dynegy’s relationship with ChevronTexaco (CVX) also was addressed. “ChevronTexaco remains one of our largest customers, suppliers and shareholders,” he said. “We initiated discussions on the early termination of the marketing and trading agreement. It simply makes sense for us… We are not going to be a marketer or trader, and we can’t justify” the agreement with CVX, in which Dynegy markets and sells all of the major’s North American natural gas.

Dynegy continues to meet its contractual obligations for CVX regarding its gas marketing, and Williamson said the company would continue to do so until “other arrangements” have been made. However, he reminded analysts that Dynegy retains agreements with CVX regarding gas processing and natural gas liquids sales arrangements, and would “not be hurt by the ability to obtain gas” and fulfill its obligations.

“We continue to meet all of our gas marketing commitments and we will until other arrangements are agreed upon,” he said. “We are only exiting third party marketing and trading. That does not include marketing and trading we do for ourselves, and we will continue to manage those risks.” He said Dynegy was now working with counterparties to settle its contracts, including its natural gas storage contracts, and expects the exit to be completed within the next six to nine months. The exit, he added, would free up Dynegy’s capacity, and would “significantly reduce” its capital requirements.

After explaining where Dynegy stands, Williamson then addressed the company’s restructured portfolio, which he called “solid, well performing and well run.” Dynegy now will focus on three groups of assets: generation, natural gas liquids and Illinois Power (IP), its regulated electric and gas delivery subsidiary.

Within generation, Williamson said Dynegy holds 13,200 MW in a “diversified fleet” that includes natural gas and coal, and 70% of physical sale capacity is now under firm contract through 2004. Within Dynegy Midstream Services, he said the natural gas liquids assets are continuing to perform, noting that “We are delivering on our customer obligations. We have not missed a single delivery and we have honored every commitment.” The liquids assets also provide a stable cash flow from key downstream assets, he said, which have built “strong long-term producer and customer relationships” through “seasoned employees” and “top notch customer service.”

Finally, Williamson noted IP’s “predictable cash flow and earnings” and its services to 650,000 residential and commercial customers in Illinois, which offers a “favorable” regulatory climate. Although Dynegy has sold off about 10% of IP — its transmission business — Williamson added that the unit was working to independently meet its financing needs. The company has been working with the Illinois Commerce Commission on a proposed master netting agreement to ensure IP would have financial integrity separate from Dynegy. The agreement would extend IP’s contract through 2006.

Williamson acknowledged that Dynegy has “too much debt,” maintaining that his “number one priority” is to improve the company’s liquidity, and “ultimately to achieve a sustainable capital structure.” Dynegy currently has $1.5 billion in liquidity, compared with $1.03 billion at the end of the second quarter. There is $974 million in cash on hand, $340 million in natural gas and storage, and $1.64 billion in bank lines, giving the company a total of more than $3 billion total.

Subtracting about $468 million in bank lines and another $1.03 million of collateral within its trading operations, net liquidity is about $1.497 billion, “which is more than adequate to operate,” Williamson said.

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