Following a near-fatal collapse two years ago, Dynegy Inc. has been shedding assets and restructuring, and the lost business was evident in the company’s first quarter report last week. Its smaller power generation business was off 35% from a year ago, and the discontinued energy risk management unit also reported huge losses.

However, there were no excuses from CEO Bruce A. Williamson, who presided over a conference call with analysts on Wednesday morning. He declared that despite some glitches, the company still managed to turn in a “solid” performance.

“We’ve made progress and the track record shows that we are continuing to achieve in our self-structuring initiative,” Williamson said. The quarter’s operating performance “shows that we are positioned to benefit from economic growth, the recovery of U.S. power prices and sustained high natural gas prices.”

The Houston-based company reported net income of $74 million (15 cents/share), down from $147 million (17 cents) in 1Q2003, and revenue fell to $1.66 billion from $1.88 billion.

Quarterly results also were impacted by mild winter weather and lower electricity prices, and the generation business off 35% to $139 million from $214 million in 1Q2003. Power generation results in 1Q2003 also included a $47 million benefit associated with new accounting principles that did not correspond to 1Q2004 results. Dynegy’s energy risk management business, which it is discontinuing, also dropped, with earnings falling to $7 million from $104 million a year ago.

Williamson said Dynegy had “substantially” completed agreements in the quarter to divest of most of its non-core assets, including three generation plants and two natural gas liquids (NGL) facilities. It also moved closer to shedding its regulated power business, Illinois Power (IP), which “remains on track” to close by the fourth quarter. And Dynegy settled California refund claims last week, which “resolves the issues of the past and allows us to focus on the future” (see related story).

The CEO also was upbeat about a soon-to-be-launched bank financing facility, which would replace one that comes due in February 2005. The new loan is expected to lower Dynegy’s interest costs and extend the its maturity.

“We are working with a core group of five banks that want to be part of Dynegy’s future,” Williamson said. The move will give the company “greater flexibility to move the company towards growth,” which he said would come from recovery in the U.S. economy and a “demand for power, which we are starting to see.”

Williamson also alluded that Dynegy may be “looking for opportunities” in the power generation market. He did not elaborate, but during the conference call, Williamson said there were beginning to be a lot of “industry consolidation opportunities” that Dynegy’s generation unit would be able to handle.

Dynegy affirmed its 2004 forecast,which is expected to show a net loss of 12-to-20 cents/share and for earnings before interest, taxes and depreciation and amortization of $825-$875 million. The company also still expects free cash flow of $430 million to $480 million for 2004. The estimates assume that the IP sale will close.

Also last week, Dynegy sold its 16% interest in the Indian Basin Gas Processing Plant, located in Eddy County, NM, to a private investor for $48 million. The company’s pre-tax gain will be $36 million.

“Our strategy is to take advantage of opportunities like this to help the company further reduce outstanding debt and sharpen our focus on our core operations,” said Williamson. He said the Indian Basin sale was consistent with Dynegy’s plans to divest non-strategic assets in which it owns a minority interest.

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