U.S. energy trader Dynegy saw its second quarter income rise 60% as electricity and natural gas prices surged in North America, but as important, CEO Chuck Watson said last week he expects to see the Houston-based company continue to profit, despite sagging energy prices. Watson told analysts during a conference call that Dynegy’s capital investments are “setting up our success for the future,” reiterating that the “strategy has always been about being prepared.”

The company reported a 48% increase in second quarter 2001 recurring earnings per share (EPS) to $0.43, compared with second quarter 2000 EPS of $0.29. Net income jumped 60% to $146 million, compared with last year’s second quarter income of $91 million.

Watson said the company’s storage acquisition in the United Kingdom, announced last week (see NGI, July 23), and its decision to build a liquefied natural gas terminal along the Gulf Coast (see NGI, July 16), demonstrates “our discipline in allocating our capital resources in order to optimize shareholder value.”

COO Stephen Bergstrom said Dynegy was “very well positioned” for growth through the rest of the year. “Even though the environment is considered somewhat weaker, we see lots of opportunities in the market,” he said, adding that the company’s earnings forecast for 2001 continues to be between $2.01 and $2.06. In 2002, he said Dynegy’s earnings forecast now would be $2.50-$2.60.

In the Dynegy Marketing and Trade business, recurring net income increased 111% to $150 million for the quarter, compared with $71 million in the second quarter 2000. Earnings benefited, said Watson, from strong gas and power marketing operations with increased U.S., Canadian and European customer origination and risk management activities, along with more use of existing facilities and additional generation, including 1,700 MW of power plants in the Northeast.

North American gas volumes increased 17% to 10.9 Bcf/d in the second quarter, up from 9.3 Bcf/d for the same period of 2000. Total physical power sold increased 168% to 70.1 million MWh, up from 26.2 million MWh a year ago. Increased volumes in both gas and power “were a result of improved market liquidity, greater sales volumes on Dynegydirect and increased market origination.”

More expansion is also planned within its online trader, Dynegydirect, said Watson. It now offers more than 750 products and services online, and since its launch last November, it has recorded more than $25 billion in notional transactions. In the second quarter alone, Watson noted it had $11 billion in transactions. Almost 40% are new business.

Similar to other energy marketers that are also recording losses in communications and bandwidth, Global Communications, reflected a substantial quarterly loss of $20 million, mostly because of network development and decreased demand, Watson said. Certain fixed fiber and equipment lease payments were offset during the period, he said, by investment earnings. He also stressed that Dynegy is not giving up on its networking venture, which he expects to turn the corner by this time next year.

Speaking to a question about the company’s overall growth, Watson said, “I think we have a very clear path at Dynegy for several years to come. It will come from the core business that is growing today…and the capital program to invest in new projects.”

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