Despite sagging revenues in 1Q2007, Dynegy Inc. last week reported that net income swung from a 1Q2006 loss of $4 million, or a loss of $0.01 per diluted share, to a gain of $14 million, or $0.03 per diluted share for the first quarter 2007. The first quarter profit, which marked the company’s first profitable period in the last five quarters, was attributed to the strong performance from its power generation portfolio and to higher power prices.
“During the first quarter, we benefited from stronger weather-driven demand and higher power prices in our Northeast region, along with the continued strong performance of our Midwest assets,” said CEO Bruce A. Williamson. “Additionally, we maintained our operational focus on providing reliable and economic energy to our customers. The combination of favorable market conditions, strong in-market availability of our generation facilities and our proven commercial approach produced value for our investors and further validated our power generation business model.”
For 1Q2007, the company posted revenue of $573 million, which was down from $600 million during 1Q2006. The 3 cents/share earnings for the first quarter were on target with analysts’ expectations, according to Thomson Financial.
Earnings before interest, taxes and depreciation and amortization (EBITDA) from the power generation business was $190 million for the first quarter 2007, compared to EBITDA of $167 million for the first quarter 2006.
In early April, Dynegy completed its development joint venture with privately held LS Power Group’s energy projects, expanding its power plant fleet to 31 facilities equaling nearly 20,000 MW and assuming $1.8 billion in added debt and a 50% interest in all future LS Power projects.
“From the standpoint of delivering growth to investors, we completed our combination with LS Power on schedule,” Williamson added. “The near-term benefits of the combination include more predictable cash flows and financial flexibility. Over the medium term, we anticipate improved performance due to the diversified characteristics of our operating portfolio, with future growth prospects related to our development joint venture and our pursuit of further strategic opportunities in the ongoing consolidation of the electricity sector.”
Following the combination with LS Power, Dynegy launched an initiative to rationalize its operating asset portfolio to focus on regions and markets where it has a significant asset position. As a result of this evaluation, Dynegy said it is considering the divestiture of the Bluegrass peaking facility in Kentucky, the Heard County peaking facility in Georgia and the Cogen Lyondell facility in Texas. During a conference call with investors and analysts, the company noted that it is working with JP Morgan on auctions for the plants. In addition, the company previously announced an agreement to sell the Calcasieu peaking facility in Louisiana to an Entergy subsidiary, which is expected to be completed in early 2008.
Combining the generation of Dynegy’s Midwest, Northeast and South operations, the company reported that it generated 8.5 million MWh during 1Q2007, an increase over the 7.5 million MWh generated during 1Q2006.
Looking at full-year 2007, Dynegy said the company’s new 2007 EBITDA estimates include an anticipated range of $1.01 billion to $1.12 billion compared to the previous estimated range of $1.02 billion to $1.13 billion. “The new estimates reflect purchase accounting adjustments, which have no corresponding impact to cash flow, and a legal and settlement charge of approximately $20 million,” Dynegy said. “The new estimates also take into account an estimated gain of approximately $50 million related to the settlement of the Kendall power tolling arrangement, partially offset by $20 million of additional 2007 amortization related to contractual agreements assumed in the LS Power transaction and reduced interest income, which resulted from the refinancing of certain project debt.”
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