Its close-to-defunct risk management business, plus its former communications business and litigation costs, tacked on another large loss for Dynegy Inc.’s second quarter. The company Friday reported a net loss of $290 million, or $1.00 per diluted share, $240 million of which were connected with its former businesses.

Losses on customer risk management segment included $133 million associated with the final settlement of power tolling arrangements with Southern Co.; $30 million associated with the final settlement of certain power supply agreements with Kroger Co.; and a $132 million mark-to-market loss on contracts associated with the Sithe Independence power tolling arrangement. Another $73 million in losses for this segment were related to Dynegy’s continuing efforts to complete its exit from this business.

Dynegy said its customer risk management business, including obligations relating to its five remaining power tolling contracts which must be satisfied or restructured,

After eliminating the impact of those losses, the after-tax loss for the quarter was $50 million. This reflects the results of the company’s power generation, natural gas liquids and regulated energy delivery businesses and an after-tax charge of $32 million for legal reserves recorded in connection with certain pending litigation matters.

“The quarter was marked by significant progress in our self-restructuring, including the completion of a $1.66 billion bank refinancing well before its scheduled maturity,” said Bruce A. Williamson, Dynegy president and CEO. “We were also successful in maintaining our strong liquidity position and further reducing collateral — two of the most significant indicators of our ongoing financial viability — while announcing a long-term refinancing and restructuring plan.

The special charges “will not affect our ongoing operational performance, and we remain focused on exiting the third-party marketing and trading business and resolving our outstanding legal issues in a thorough and deliberate manner,” Williamson said.

In power generation Dynegy’s earnings before interest and taxes (EBIT) were $61 million for the second quarter, benfiting from continued favorable commodity prices, with a weighted average on-peak power price of $44.96 MWh, a 25% increase over the company’s forecasted price of $36.

EBIT from the natural gas liquids business was $35 million for the second quarter 2003. The average natural gas price of $5.63 per MMBtu, was a 41% increase over the company’s forecasted price of $4. The average crude oil price of $29.31 per barrel represented a 9% increase over the company’s forecasted price of $27, and the average natural gas liquids price of $0.51 per gallon was a 13% increase over the forecasted $0.45. Approximately three-quarters of the production volumes for the natural gas liquids segment are contracted for on a percent of proceeds/percent of liquids basis, which enabled this segment to benefit from the higher commodity prices offered by the market. The results were partially offset by reduced fractionation volumes and lower keep-whole fractionation spreads

EBIT from the regulated energy delivery business totaled $35 million for the second quarter 2003. During the quarter, electric and natural gas demand was slightly lower than the company’s forecast. This segment delivered total electricity of 4,387 million kilowatt-hours for the second quarter 2003, compared to 4,648 million kilowatt-hours for the second quarter 2002. Total natural gas delivered for the quarter was 126 million therms, compared to 140 million therms for the second quarter 2002.

At July 21, 2003, Dynegy’s liquidity was $1.7 billion. This consisted of $872 million in cash and $1.1 billion in revolving bank credit, less $248 million in letters of credit posted against that line of credit. Revolving credit facility exposure, including letters of credit and borrowings, totaled approximately $250 million on July 21, 2003. Total collateral posted as of July 21, including cash and letters of credit, was approximately $725 million.

In addition to increasing its liquidity position to $1.7 billion from $1.6 billion at June 30, Dynegy has also reduced its debt by $28 million since June 30.

Dynegy’s recently announced long-term refinancing plan, which includes its plans to refinance its 2005-2006 debt maturities and to restructure the ChevronTexaco Series B preferred stock, is expected to result in higher interest costs for the remainder of the year (see Daily GPI, July 16). These higher interest costs, coupled with the reserve for litigation and higher general and administrative expenses, will result in a lower guidance estimate for 2003.

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