30 July 2002 – US energy trader Dynegy Inc. today reported a loss of $328m million in the second quarter 2002 compared with reported income of $146m in the second quarter 2001.
The results include previously disclosed pre-tax non-recurring charges of $499m, or $324m after-tax and a recurring loss of $4m in the second quarter 2002. The adjustment is the result of an increase in an expected non-cash charge in the company’s natural gas marketing business. Quarter-end charges also include the impairments in the communications business and severance expenses.
Dan Dienstbier, interim chief executive officer of Dynegy Inc., said, “The results for this quarter are consistent with our previously announced goal to manage for cash as we execute our capital and liquidity plan. In addition, our results were affected substantially by the decline in realized commodity prices quarter-over-quarter and lower liquidity levels in the energy business.
“We are focused on running our businesses efficiently, managing our costs and generating cash. That commitment is advancing our pursuit of three important objectives: improving customer service, stabilizing the company’s marketing and trading business and preserving our financial viability,” Dienstbier added.
Wholesale Energy Network
The company’s Wholesale Energy Network segment is focused on the physical delivery of and risk management activities around wholesale natural gas, power and coal.
Recurring net income for this segment was $11m in the second quarter 2002, representing a 93 per cent decrease compared to $150m in the second quarter 2001.
The Asset Businesses’ (owned generation and storage) recurring operating income, after the impact of general and administrative expenses, depreciation and amortization, was $57m in the second quarter 2002, a 16 per cent decrease compared to $68m in the second quarter 2001. These results reflect lower earnings from the company’s generation assets due to reduced power prices. The decline was partially offset by the addition of Dynegy Storage, the company’s natural gas storage and gas processing facilities in the United Kingdom, which contributed $15m in operating income in the second quarter 2002. Earnings from unconsolidated investments were also impacted by reduced power prices.
Customer and Risk Management activities’ (controlled assets, marketing and trading) recurring operating loss, following the deduction of general and administrative expenses, depreciation and amortization, was $48m in the second quarter 2002, compared to $96m in recurring operating income in the second quarter 2001. These results reflect reduced energy trading and wholesale origination activities associated with less market liquidity and Dynegy’s lower credit ratings.
Dynegy’s management team is exploring strategic options for this segment’s risk management business, including the creation of an independently rated joint venture with a strong investment grade credit rating — a requisite for operating in the new marketing environment, according to Dienstbier.
Dynegy Midstream Services
Dynegy Midstream Services consists of Dynegy’s North American midstream liquids processing and marketing business and worldwide natural gas liquids marketing and transportation operations.
Recurring net loss from this segment was $4m in the second quarter 2002, compared to recurring net income of $10m in the second quarter 2001. Lower natural gas liquids prices and liquidity levels in global energy markets impacted this segment.
Transmission and Distribution
Dynegy’s regulated transmission and distribution segment includes Illinois Power (IP) and, as of February 1, 2002, Northern Natural Gas Company (NNG). Dynegy has agreed to sell NNG to MidAmerican Energy Holdings Company for $928m in cash, subject to adjustment for working capital changes. MidAmerican Energy will acquire all of the common and preferred stock of NNG and will assume $950m in outstanding NNG debt. The transaction is subject to customary closing conditions, including Hart-Scott-Rodino approval, and is expected to close in August 2002.
Recurring net income for the transmission and distribution segment totalled $15m in the second quarter 2002, compared to $6m in the second quarter 2001. The segment’s performance benefited from the addition of NNG, as well as IP’s reduced cost of operations and above-normal weather in its service territory.
For the quarter, NNG’s recurring operating income, after the impact of general and administrative expenses, depreciation and amortization, was $14m. IP’s recurring operating income, following the deduction of general and administrative expenses, depreciation and amortization, was $50m.