Dynegy Posts Strong Fourth-Quarter Results
Dynegy Inc., joiningx the list of power providers reporting strong results despite exposure to California’s electricity crisis, said Tuesday that its fourth-quarter profit--excluding one-time gains and charges--more than doubled from a year earlier.
The Houston-based company’s profit probably would have been even better except for California’s power mess. “Earnings from the company’s West Coast generation were not material” to Dynegy’s results in the quarter ended Dec. 31, the company said.
And Dynegy matched several of its peers by setting aside what it called “appropriate” cash reserves to cover potential nonpayment from California utilities that already have bought power from Dynegy. It didn’t specify the amount.
Like Dynegy, other major power generators such as Enron Corp. and Duke Energy Corp. have posted sharp gains in fourth-quarter earnings because surging prices for electricity and natural gas have more than offset the reserves they have had to establish to cover shortfalls from sales to California.
Dynegy President Stephen W. Bergstrom said power sales to California accounted for about 15% of the earnings for the company’s marketing and trading group for all of 2000, or about $53 million. That group in turn represents about 80% of the overall results of Dynegy, which also builds power plants and runs utilities.
Yet despite California’s troubles, Dynegy’s marketing and trading group saw its fourth-quarter earnings soar to $92 million from $32 million a year earlier, and its revenue nearly tripled to $232 million in the quarter from $81 million a year ago.
“I don’t think their [exposure to California] is huge,” said James Yanello, an analyst at UBS Warburg. In view of various state proposals to help Edison International and PG&E; Corp., “the odds are increasing that the company will get the majority of what they’re owed in California,” he added.
Meantime, Dynegy Chairman Chuck Watson said California’s power crisis won’t derail the trend toward electric-utility deregulation nationwide.
“I really believe that when you look up a year from now and we’ve solved the long-term problem, that this will be a hiccup on the road to deregulation across this country,” he said during the company’s earnings teleconference.
Watson, whose company reported revenue of $29.4 billion for 2000, also said Dynegy expects the Federal Energy Regulation Commission under President Bush’s administration to look at the problem and still act favorably toward deregulation.
In the fourth quarter, Dynegy said net income--excluding nonrecurring items--rose to $106 million, or 32 cents per diluted share, from $45 million, or 19 cents, a year earlier. The results exceeded the consensus estimate of 29 cents a share among Wall Street analysts, according to First Call/Thomson Financial.
After the announcement, Dynegy’s stock gained $1.50 a share to close at $50.25 in New York Stock Exchange trading.
Meanwhile, the credit-rating agency Fitch IBCA Duff & Phelps lowered its rating on Riverside County’s government investment pool because the fund holds $39.7 million of PG&E;’s commercial paper. The debt amounts to 2.2% of the pool’s total holdings, the agency said.
The utility refused to pay principal and interest on the commercial paper--a type of short-term debt--that was due Jan. 17, which prompted the downgrade. However, even the lower rating is an “investment-grade” rating from Fitch because “the balance of the pool continues to be invested in high-quality assets,” Fitch said.
