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Dynegy Posts $1.8-Billion Loss

Charges in third quarter are mainly noncash items related to energy trading. Some analysts think firm may file for bankruptcy protection.

October 31, 2002|Nancy Rivera Brooks | Times Staff Writer

Dynegy Inc. on Wednesday reported a staggering $1.8-billion loss for the third quarter, largely reflecting noncash charges related to the disintegrating energy trading business.

The loss for the Houston energy company, a major power plant operator in California, also highlighted how few healthy businesses Dynegy still operates. Analysts speculated that Dynegy soon may join its former cross-town rival and onetime acquisition target, Enron Corp., in U.S. Bankruptcy Court.

"I don't see what Dynegy can do to right the ship," said Gordon Howald, an energy analyst with Credit Lyonnais. "These guys are in a vortex and I don't see how they get out of it."

Dynegy, which two weeks ago announced it would exit the energy trading business to conserve cash amid the industry downturn, also said it is negotiating with San Francisco-based ChevronTexaco Corp. to end contracts under which Dynegy markets the natural gas that ChevronTexaco produces in the contiguous 48 states. ChevronTexaco owns 26.5% of Dynegy and is expected to write off some or all of that $2-billion investment when it reports earnings today.

ChevronTexaco plans to form a trading unit to take over the marketing of the company's natural gas if it can reach an agreement with Dynegy to terminate the contracts, ChevronTexaco spokesman Fred Gorell said.

Dynegy Chief Executive Bruce Williamson, who joined the company last week, said the third quarter was difficult but added that Dynegy's $1.75 billion in after-tax charges "did not and will not affect the company's liquidity position, which remains at a level that is sufficient to operate our businesses and meet our customer commitments."

For the quarter ended Sept. 30, Dynegy posted a net loss of $1.8 billion, or $4.92 a share, compared with net income of $286 million, or 85 cents, in the same quarter last year.

Third-quarter revenue was $1.7 billion, down from $2.3 billion. Both numbers reflect an industrywide accounting change that requires traders to book only the net profit from trades rather than the gross value. Without the accounting change, third-quarter revenue would have been 82% higher.

After the earnings report was issued, Dynegy shares fell 12 cents, or roughly 13%, to close at 79 cents on the New York Stock Exchange.

Charges for the quarter included $908 million for impairment of goodwill at Dynegy's wholesale energy business, reflecting a loss of value in the business because of low power prices and Dynegy's decision to exit trading.

Among the other major charges were $566 million for the loss on the sale of its biggest pipeline, Northern Natural Gas, and $145 million in reserves taken on the company's power portfolio to reflect reduced market liquidity.

One of the few bright spots in the earnings report was the performance of Illinois Power, Dynegy's regulated utility. Illinois Power earned $36 million during the quarter, up from $26 million in the period a year ago.

Dynegy's power plants, including several in California, earned $44 million in the quarter, down from $187 million, because of lower power prices and a sharp drop in power sales to California under a contract that allows the state to refuse power it does not need.

Dynegy warned investors to expect more charges in the fourth quarter because it is firing 14% of its work force, restructuring its business and re-auditing its financial results back to 1999.

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