Dynegy Sunk on Charges

Dynegy Inc. (DYN - Snapshot Report) has reported a net loss of $212 million, or 25 cents per share in the third quarter 2009, compared to a net income of $605 million, or 72 cents per share in the year-ago quarter. The net loss in the reported quarter was primarily driven by asset impairment charges and mark-to-market losses. The company recorded mark-to-market losses of $128 million ($78 million after tax), compared to mark-to-market gains of $889 million ($542 million after tax) in the year-ago quarter. 

In the reported quarter, however, adjusted earnings rose to $388 million, compared to $269 million in the year-ago quarter. The growth was primarily driven by the sale and assignment of a multi-year power sales contract, higher capacity and tolling revenues and higher realized energy prices in the Midwest. 

On the revenue front, the company witnessed a slide by more than half, to $673 million from $1.76 billion year-over-year. Dynegy’s diversified power generation business clocked adjusted earnings of $431 million from $307 million in the year-ago quarter. Operating income from the power generation segments was $40 million, compared to $1.1 billion in the year-ago quarter. Operating income included a $382 million in impairment charges from accounting classification of the eight power generation facilities as held for sale, that are to be sold to LS Power. Operating income also included mark-to-market losses of $128 million, compared to mark-to-market gains of $889 million in the year-ago period on account of lower forward market power prices. 

In the reported quarter, Midwest segment’s adjusted earnings benefited from the sale and assignment of a multi-year power sales contract and higher realized energy prices that were contracted prior to the market downturn. Midwest production volumes decreased 7% year-over-year. This was primarily due to a 12% reduction in coal facility volumes on account of lower demand attributed to mild summer weather and increased off-peak wind generation. This decline was partially offset by a 15% increase in volumes related to the company’s natural gas facilities. 

West segment’s adjusted earnings benefited from increased tolling and capacity revenues. Production volumes decreased 5% due to weak spark spreads attributed to lower demand and mild weather. 

Northeast segment’s adjusted earnings benefited from a 20% expansion in production volumes attributed to natural gas combined-cycle facilities, which benefited from coal-to-gas switching in the region and reduced transmission congestion. This was partially offset by reduced run-times for coal-and oil-fired units due to compressed spark spreads. 

Dynegy’s cash from operations for generation was $690 million at the end of the reported quarter, compared to $764 million in the year-ago period. The company incurred maintenance and environmental capital expenditures to the tune of $103 million and $241 million, respectively in the first nine months of this year. Adjusted free cash flow from power generation business was $346 million for the nine months ended September 30, 2009, compared to $510 million in the year-ago period. 

Dynegy expects to record a GAAP loss of $1.1 billion to $1.2 billion in fiscal 2009. However, in fiscal 2009 the company expects to earn adjusted earnings in the range of $730 million to $760 million. The trend is expected to continue in fiscal 2010 where the company expects to record a GAAP loss of $175 million to $250 million. However, the company expects to earn adjusted earnings in the range of $425 million to $550 million.