Dynegy Posts Loss on Energy Contracts, Cuts Forecast

By Edward Klump

Aug. 7 (Bloomberg) -- Dynegy Inc., owner of power plants in 11 U.S. states, posted a second-quarter loss and cut its full- year forecast after energy contracts declined in value and transmission-line failures and flooding slowed Midwest sales.

The net loss was $272 million, or 32 cents a share, compared with profit of $76 million, or 9 cents, a year earlier, Houston-based Dynegy said today in a statement. Excluding one- time costs and gains, Dynegy said it expects full-year earnings before interest, taxes and depreciation and amortization of $955 million, down from a previous target of $1.04 billion.

Dynegy records costs and gains each quarter to reflect the value of power-sales contracts relative to market prices. As power rose in the second quarter, Dynegy's contracts locking in prices at lower levels dropped in value, reducing net income by $293 million. Dynegy couldn't take full advantage of price gains because the worst Midwest flooding in 15 years and a utility's power-line failure disrupted sales.

``It doesn't look like there's a lot of redeeming qualities,'' said Gordon Howald, an analyst with Calyon Securities in New York who rates Dynegy shares ``neutral'' and owns none. ``This is pretty much a disappointing quarter.''

Dynegy fell 44 cents, or 6.9 percent, to $5.90 at 9:30 a.m. in New York Stock Exchange composite trading. The stock, which has 10 buy and four hold ratings from analysts, has dropped 17 percent this year.

Mark to Market

So-called mark-to-market adjustments each quarter show what losses or gains would be if the company were to immediately liquidate its contracts that lock in prices rather than continue to sell power. Benchmark power prices in PJM Interconnection LLC, the biggest U.S. wholesale power market, rose 35 percent from a year earlier to a second-quarter average of $100.77 per megawatt-hour, according to data compiled by Bloomberg.

Per-share profit excluding the mark-to-market costs was about 3 cents, matching the average of 10 analyst estimates compiled by Bloomberg.

Second-quarter earnings before interest, taxes, depreciation and amortization, or EBITDA, fell 14 percent to $185 million, excluding such items as mark-to-market costs.

Dynegy gained about 8,000 megawatts of generation with its acquisition of plants from closely held LS Power Group in April 2007. On Aug. 1, Dynegy said it completed the sale of a power plant in Ohio to a company managed by Tenaska Capital Management for $368 million.

Dynegy has the capacity to produce almost 18,000 megawatts of electricity. That's enough for more than 14 million average U.S. homes, based on an estimate by the Energy Department in Washington.

(Dynegy began an earnings conference call for investors and analysts at 9 a.m. New York time. To listen, access a broadcast at http://www.dynegy.com.)

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.