Dynegy Endures Tough Coal Market in 2012, But Sees Growth Ahead with Acquisition of Ameren Energy Resources

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Researched by Industrial Info Resources (Sugar Land, Texas)--Energy service provider Dynegy Incorporated (NYSE:DYN) (Houston, Texas) saw overall losses in revenues and profits in fourth-quarter and full-year 2012, as a sharp drop in coal prices, terminated contracts and other factors hammered away at the company's bottom line. Net losses were reported to be $107 million for the quarter, compared with losses of $616 million in fourth-quarter 2011, and $139 million for the full year, compared with losses of $940 million in 2011.

Dynegy executives pointed out that results were much different when excluding expenses such as interest expenses; income taxes; depreciation; amortization; losses from discontinued operations; bankruptcy reorganization; the effects of undertaking receivable; restructuring and related costs; mark-to-market effects; premium adjustments; and changes in the fair value of warrants. Using this measurement, called "adjusted EBITDA," Dynegy reported a $42 million loss for the quarter, compared with a $14 million loss in fourth-quarter 2011, and a $57 million gain for 2012, compared with a $281 million gain in 2011.

Total revenues stood at $312 million for the quarter, compared with $130 million in the same period in 2011, and $1.29 billion for 2012, a 3% decrease from 2011. In addition to lower realized prices in the Coal segment, which reduced energy margins by $191 million, the company was negatively affected by the early cancellation of agreements California, which led to a $37 million drop in tolling and capacity revenues in the Gas segment. The company also was affected by $29 million in settlements related to long-standing ("legacy") financial positions in the Gas segment. Still, Dynegy executives cited a strong operating performance during the year, and noted that the company completed most of its financial and organizational restructuring, emerging from bankruptcy in October.

Industrial Info is tracking $73 million in active projects involving Dynegy, including a $14 million outage at the Ontelaunee Energy Center in Reading, Pennsylvania. The outage includes major inspections and repair to two 185-megawatt Siemens natural gas-fired combustion turbine generators and Nooter/Eriksen duct-fired heat recovery steam generators. It is expected to be completed in April.

"Production volumes for the year were up approximately 20% over the prior year, driven by the 70% increase in generation from our gas fleet, as a result of improved spark spreads experienced throughout the year," said Robert Flexon, the president and chief executive officer of Dynegy, in a conference call. "Volumes for the coal fleet declined 10%, primarily due to lower pricing in the region, and an increase in planned outages period-over-period. Despite these changes in production levels, both coal and gas fleets maintained a reliable track record, achieving in-market availability of over 90%."

Although the Coal and Gas segments reported gains in adjusted EBITDA for the year, those gains were lower than those in 2011. All segments reported losses for the quarter:

• The Coal segment reported operating losses of $49 million for the quarter, compared with no gains or losses in fourth-quarter 2011, and operating losses of $112 million for 2012, compared with losses of $38 million in 2011.
• The segment reported adjusted EBITDA losses of $17 million for the quarter, compared with gains of $37 million in the same period in 2011, and adjusted EBITDA gains of $20 million for the year, compared with gains of $243 million in 2011.
• The Gas segment reported operating losses of $31 million for the quarter, compared with losses of $88 million in fourth-quarter 2011, and operating gains of $97 million for 2012, compared with operating losses of $37 million in 2011.
• The segment reported adjusted EBITDA losses of $2 million for the quarter, compared with losses of $22 million in the same period in 2011, and adjusted EBITDA gains of $122 million for the year, compared with gains of $155 million in 2011.
• All other segments reported total operating losses of $24 million for the quarter, compared with losses of $17 million in fourth-quarter 2011, and operating losses of $84 million for 2012, compared with losses of $114 million in 2011.
• The segment reported adjusted EBITDA losses of $23 million for the quarter, compared with losses of $19 million in the same period in 2011, and adjusted EBITDA losses of $85 million for the year, compared with losses of $98 million in 2011.

Dynegy also announced that it recently entered into a definitive agreement to acquire Ameren Energy Resources (AER), for which Ameren Corporation (NYSE:AEE) is currently the holding company. AER comprises 4,119 MW of generating capacity, as well as associated retail and marketing businesses. The portfolio to be acquired by Dynegy includes all coal generation plants held by AER subsidiaries; Ameren Energy Generating Company; and Ameren Energy Resources Generating. It also includes Ameren Energy Marketing (AEM) and Homefield Energy, which provides the company with a solid retail, commercial and industrial business.

"In AEM, we are acquiring an established retail marketing platform that currently reaches customers in MISO and PJM," Flexon said in the conference call. "The customer base is diversified, including municipal, co-ops, commercial, industrial, small-business, and residential sectors. [AEM's] Homefield Energy brand markets to residual and small-business customers, and serves 141 communities and nearly 500,000 homes and small businesses. AEM provides much of what we are seeking to accomplish throughout our own grassroots retail offering, but on a much larger and established scale."

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