Dynegy reports Q1 loss, deal on subsidiaries in bankruptcy

Dynegy Inc. (NYSE: DYN), which put affiliates in the Northeast U.S. into bankruptcy last November, said May 10 that it had a $21m operating loss for its consolidated operations, which included Dynegy Inc. and the Coal segment, for the first quarter of 2012 compared to an operating loss of $49m for the same period in 2011, which included all segments.

These results included pre-tax, unrealized, net mark-to-market gains of $30m ($30m after-tax) and $3m ($2m after-tax) during the quarters ended March 31, 2012 and 2011, respectively. First quarter 2012 Adjusted EBITDA for the enterprise, which included all segments, was $24m, including a $15m loss attributable to Dynegy Northeast Generation (DNE), compared to $87m for the same period in 2011. A $97m decline in energy margin and capacity revenues, influenced by lower market prices and gas and power basis premium differentials, more than offset a $26m decrease in operating and general and administrative expenses, leading to the quarter-over-quarter reduction in Adjusted EBITDA.

The net loss for the first quarter totaled $58m for its consolidated operations, which included only Dynegy Inc. and the Coal segment, which has plants in Illinois, due to the Nov. 7, 2011, deconsolidation of Dynegy Holdings (DH) and its wholly owned subsidiaries, compared to a net loss of $77m for the first quarter 2011, which included all segments. DH and several of its subsidiaries were put into bankruptcy protection in November 2011.

“Our operating performance for the first quarter 2012 achieved significantly higher capacity factors in a particularly difficult commodity environment along with weaker demand resulting from unusually warm winter weather,” said Robert Flexon, Dynegy President and CEO. “Our gas fleet ran at historically high capacity factors and had the highest generation levels in over a decade due to coal-to-gas generation switching while our Illinois-based coal fleet generation declined slightly with the unseasonably mild weather. The Company also made a significant step forward in our corporate restructuring efforts by working productively with our major creditors leading to the Settlement Agreement that was filed with the bankruptcy court on May 1, 2012.”

Results by segment were:

Coal Plants in Illinois – The first quarter 2012 operating loss was $7m compared to a first quarter 2011 operating loss of $32m. Adjusted EBITDA totaled $13m during the first quarter 2012 compared to $65m during the same period in 2011. A 22% decline in average realized prices reflecting declining natural gas prices, coupled with an 8% weather-driven decrease in generation volumes, contributed to a $55m decrease in Adjusted EBITDA. The coal plants in this segment are Baldwin, Havana, Hennepin and Wood River.

Gas – The first quarter 2012 operating income, adjusted to remove the impact of deconsolidation, was $19m compared to first quarter 2011 operating income of $13m. Adjusted EBITDA totaled $25m during the first quarter 2012 compared to $27m during the same period in 2011. Generation volumes more than doubled compared to 2011 and the Kendall and Ontelaunee plants generated at record levels for the quarter. A $22m increase in Adjusted EBITDA due to favorable spark spreads was partially offset by a $16m decrease in Adjusted EBITDA due to lower gas and power basis premium differentials associated with weak demand in the Northeast. Historically, Ontelaunee and Independence have cleared at a premium to the trading hubs. This past quarter, Ontelaunee cleared at a discount and Independence cleared relatively flat. Adjusted EBITDA decreased by $9m due to an increase in financial settlement expense associated with the settlement of out of the money financial positions and by an additional $9m due to a decrease in capacity revenues. Operating expenses fell by $7m compared to last year as expenses associated with a two-month outage at Casco Bay during 2011 did not recur in 2012.

DNE – The first quarter 2012 operating loss, adjusted to remove the impact of deconsolidation, was $15m compared to a first quarter 2011 operating loss of $15m. Adjusted EBITDA totaled a minus $15m during the first quarter 2012 compared to a minus $5m during the same period in 2011. A 42% decline in average New York Zone G power prices caused the DNE plants to be uneconomical for a significant portion of the quarter, leading to an 82% decline in generation volumes and a 95% decrease in gross margin. An additional $3m of the quarter-over-quarter decrease in Adjusted EBITDA is attributable to lower capacity revenues. As a result of the Chapter 11 cases, lease expense for the DNE assets is no longer being recorded, resulting in a $13m benefit to Adjusted EBITDA during the first quarter 2012.

On May 1, Dynegy, DH, certain other subsidiaries of Dynegy and certain material creditors of DH entered into a settlement agreement and a plan support agreement. The settlement agreement was filed with and is subject to bankruptcy court approval. The plan support agreement would mean a significantly stronger balance sheet for Dynegy upon completion of the restructuring. Dynegy will have reduced debt and lease obligations by over $4bn and expects net debt at completion of the restructuring to be approximately $600m. A hearing on the settlement agreement has been scheduled for June 1. The plan support agreement contemplates the filing of a revised bankruptcy plan and accompanying disclosure statement by May 30, and the completion of the restructuring by Sept. 28.

On Nov. 7, 2011, DH and four of its wholly-owned subsidiaries – DNE, Hudson Power LLC, Dynegy Danskammer LLC and Dynegy Roseton LLC – filed voluntary petitions for relief under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York.

Dynegy Inc.’s subsidiaries produce and sell electric energy, capacity and ancillary services in key U.S. markets. The Dynegy Power LLC power portfolio (called GasCo) consists of about 6,771 MW of primarily natural gas-fired intermediate and peaking facilities, the Dynegy Midwest Generation LLC portfolio (CoalCo) is about 3,132 MW of primarily coal-fired baseload plants, and a separate portfolio in bankruptcy consists of about 1,693 MW from two power plants (Roseton and Danskammer) which are primarily natural gas-fired peaking and baseload coal facilities.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.