Dynegy Inc. (DYN)

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Dynegy Inc. (DYN)

Q2 2010 Earnings Call Transcript

August 6, 2010 10:00 am ET

Executives

Norelle Lundy – VP, Investor and Public Relations

Bruce Williamson – Chairman, President and CEO

Holli Nichols – EVP and CFO

Charles Cook – EVP, Commercial and Market Analytics

Lynn Lednicky – EVP, Operations

Analysts

Neel Mitra – Simmons & Company International

Angie Storozynski – Macquarie

Terran Miller – Knight

Brandon Blossman – Tudor, Pickering, Holt & Company

Ameet Thakkar – Banc of America

Charles Fishman – Pritchard Capital

Andy Smith – JPMC

Kevin Cole – Credit Suisse

Julien Dumoulin-Smith – UBS

Ella Vuernick – RBC Capital Markets

Carlos Rodriguez – Hartford Investment

Presentation

Operator

Hello, and welcome to the Dynegy 2010 second quarter financial results teleconference. At the request of Dynegy, this conference is being recorded for instant replay purposes. Please note that all lines will be in a listen-only mode until the question-and-answer portion of today’s call. (Operator Instructions).

I would now like to turn the teleconference over to Norelle Lundy, Vice President of Investor and Public Relations. Ma’am, you may begin.

Norelle Lundy

Good morning, everyone, and welcome to Dynegy's investor conference call and webcast covering the company's second quarter 2010 results. As is our customary practice, before we begin this morning, I would like to remind you that our call will include statements reflecting assumptions, expectations, projections, intentions or beliefs about future events with respect to our 2010 financial estimates and views of long-term market dynamics.

These and other statements not relating strictly to historical or current facts are intended as forward-looking statements. Actual results though may vary materially from those expressed or implied in any forward-looking statement. For a description of the factors that may cause such a variance, I would direct you to the forward-looking statements legend contained in today's news release and in our SEC filings, which are available free of charge through our website at dynegy.com.

With that, I will now turn it over to our Chairman, President and CEO, Bruce Williamson.

Bruce Williamson

Thanks, Norelle. Good morning and thank you for joining us. On the call with me this morning is Holli Nichols, our Chief Financial Officer, along with several other members of the management team. Let’s now turn to the agenda for the call which is highlighted on Slide 3 for those of you following along online via the webcast.

I’ll begin this morning with some of our recent highlights. Holli will then provide second quarter financial results and discuss regional performance drivers for the quarter, and she will discuss our 2010 guidance range, which we are narrowing today. I will then wrap up with remarks and then we will go on to Q&A.

Let's turn to Slide 4. Here, I will go over our recent highlights. As you can see from the graph on the right, our adjusted EBITDA was essentially flat period-over-period. This was primarily due to reduced revenues – reduced capacity revenues and energy contributions from the assets we sold in the fourth quarter of 2009, increased contributions from physical transactions that reflect stronger market pricing, reduced contributions from financial transactions, and we had more planned and unplanned outages in the second quarter.

Additionally, we experienced reduced G&A and O&M costs, which were a benefit to adjusted EBITDA. Another way of looking at our second quarter results is that after excluding the assets we sold in the fourth quarter, in effect comparing only those plants we still own, our adjusted EBITDA increased 16% year-over-year. We maintained our focus on operating and commercializing well, despite the impact of an extended outage at Baldwin that lowered our end-market availability to 85%.

During the quarter, we prepared for future power market improvements by adding a $150 million contingent letter of credit facility that would support commercial activity around our combined-cycle fleet in 2012. This facility becomes available when spark spreads widen and provides us with an additional tool for capturing incremental market opportunities. And more recently, we secured and priced substantially all of our Midwest coal supply requirements through 2012 and approximately 60% contracted through 2015 on favorable terms that support our commitment to being a lower-cost generator.

We continue to drive cost out of our business through our successful and ongoing cost saving initiatives, which is on track to achieve savings of $400 million to $450 million over the next four years. And we made significant progress towards completion of our Midwest environmental project, with second quarter work focused on the remaining scrubber and baghouse projects at the Baldwin facility.

During the second quarter, the Unit 3 scrubber and baghouse at Baldwin were installed and are now being tested. Unit 1 work is about one-third complete and Unit 2 is also well underway.

Now, I would like to turn it over to Holli who will cover our first quarter [ph] results, regional performance drivers, and 2010 guidance estimates in more detail.

Holli Nichols

Thanks, Bruce. Before starting, I would like to point out that these materials do contain non-GAAP measures that are reconciled in the appendix of this presentation for your reference.

Now, let's turn to Slide 6 for a look at our second quarter highlights. As Bruce stated earlier, adjusted EBITDA was essentially flat period-over-period at $125 million in the second quarter of '09 and $124 million in the second quarter of '10. On a GAAP basis, we reported a net loss of $191 million for the second quarter of 2010, which includes after-tax mark-to-market losses of $162 million. This compares to a net loss of $345 million for the second quarter of 2009, which includes after-tax impairment charges of $249 million and after-tax net mark-to-market losses of $62 million.

Read the rest of this transcript for free on seekingalpha.com