Dynegy Inc. (DYN)

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Dynegy (DYN)

Q4 2012 Earnings Call

March 14, 2013 9:00 am ET

Executives

Laura Hrehor

Robert C. Flexon - Chief Executive Officer, President and Director

Clint Freeland - Chief Financial Officer and Executive Vice President

Carolyn J. Burke - Former Principal Accounting Officer, Vice President and Controller

Catherine B. Callaway - Chief Compliance Officer, Executive Vice President and General Counsel

Brian Despard

Lynn A. Lednicky - Executive Vice President of Operations

Daniel Thompson

Analysts

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Jonathan Cohen - ISI Group Inc., Research Division

Brian Chin - Citigroup Inc, Research Division

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Stephen Byrd - Morgan Stanley, Research Division

Terran Miller

Lance Ettus

Jason Mandel

Amer Tiwana - CRT Capital Group LLC

Presentation

Operator

Hello, and welcome to the Dynegy Inc. 2012 Financial Results Teleconference. At the request of Dynegy, the conference is being recorded for instant replay purposes. [Operator Instructions] I'd now like to turn the conference over to Ms. Laura Hrehor, Managing Director, Investor Relations. Ma'am, you may begin.

Laura Hrehor

Good morning, everyone, and welcome to Dynegy's investor conference call and webcast covering the company's annual and fourth quarter 2012 results, and Dynegy's proposed transaction with Ameren Corp.

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 and views of 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 statements. 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 President and CEO, Bob Flexon.

Robert C. Flexon

Good morning, and thank you for joining us this morning. Here with me this morning are several members of Dynegy's management team, including Clint Freeland, our Chief Financial Officer; Catherine Callaway, our General Counsel; and Carolyn Burke, our Chief Administrative Officer. As we announced in January, Kevin Howell, our Chief Operating Officer, stepped down from the COO role, but continues to support us in advisory capacity. He will also aid in the transition of his commercial responsibilities over to Hank Jones, who will be coming on board as Chief Commercial Officer at the end of this month.

Our agenda for today's call is located on Slide 3. We'll follow our traditional agenda with a somewhat scaled back discussion of our 2012 annual and fourth quarter highlights in order to spend time reviewing the Ameren transaction. I'll cover 2012 operational and commercial results, including recent events affecting our California assets. Clint will review the fourth quarter and full year financial performance, as well as provide an update on our PRIDE results for the year. Our final and main topic this morning is our proposed acquisition of Ameren Corp.'s merchant generation and retail businesses, Ameren Energy Resources or AER. This transaction builds upon our investment thesis of creating significant upside opportunities for our shareholders while carefully managing downside risk. Due to the amount of material to be covered this morning, we will extend this call by an extra half-hour, if necessary, to allow ample time for the Q&A discussion.

Highlighted on Slide 4 are several of the significant accomplishments during 2012 that will benefit the company for years to come. Dan Thompson, our Vice President of CoalCo Operations, and his team successfully completed the 7-year $1 billion Consent Decree program that positions our coal fleet to be in full compliance with all current environmental standards and requirements. Our commercial team successfully executed the new long-term rail contract during the third quarter at rates significantly below what had been forecasted. By repaying $325 million of GasCo's and CoalCo's term loan debt, we reduced the annual cash interest cost by $30 million and expect to generate further savings through a full refinancing of our term loans during 2013. Across the company, we continued our emphasis on improving the company through our PRIDE initiative, with the priority on improving fixed cash costs and gross margin and implementing balance sheet efficiencies.

Finally, on October 1, 2012, Dynegy successfully completed its restructuring effort, reducing our net debt by approximately $4 billion and providing a strong foundation to meet today's challenges associated with the current low power and capacity price environment.

It has been a significant and busy year for the company. Each of these accomplishments by our team along with many others has strengthened the company and set the stage for Dynegy's next chapter.

Slide 5 highlights our operational and financial performance. 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. Volumes for the coal fleet declined 10% primarily due to lower off peak pricing in the region and an increase in planned outages period-over-period. Despite these changes in production levels, both the coal and gas fleet maintained the reliable track record, achieving in-market availability of over 90%.

Our fourth quarter and full year 2012 financial performance is in line with our Analyst Day guidance provided in January. Clint will provide additional detail, but the variance to the prior year's principally driven by lower realized power prices for the Coal segment. The annual results were also impacted by lower financial settlements due to the legacy gas put option liabilities.

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