Q1 2013 Earnings Call
May 02, 2013 9:00 am ET
Robert C. Flexon - Chief Executive Officer, President and Director
Henry D. Jones - Chief Commercial Officer and Executive Vice President
Clint Freeland - Chief Financial Officer and Executive Vice President
Catherine B. Callaway - Chief Compliance Officer, Executive Vice President and General Counsel
Jonathan Cohen - ISI Group Inc., Research Division
Julien Dumoulin-Smith - UBS Investment Bank, Research Division
Angie Storozynski - Macquarie Research
Andrew Bischof - Morningstar Inc., Research Division
Previous Statements by DYN
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Good morning, everyone, and welcome to Dynegy's investor conference call and webcast covering the company's first quarter 2013 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 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 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 President and CEO, Bob Flexon.
Robert C. Flexon
Good morning, and thank you for joining us this morning. Here with me are several members of Dynegy's management team, including Clint Freeland, our Chief Financial Officer; and Hank Jones, our Chief Commercial Officer.
Our agenda for today's call is located on Slide 3. I'll begin with a review of the first quarter highlights, including recent events and follow that with an update on operational results for the quarter and an early look at how the EPA's recent effluent guideline proposal may impact the Dynegy coal fleet. Hank Jones will provide the commercial update, including MISO's recent resource adequacy projections. Clint will review the first quarter financial performance and provide an update on our refinancing activities.
I will close the discussion with our priorities for the balance of 2013 and reemphasize our investment thesis around limiting downside risks as well as positioning the company for market recovery and capital allocation opportunities. With the remaining time, we will open the discussion for Q&A with the Dynegy management team.
The first quarter highlights are shown on Slide 4. First quarter 2013 adjusted EBITDA was $43 million, a $5 million improvement period-over-period despite an 18% reduction in generation. Adjusted EBITDA for the Coal segment was down $18 million compared to last year due to several items including planned outages, economic fee rates, higher coal transportation costs associated with the rail contract modification that occurred in 2012 and basis. When we refer to basis for the Coal segment, we typically are referring to the discount between INDY Hub, the liquid pricing reference point, and the local plant busbar price.
Offsetting the Coal segment decline was a $21 million period-over-period improvement at the Gas segment. This improvement was led by independent stations benefiting from strong spark spreads as a result of cold winter weather and a better sourcing of natural gas. In addition, the Gas segment is no longer impacted by legacy option positions which negatively impacted 2012 results.
Liquidity has improved to $715 million, an increase of approximately $120 million since our year-end call, and as Clint will explain, will further increase once the finance activities are completed. The successful refinancing of GasCo and CoalCo term loans released previously restricted cash and upsized our revolver to $475 million. The refinancing also significantly lowered the interest rate on outstanding debt balances, the combination of debt paid down during the past 6 months and the lower interest rates reduces our annual cash interest costs by approximately $100 million annually.
Our integration of Ameren Energy Resources is underway. We recently submitted the required filing with FERC and later today, we plan to make the required filing with the Illinois Pollution Control Board. We remain on track for a fourth quarter closing and continue to target annual synergies of at least $60 million. And finally, we are reaffirming our adjusted EBITDA and free cash flow ranges for 2013. Clint will provide additional insight into the quarter's financial results and our full year outlook.
Slide 6 highlights our operational performance for the first quarter. Safety, first, we had 2 recordable employee incidents during the period. We focus every day on our safety behaviors, practices and procedures, striving to achieve our target of 0 injuries each and every day.
Production volumes for the quarter declined 18%. The Coal segment declined 10% with approximately 80% of that decline due to planned outages and derates, with the balance of the decline attributable to market-related factors. Gas segment volumes are 25% lower as a result of an extended planned outage at Kendall unit 2 and the planned Ontelaunee outage, which also adversely impacted the Gas segment equivalent availability factor, or EAF. Casco Bay volumes contributed to the lower first quarter volumes due to gas supply issues.
Independents experienced increased generation during the quarter as spark spreads increased over the first quarter 2012 as a result of colder winter weather coupled with improved sourcing of Marcellus gas supply to the plant. EAF at the Coal segment declined as a result of planned outages at Baldwin unit 3 and Hennepin unit 1.