Dynegy Inc. (DYN)

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Dynegy (DYN)

Q2 2013 Earnings Call

August 01, 2013 9:00 am ET


Laura Hrehor

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

Henry D. Jones - Chief Commercial Officer and Executive Vice President

Clint C. Freeland - Chief Financial Officer and Executive Vice President


Neil Mehta - Goldman Sachs Group Inc., Research Division

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

Jonathan Cohen - ISI Group Inc., Research Division

Amer Tiwana - CRT Capital Group LLC

Julien Dumoulin-Smith - UBS Investment Bank, Research Division



Hello, and welcome to the Dynegy Inc. Second Quarter 2013 Financial Results Teleconference. [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 second 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 today. With me this morning are several members of Dynegy's management team, including Clint Freeland, our Chief Financial Officer; Hank Jones, our Chief Commercial Officer; and Catherine Callaway, our General Counsel.

Our agenda for today's call is located on Slide 3. I'll provide an overview of the second quarter results, including changes to our 2013 guidance, our progress towards closing the Ameren Energy Resources acquisition and follow it with an update on operational results for the quarter. Hank will provide the update on our commercial activities, followed by a discussion on the state of the MISO market in light of the recent report from MISO's independent market monitor. Hank will conclude his remarks with a review of how changes in natural gas and heat rate sensitivities impact Dynegy's portfolio. Clint will review the second quarter financial performance and discuss the drivers behind the changes to our 2013 guidance. I will close the discussion, and with the remaining time, we will open the discussion for a Q&A session.

An overview of the second quarter results is shown on Slide 4. During the spring of significant planned outages, the safety-oriented efforts of our employees, supported by our safety programs and company-wide engagement, resulted in significantly improved year-to-date safety performance. For the first 6 months of the year, we had 6 recordable injuries, down from 11 recordable injuries versus the same period last year. The Gas segment incurred 1 employee recordable injury, while the Coal segment had 5 employee recordable injuries.

Generation from our gas fleet declined 28%, primarily due to outages and lower spark spreads. Coal-based generation was down slightly, primarily due to increased planned outages during the second quarter.

Adjusted EBITDA for the Coal segment was down $29 million compared to last year due to several factors, including the impact on realized pricing of widening basis between INDY Hub and local busbar prices, planned outages and higher coal transportation costs associated with the rail contract modification entered into during 2012. The basis or price correlation change with INDY Hub was driven by congestion due to transmission maintenance outages, certain planned outages near the Indiana border and the impact of generation from the Prairie State generation facility. Hank will review these items in further detail and the associated commercial issues and actions.

Offsetting the Coal segment decline was a $26 million period-over-period improvement at the Gas segment. This improvement was primarily due to improved hedge pricing and the absence of legacy option positions that negatively impacted 2012 results.

Finally, we are revising 2013 guidance for adjusted EBITDA downward and free cash flow upward. Adjusted EBITDA is being revised downward primarily as a result of revising the full year outlook for basis between INDY Hub and the locational marginal prices, or LMP, of our coal fleet. Our full year estimate for basis between INDY Hub and our LMPs is being revised from the original guidance estimate of $4.36 per megawatt hour to $7.11 per megawatt hour. This difference of $2.75 per megawatt hour applied to the 22 million megawatt hours of coal-based generation has an impact of approximately $60 million. As a result of this and other factors that Clint will cover, adjusted EBITDA guidance for the Coal segment is reduced by $70 million to a revised outlook of negative $10 million to a positive $15 million. Partially offsetting this is an increase in the Gas segment's adjusted EBITDA guidance due to the strong first quarter at Independence and summer resource adequacy sales for Morro Bay and Moss Landing. The net result of these changes for 2013 adjusted EBITDA guidance for the enterprise is $200 million to $225 million, down from $250 million to $275 million, as previously reported.

2013 free cash flow guidance is being revised upward to $190 million to $215 million, a $50 million improvement due to the financing activities completed during the second quarter at interest rates lower than projected and with more restricted cash release than previously forecasted.

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