Dynegy : Announces Full Year 2014 Results, Updates 2015 Guidance

Dynegy Inc. (NYSE: DYN) reported 2014 consolidated Adjusted EBITDA of $347 million, compared to $227 million for 2013. The $120 million increase in Adjusted EBITDA was primarily due to the December 2, 2013 addition of Illinois Power Holdings (IPH), improved realized power prices in the Coal segment and improved spark spreads and generation volumes in the Gas segment. These gains were partially offset by lower revenues from the Moss Landing toll and the Independence capacity contract expiration in the Gas segment and higher delivered fuel costs for the Coal segment. The operating loss for the full year 2014 was $19 million compared to an operating loss of $318 million for the full year 2013. The net loss attributable to Dynegy Inc. for the full year 2014 was $273 million, compared to a net loss of $356 million for the full year 2013.

Dynegy reported fourth quarter 2014 consolidated Adjusted EBITDA of $67 million, compared to $63 million for the fourth quarter 2013. The $4 million increase in Adjusted EBITDA was primarily due to the addition of IPH and was partially offset by lower revenues associated with the Moss Landing toll and expiration of the Independence capacity contract. Operating income was $12 million for the fourth quarter 2014 compared to an operating loss of $107 million for the same period in 2013. The net loss attributable to Dynegy Inc. for the fourth quarter 2014 was $104 million, compared to a net loss of $91 million for the fourth quarter 2013.

“We achieved our 2014 Adjusted EBITDA guidance and exceeded the top end of our Free Cash Flow guidance range which had been increased this past August. Higher realized power prices and spark spreads during the year more than offset contract expirations at our Moss Landing and Independence plants,” said Dynegy President and Chief Executive Officer, Robert C. Flexon. “We are progressing through the regulatory review process of our pending acquisitions and will move quickly to close the Duke Midwest, EquiPower, and Brayton Point transactions following FERC approval. Post-closing, the Company will have a diverse footprint in what we believe are the best power markets in the US. With meaningful asset retirements on the horizon, capacity and energy prices are set to increase over the next few years and will drive significant free cash flow for the benefit of the Company and our stockholders.”

Full Year Comparative Results

Fourth Quarter Comparative Results

Segment Review of Results Year-over-Year

Coal - The full year 2014 operating income was $52 million, compared to an operating loss of $207 million for the full year 2013. Adjusted EBITDA totaled $62 million during 2014 compared to a loss of $4 million in 2013. The $66 million year-over-year increase in Adjusted EBITDA is primarily due to higher realized energy prices and lower operating and maintenance expense that more than offset lower generation volumes and higher delivered fuel costs due to a contracted price increase.

IPH - The full year 2014 operating loss was $2 million, compared to an operating loss of $17 million for the one month of ownership in 2013. Adjusted EBITDA totaled $83 million during 2014 compared to $12 million in 2013. The year-over-year increase in Adjusted EBITDA is primarily due to a full year of ownership in 2014, compared to one month in 2013.

Gas - The full year 2014 operating income was $79 million, compared to $7 million for the full year 2013. Adjusted EBITDA totaled $311 million during 2014 compared to $302 million in 2013. The $9 million year-over-year increase in Adjusted EBITDA is primarily due to improved spark spreads and generation volumes at Independence and Ontelaunee. That and higher capacity revenue at Kendall were partially offset by a decrease in revenues associated with the Moss Landing tolling agreement and the Independence capacity contract expirations.

Segment Review of Results Quarter-over-Quarter

Coal - The fourth quarter 2014 operating income was $50 million, compared to an operating loss of $44 million for the same period in 2013. Adjusted EBITDA for the segment was relatively steady, totaling $11 million during the fourth quarter 2014 compared to $10 million during the same period in 2013, due to higher realized prices being largely offset by a decline in generation volumes primarily due to a planned outage at Baldwin.

IPH - The fourth quarter 2014 operating income was $12 million, compared to an operating loss of $17 million for the one month of ownership in 2013. Adjusted EBITDA totaled $38 million during the fourth quarter 2014 compared to $12 million during the same period in 2013. The quarter-over-quarter increase in Adjusted EBITDA reflects full ownership during the quarter in 2014 versus one month ownership in 2013.

Gas - The fourth quarter 2014 operating income was $7 million, compared to an operating loss of $23 million for the same period in 2013. Adjusted EBITDA totaled $51 million during the fourth quarter 2014 compared to $67 million during the same period in 2013. The quarter-over-quarter decrease in Adjusted EBITDA is primarily due to a decrease in revenues associated with the Moss Landing toll agreement and Independence capacity contract expirations.

Liquidity

As of December 31, 2014, Dynegy’s total available liquidity was $2.2 billion as reflected in the table below.

Consolidated Cash Flow

Cash provided by operations for the full year of 2014 was $163 million. During the full year 2014, our power generation business provided cash of $451 million. Corporate and other activities used cash of $230 million primarily due to interest payments related to our debt and payments for acquisition-related costs. In addition, changes in working capital and other, including general and administrative expenses, used cash of approximately $58 million.

Cash used in investing activities totaled $5.3 billion for the full year of 2014, which consisted primarily of a $5.1 billion cash outflow related to restricted cash balances due to escrow requirements associated with the senior notes private placement in October 2014 for the transactions financing. During the full year of 2014, capital expenditures totaled $132 million, including $90 million in maintenance capital expenditures, $33 million in environmental capital expenditures and $9 million in capitalized interest.

Cash provided by financing activities during the quarter was $6.1 billion primarily due to $6.2 billion in proceeds from transactions financing in October 2014.

PRIDE Reloaded

The Company launched the PRIDE (Producing Results through Innovation by Dynegy Employees) Reloaded program a year ago with a three-year target of $135 million in operating improvements and $165 million in balance sheet efficiencies. In 2014, the Company exceeded its $60 million EBITDA improvement target and its $65 million balance sheet efficiency target and due to the Company’s performance to date, is set to accelerate its pace to achieve its three-year targets by the end of 2015—a full year ahead of schedule. After the transactions close, the newly acquired EquiPower and Duke Midwest assets will be added to the PRIDE Reloaded program and consolidated targets for 2016 will be set. The overall goal of the PRIDE Reloaded program continues to be improving operating performance, cost structure and balance sheet efficiency to drive incremental cash flow benefits.

2015 Guidance

Dynegy has updated its 2015 guidance target using February 10 price curves. Given the later than expected acquisition closing dates, Dynegy has revised its 2015 guidance targets to a range of $825 million to $1,025 million in consolidated full year Adjusted EBITDA and $100 million to $300 million in Free Cash Flow, prior to acquisition-related costs and discretionary capital expenditures. Whereas prior guidance estimates assumed a January 1 close, new guidance estimates assume an April 1 close for the pending Duke Midwest, EquiPower and Brayton Point transactions.

Other Recent Developments

Capacity Contract Sales - Total capacity sales through bilateral wholesale and retail channels are nearly 7,500 MW through planning year 2019/2020 at a weighted average price of over $3.00/kW-month. This represents sales of over 20% of the available capacity. The Company sold 1,400 MW of bilateral capacity in MISO during 2014.

New England Capacity Auction - The 2018/2019 New England (ISO-NE) capacity auction cleared at $9.55 per kW-month for most resources, a $2.52 per kW-month increase from the prior year’s capacity auction clearing price – a $70 million increase in gross margin for the consolidated company post acquisition closing. The New England capacity price for 2018/2019 is significantly higher than the estimated capacity price used in our acquisition analysis.

Baldwin Transmission Projects - In Q4 of 2014 we signed a construction agreement with Ameren Transmission to implement several transmission projects designed to alleviate network congestion around our Baldwin facility. The first project will be completed in June 2015 with the upgrade of the Baldwin facility’s transformer. Additional transmission line work will be performed through 2017.

California Strategic Review - The sales process for the California portfolio has been terminated as the bids received were below our view of the portfolio’s value.

Newton Scrubber Project - Dynegy has converted the engineering, procurement, and construction contract for the Newtown Scrubber Project from a target price agreement to a fixed-price contract. As a result, the forecasted cost to complete has been lowered by $30 million to $224 million. The majority of the capital outlay will occur in 2018-2019.

Investor Conference Call/Webcast

Dynegy’s earnings presentation and management comments on the earnings presentation will be available on the “Investor Relations” section of www.dynegy.com later today. Dynegy will answer questions about its fourth quarter and full year 2014 financial results during an investor conference call and webcast tomorrow, February 25, 2015 at 9 a.m. ET/8 a.m. CT. Participants may access the webcast from the Company’s website.

About Dynegy

We are committed to leadership in the electricity sector. With approximately 13,000 megawatts of power generation capacity and two retail electricity companies, we serve our customers and markets by providing safe, reliable and economic energy. Homefield Energy and Dynegy Energy Services are retail electricity providers serving businesses and residents in Illinois.

^{Forward-Looking Statement}

^{This press release contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements,” particularly those statements concerning timing of FERC approval and closing of the Duke Midwest, EquiPower and Brayton Point transactions; Dynegy’s post-closing position in the U.S. power markets; expectations regarding future capacity and energy prices and subsequent benefits to Dynegy and its stockholders; execution of its PRIDE reloaded target in balance sheet and operating improvements by year-end 2015, including improving operating performance, cost structure and the balance sheet efficiency to drive cash flow benefits; anticipated earnings and cash flows and Dynegy’s 2015 Adjusted EBITDA and Free Cash Flow guidance. Historically, Dynegy’s performance has deviated, in some cases materially, from its cash flow and earnings guidance. Discussion of risks and uncertainties that could cause actual results to differ materially from current projections, forecasts, estimates and expectations of Dynegy is contained in Dynegy’s filings with the Securities and Exchange Commission (the “SEC”). Specifically, Dynegy makes reference to, and incorporates herein by reference, the section entitled “Risk Factors” in its 2014 Form 10-K (when filed). In addition to the risks and uncertainties set forth in Dynegy’s SEC filings, the forward-looking statements described in this press release could be affected by, among other things, (i) beliefs and assumptions about weather and general economic conditions;(ii) beliefs, assumptions and projections regarding the demand for power, generation volumes and commodity pricing, including natural gas prices and the timing of a recovery in natural gas prices, if any; (iii) beliefs and assumptions about market competition, generation capacity and regional supply and demand characteristics of the wholesale and retail market, including the anticipation of plant retirements and higher market pricing over the longer term; (iv) sufficiency of, access to and costs associated with coal, fuel oil and natural gas inventories and transportation thereof; (v) the effects of, or changes to, MISO, PJM, CAISO, NYISO or ISO-NE power and capacity procurement processes; (vi) expectations regarding environmental matters, including costs of compliance, availability and adequacy of emission credits and the impact of ongoing proceedings and potential regulations or changes to current regulations, including those relating to climate change, air emissions, cooling water intake structures, coal combustion byproducts and other laws and regulations to which we are, or could become, subject; (vii) beliefs about the outcome of legal, administrative, legislative and regulatory matters; (viii) projected operating or financial results, including anticipated cash flows from operations, revenues and profitability; (ix) our focus on safety and our ability to efficiently operate our assets so as to capture revenue generating opportunities and operating margins; (x) our ability to mitigate forced outage risk as it pertains to new rules and regulations on capacity related to capacity performance in PJM and performance incentives in ISO-NE; (xi) our ability to optimize our assets through targeted investment in cost effective technology enhancements; (xii) the effectiveness of our strategies to capture opportunities presented by changes in commodity prices and to manage our exposure to energy price volatility; (xiii) efforts to secure retail sales and the ability to grow the retail business; (xiv) efforts to identify opportunities to reduce congestion and improve busbar power prices; (xv) ability to mitigate impacts associated with expiring RMR and/or capacity contracts; (xvi) expectations regarding our compliance with the Credit Agreement, including collateral demands, interest expense, any applicable financial ratios and other payments; (xvii) expectations regarding performance standards and capital and maintenance expenditures; (xviii) the timing and anticipated benefits to be achieved through our company-wide improvement programs, including our PRIDE initiative; (xix) expectations regarding the synergies, financing, completion, timing, terms and anticipated benefits of the Duke Midwest, EquiPower and Brayton Point transactions; (xx) beliefs about the costs and scope of the ongoing demolition and site remediation efforts at the South Bay and Vermilion facilities; (xxi) the strategic evaluation of our California assets; and (xxii) beliefs regarding redevelopment efforts for the Morro Bay facility.}